<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NET2000 COMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
2180 FOX MILL ROAD
HERNDON, VIRGINIA 20171
(703) 654-2000
(Address of Principal Executive Offices)
<TABLE>
<S> <C> <C>
DELAWARE 4813 51-0384995
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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CLAYTON A. THOMAS, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NET2000 COMMUNICATIONS, INC.
2180 FOX MILL ROAD
HERNDON, VIRGINIA 20171
(703) 654-2000
(Name, address, including zip code and telephone number,
including area code of agent for service)
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Copies to:
<TABLE>
<S> <C>
NANCY A. SPANGLER, ESQUIRE
PIPER MARBURY RUDNICK & WOLFE LLP KIRK A. DAVENPORT, ESQUIRE
1850 CENTENNIAL PARK DRIVE, SUITE 610 LATHAM & WATKINS
COMMERCE EXECUTIVE PARK III 885 THIRD AVENUE, SUITE 1000
RESTON, VIRGINIA 20191 NEW YORK, NEW YORK 10022
(703) 390-5240 (212) 906-1284
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Shares of Common Stock, par value $.01 $172,500,000 $47,955.................
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THE PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHEN THE
OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated December 2, 1999.
[LOGO]
Shares
NET2000 COMMUNICATIONS, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of Net2000
Communications, Inc. All of the shares of common stock are being sold by
Net2000.
Prior to this offering, there has been no public market for the common
stock. Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "NTKK".
See "Risk Factors" on page 6 to read about certain factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Net2000....................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Net2000 at the initial public offering price less the underwriting
discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
J.P. MORGAN & CO.
LEGG MASON WOOD WALKER
INCORPORATED
----------------------
Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and our common stock being sold in this offering and
our financial statements and the notes to those statements appearing elsewhere
in this prospectus.
Net2000 Communications is a rapidly-growing, innovative provider of
state-of-the-art broadband telecommunications services. Our strategy is to focus
on high-end customers, primarily large- and medium-sized businesses, having a
minimum of 50 business access lines and spending over $50,000 annually for
Internet, data and voice telecommunications services. As a competitive local
exchange carrier, or CLEC, we offer businesses located throughout the mid-
Atlantic and northeastern regions of the United States cutting-edge, responsive
solutions as an alternative to traditional telephone companies known as
incumbent local exchange carriers, or ILECs. Today, we offer an integrated
package of high-speed data services, Internet services, local services and long
distance services, primarily delivered from our own network over a single, high
capacity "broadband" connection and conveniently billed on a single invoice.
Since the introduction of our Net2000-branded services in July 1998, we have
successfully acquired over 1,000 new business customers, representing
approximately 70,000 access lines. As of November 30, 1999, our rapidly growing
sales force consisted of 104 people.
We intend to offer services in major markets throughout the United States
in three phases over the next 24 months. Our Phase I deployment, consisting of
10 markets and 13 data switches and five voice switches in the
telecommunications-rich Boston to Washington, D.C. corridor, is substantially
complete. Our Phase II deployment will establish our national presence with ten
additional data switches and two additional voice switches in 10 markets and is
scheduled to be completed in December 2000. Our Phase III deployment entails
adding four additional markets, upgrading all of our existing switches to
Internet protocol-based (IP) multi-service communications centers and is
scheduled to be completed by late 2002.
After five years of successfully identifying and acquiring business
customers by selling advanced data and voice services as a Bell Atlantic sales
agent, we transitioned out of the agency program and launched our
Net2000-branded services in July 1998. During our tenure as a Bell Atlantic
sales agent, we ranked as its number one sales agent each year based on annual
sales revenue. We believe our early success in selling Net2000-branded services
to our 1,000 current customers is largely attributable to this five-year track
record. In addition, as a sales agent, we established close relationships with
more than 2,200 business customers representing over 150,000 access lines that
we sold, managed the installation of, and administered on a daily basis. We
believe these businesses spend more than $200 million annually for
telecommunications services. We believe our close relationships with these
businesses present us with a strategic base of customers to target for
Net2000-branded services.
Our objective is to become the provider of choice for integrated business
telecommunications services in our target markets. We believe we are
well-positioned to compete effectively against other ILECs, CLECs and
telecommunications services providers. The key differentiators of our business
are:
- proven sales and marketing track record;
- strong relationships with over 3,000 businesses;
- e.mpower, our next generation, web-enabled proprietary customer self-care
system;
- state-of-the-art, scalable customer care and back office systems;
- data-centric, innovative smart-build network;
- experienced and proven management team; and
- strategic business partnership with Nortel Networks Corporation.
We believe these key differentiators will enable us to capitalize on the
rapid growth of the Internet and e-commerce, and the resultant increased demand
for broadband data services.
1
<PAGE> 4
BUSINESS STRATEGY
The key elements of our business strategy include the following:
ACQUIRE CUSTOMERS BY USING OUR PROVEN SALES AND MARKETING TECHNIQUES
- TARGET HIGH-END TELECOMMUNICATIONS USERS. Over the last six years, we
have sold local exchange data and voice services to high-end businesses.
Our average customer has over 68 access lines, having bandwidth
equivalent to three high capacity T-1 lines. More than 50% of our
customers purchase multiple services from us. Some of our customers
include American Diabetes Association, AskJeeves.com, Cable & Wireless
plc, Dunbar Armored, Duron Paint, Georgetown University Law Center,
Icelandair, Johns Hopkins University, Newsweek, Pepco Energy Services,
Rolls-Royce plc, soldout.com, Teleglobe, The Corcoran Group, The George
Washington University Health Plan and Vialog Communications.
- OFFER A BUNDLED SERVICE OFFERING ON A SINGLE INVOICE. We are one of the
first companies in the industry to offer a bundled package of high-speed
data services, Internet services, local services and long distance
services, through a single broadband connection that is conveniently
billed on a single invoice. We believe that our ability to offer this
enhanced package will continue to provide us with a strategic advantage
in the marketplace.
- UTILIZE OUR EXPERIENCED SALES STAFF TO EXPAND EXISTING CUSTOMER
RELATIONSHIPS AND ACQUIRE NEW CUSTOMERS. Since 1993, we have utilized a
highly-consultative sales approach whereby experienced sales executives
work with new and existing customers to analyze their needs. This
personalized approach enables us to optimally configure each customer's
services and deliver superior customer care. Using this approach, we have
established close relationships with over 3,000 businesses, of which over
1,000 are current customers of Net2000-branded services.
USE TECHNOLOGY, INCLUDING WEB-BASED SOLUTIONS, AND STATE-OF-THE-ART BACK
OFFICE SYSTEMS TO DELIVER SUPERIOR CUSTOMER CARE
- INCREASE CUSTOMER LOYALTY THROUGH OUR PROPRIETARY WEB-ENABLED SELF-CARE
SYSTEM. Our proprietary, web-based customer interface, e.mpower,
leverages the power of the Internet by providing our customers with an
e-commerce tool to manage and procure their telecommunications services.
We believe we are revolutionizing our customers' buying experiences by
providing them direct access to information regarding network
performance, ordering services, capacity use on the network, billing data
and management reports. Currently, e.mpower enables our customers to
order services, report troubles, initiate and view the status of trouble
tickets and analyze invoice data 24 hours per day, seven days per week.
The second phase of e.mpower, targeted for release in January 2000, will
include real-time capability to review network utilization statistics.
- UTILIZE STATE-OF-THE-ART, SCALABLE INFORMATION SYSTEMS. Our operational
support systems consist of software applications from ADC
Telecommunications, Inc. (formerly Saville Systems plc), Metasolv
Software, Inc., Siebel Systems, Inc., Wisor Telecom Corporation,
Linguateq Incorporated and DSET Corporation. These systems, which are
integrated and scalable, enable us to reduce costs and shorten the
interval between a customer's order and service installation by
eliminating repeated manual data entry.
- CONTINUE TO FOCUS ON EXCELLENCE IN CUSTOMER CARE TO MAINTAIN HIGH
RETENTION RATE. Our heritage and focus as a sales, marketing and customer
care company have generated customer loyalty and, we believe, one of the
lowest customer churn rates in our industry of approximately 3% annually.
2
<PAGE> 5
CONTINUE BUILD-OUT OF OUR DATA-CENTRIC NETWORK TO MAXIMIZE SPEED TO MARKET AND
MINIMIZE INVESTMENT RISK
- DEPLOY INNOVATIVE, SMART-BUILD NETWORK WITH LIMITED COLLOCATION. Our
approach is to deploy and own the key elements of our network necessary
to establish customer loyalty, including proprietary back office systems
and intelligent switches. We lease fiber transport facilities to
interconnect our switches. This strategy greatly mitigates capital risk
and allows us to take advantage of falling costs of network elements and
new technologies, including digital subscriber line, or DSL, technology.
Our smart-build strategy differs from other telecommunications services
providers in several ways because we:
- LEAD WITH DATA. We initiate service in new markets by first deploying
lower-cost data switches. This better positions us to address the
complex data needs of larger business customers and generates traffic on
our national network in targeted cities before investing significant
capital in multi-service communications centers capable of supporting
data, voice and multi-media services.
- BACK-FILL WITH VOICE. When data traffic and customer concentration reach
an optimal level, we install multi-service communications centers in an
incremental fashion to meet our customers' growing needs.
- ENHANCE MARGINS UTILIZING DSL TECHNOLOGY. We can leverage the industry's
rapid deployment of DSL technology and the effects of recent regulatory
rulings to reduce our cost of connecting customers to our network by up
to 50%.
- MINIMIZE COLLOCATION WITH ILECS. Unlike other smart-build CLECs, we do
not presently collocate our network equipment in the ILEC central
offices. This allows us to open new markets faster and have greater
control over service quality. In order to capitalize on a recent
regulatory ruling, we plan to establish one ILEC collocation in each
market to allow us to reduce the cost of our customer connections.
- INSTALL STATE-OF-THE-ART NETWORK. Our Nortel-based flexible network
design supports state-of-the-art, broadband data and voice
telecommunications services, and is designed to support evolving data
technologies with minimal additional capital expenditures.
- OPTIMIZE CUSTOMER CONNECTIONS TO INCREASE MARGINS. By utilizing newly
developed equipment, we can place more services on the same three T-1
lines at our average customer site, thereby allowing us to generate more
revenue without increasing our operating costs.
LEVERAGE EXPERIENCE OF PROVEN MANAGEMENT TEAM
Our proven senior management team has an average of 20 years of
telecommunications experience with industry leading corporations, including
AT&T, Bell Atlantic, MCIWorldcom, Nortel and Qwest. This experience has been a
major factor in our success to date and will continue to play a key role in the
execution of our strategy.
CAPITALIZE ON OUR STRATEGIC BUSINESS PARTNERSHIP WITH NORTEL NETWORKS
- MAINTAIN FULL-TIME ON-SITE TECHNICAL AND OPERATIONAL SUPPORT. As part of
our agreement, Nortel has provided us with 22 dedicated full-time
employees to support our network build-out.
- MITIGATE TECHNOLOGICAL OBSOLESCENCE. The Nortel equipment in our network
can be upgraded from circuit to packet switching at modest cost.
- TAKE ADVANTAGE OF NORTEL'S EQUITY POSITION. Nortel has provided us with a
$30 million equity investment and a $150 million debt and equipment
financing for the build-out of our network. This investment more closely
aligns our mutual business and technical interests.
3
<PAGE> 6
THE OFFERING
Shares of common stock offered....... shares
Shares of common stock outstanding
after this offering................ shares
Proposed Nasdaq National Market
symbol............................. NTKK
Use of proceeds...................... To expand our sales force and sales
office locations, fund the expansion and
development of our network and
information technology systems, repay
debt and provide for working capital and
other general corporate purposes,
including funding operating losses.
The calculation of the number of shares outstanding after this offering is
based on the number of shares outstanding on November 30, 1999, does not reflect
shares that may be issued upon the exercise of options and warrants and assumes
the underwriters do not exercise the option granted by Net2000 to purchase
additional shares in the offering. See "Underwriting."
------------------------
PRINCIPAL OFFICES
Our principal executive offices are located at 2180 Fox Mill Road, Herndon,
VA 20171 and our telephone number is (703) 654-2000. Our website address is
www.net2000.com.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents our summary consolidated financial and other
data which should be read together with our consolidated financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" presented elsewhere in this prospectus.
EBITDA consists of net income (loss) before interest, income taxes,
depreciation and amortization. We believe that EBITDA is a useful financial
performance measure for comparing companies in the telecommunications industry
in terms of operating performance, leverage and ability to incur and service
debt. EBITDA provides an alternative measure of cash flow from operations.
EBITDA should not be considered in isolation from, or as a substitute for, net
income (loss), net cash provided by (used for) operating activities or other
consolidated income or cash flow statement data presented in accordance with
generally accepted accounting principals, or GAAP, or as a measure of
profitability or liquidity.
The pro forma net income (loss) per share data summarized below gives
effect to the automatic conversion of all of our preferred stock into common
shares as if the conversion occurred at the beginning of the respective period.
The pro forma balance sheet data gives effect to the automatic conversion of the
preferred stock as of September 30, 1999. The pro forma as adjusted balance
sheet data gives effect to the issuance and sale of shares of common
stock in this offering, as if these transactions occurred on September 30, 1999.
See "Use of Proceeds."
4
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<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
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STATEMENTS OF OPERATIONS
DATA:
Operating revenue............ $ 803 $ 1,238 $ 1,939 $ 3,544 $ 9,419 $ 5,918 $ 18,670
Operating income (loss)...... 415 334 85 (1,318) (14,294) (8,306) (25,472)
Other income (expenses)...... (4) (15) (17) 817 527 244 3,439
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ 411 $ 319 $ 68 $ (501) $(13,767) $ (8,062) $(22,033)
Net income (loss) applicable
to common stockholders..... 411 319 68 (501) (22,670) (13,632) (37,811)
Net income (loss) per share
applicable to common
stockholders -- basic and
diluted.................... 0.05 0.04 0.01 (0.06) (2.81) (1.69) (4.67)
Pro forma net income (loss)
per share applicable to
common stockholders --
basic and diluted.......... -- -- -- (0.06) (0.87) (0.54) (1.11)
OTHER FINANCIAL DATA:
Capital expenditures......... (3) (27) (34) (88) (2,031) (561) (26,111)
Cash flows provided by
operating activities....... 308 220 1 (476) (11,717) (6,703) (15,451)
EBITDA....................... 417 329 106 (313) (13,604) (7,969) (19,770)
OPERATING DATA:
Total access line equivalents
billed(1).................. -- -- -- -- 10,554 2,399 41,678
Total customers billed....... 1 1 21 87 567 268 694
Total employees.............. 6 12 18 58 164 149 348
Switches in service:......... -- -- -- -- -- -- 6
Voice...................... -- -- -- -- -- -- 2
Data....................... -- -- -- -- -- -- 4
</TABLE>
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(1) Line equivalents calculated on the basis of 64 kilobits per second per line.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 13,320 $13,320 $
Property and equipment, net................................. 49,623 49,623 49,623
Working capital............................................. 3,755 3,755
Total assets................................................ 74,102 74,102
Long-term debt.............................................. 18,286 18,286 18,286
Redeemable preferred stock.................................. 75,181 --
Common stock................................................ 81 198
Total stockholders' (deficit) equity........................ (53,296) 21,885
</TABLE>
Net2000, Net2000 Group and the Net2000 logo as displayed on the cover of
this prospectus are our registered service marks. Service mark registration
applications are pending for e.mpower and the phrase "Leading the
Telecommunications Revolution." All other trade names, trademarks and service
marks used in this prospectus are the property of their respective owners.
Unless otherwise specifically stated, information in this prospectus
assumes:
- the underwriters do not exercise their over-allotment option; and
- conversion of all outstanding shares of our preferred stock into
11,738,437 shares upon the closing of this offering.
5
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or results of operations could be materially and
adversely affected. In such case, the trading price of our common stock could
decline and you may lose all or part of your investment.
OUR LIMITED OPERATING HISTORY PROVIDING TELECOMMUNICATIONS SERVICES MAKES
EVALUATING OUR PERFORMANCE DIFFICULT.
We began operating as a telecommunications services provider in July 1998
and, prior to that, we were a sales agent for Bell Atlantic, a business out of
which we transitioned in June 1998. As a result of our limited operating history
as a competitive telecommunications services provider, you have limited
operating and financial data with which to evaluate our past performance and
determine how we will perform in the future. We cannot assure you that we will
be able to successfully operate our new business.
WE HAVE A HISTORY OF OPERATING LOSSES, AND WE MAY NOT BE PROFITABLE IN THE
FUTURE.
We have incurred significant losses since we began operations as a CLEC and
expect to continue to incur losses in the future as we build our network. As of
September 30, 1999, we had an accumulated deficit of $61.6 million. We expect to
experience losses during our network and service deployment which will continue
for the foreseeable future. Prolonged effects of generating losses without
additional funding may restrict our ability to pursue our business strategy.
Unless our business plan is successful, your investment in our common stock may
result in a complete loss of your invested capital.
If we cannot achieve profitability from operating activities, we may not be
able to meet:
- our capital expenditure requirements;
- our debt service obligations; or
- our working capital needs.
A SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A CONCENTRATED GROUP OF
CUSTOMERS AND ANY DECREASE IN REVENUE FROM THESE CUSTOMERS COULD HAVE AN ADVERSE
AFFECT ON US.
A significant portion of our revenue as a broadband telecommunications
services provider has been generated from a limited number of customers. In the
nine months ended September 30, 1999, our top 50 customers accounted for over
40% of our revenue, and we expect that these customers will continue to account
for a significant portion of our revenue in the future. The loss of a number of
these key customers could significantly decrease our revenue, which would
seriously harm our operating results.
OUR BUSINESS COULD BE IMPAIRED IF WE ARE UNABLE TO LEASE FIBER OPTIC CONNECTIONS
FROM OTHERS, WHICH MAY NOT BE AVAILABLE ON ATTRACTIVE TERMS OR AT ALL.
We initially seek to lease fiber optic connections from other
telecommunications services providers to interconnect our switches and have
access to our customers and the networks of other providers. We cannot assure
you that these service providers will continue to lease transport capacity to us
on economically attractive terms and on a timely basis. If we fail to obtain
needed leased fiber optic connections on satisfactory terms, our ability to
reach certain market areas could be delayed or we may need to make additional
unexpected up-front capital expenditures to install our own transmission
facilities. In addition, any extended interruption in a telecommunications
services provider's network from which we lease connections could disrupt our
operations and have a material adverse effect on us.
6
<PAGE> 9
OUR FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT THE CONTINUED
IMPLEMENTATION AND EXPANSION OF OUR SERVICE OFFERINGS.
If we successfully implement our business plan, we will rapidly expand our
operations. We cannot assure you that we will successfully implement the
necessary operational and financial systems or that we will successfully
maintain the systems necessary to manage a competitive business in an evolving
industry. Any failure to implement and improve these systems at a pace
consistent with the growth of our business and industry changes could cause
customers to switch service providers which would have a material adverse effect
on us.
We expect to expand our business plan to include additional switches,
markets and telecommunications services. We cannot assure you that we can:
- implement these additional switches or that such implementation will be
technically or economically feasible;
- successfully develop or market additional products and services; or
- operate and maintain our new networks and telecommunications services
profitably.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY MANAGEMENT AND PERSONNEL, OUR
BUSINESS MAY SUFFER.
We believe that our future success will be due, in part, to our experienced
management team, including Messrs. Thomas, Heintzelman, Mendes and Clarke.
Losing the services of one or more members of our management team could
adversely affect our business and our expansion efforts and possibly prevent us
from:
- further deploying and improving our operational, financial and
information systems and controls;
- hiring and retaining qualified sales, marketing, administrative,
operating and technical personnel; and
- training and managing new personnel.
In addition, competition for qualified employees has intensified in recent
years, especially in the Northern Virginia region where we are headquartered,
and may become even more intense in the future. Our ability to implement our
business plan is dependent on our ability to hire and retain a large number of
new employees each year. If we are unable to hire sufficient qualified
personnel, our ability to increase revenue could be impaired, and customers
could experience delays in installation of service or experience lower levels of
customer care.
WE MAY NEED SIGNIFICANT ADDITIONAL FUNDS, WHICH WE MAY NOT BE ABLE TO OBTAIN.
We need additional financing for future capital expenditures and other
purposes, including:
- construction of our network and our automated back office systems;
- offering new broadband telecommunications services;
- acquisitions;
- paying scheduled principal and interest payments on our bank and Nortel
debt; and
- financing operating losses.
There can be no assurance that any additional financing we may need will be
available to us on favorable terms or at all.
7
<PAGE> 10
RESISTANCE BY CUSTOMERS TO ENTER INTO NEW SERVICE ARRANGEMENTS WITH US MAY
NEGATIVELY AFFECT OUR BUSINESS.
The success of our service offerings will be dependent upon, among other
things, the willingness of additional customers to accept us as a new provider
of broadband telecommunications services. We cannot assure you that we will be
successful in overcoming the resistance of potential customers to change their
service provider, particularly those that purchase services from the ILECs, or
that customers will buy our services. The lack of customer acceptance would have
a material adverse effect on us.
THE TELECOMMUNICATIONS MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OTHER COMPETITORS THAT HAVE
SIGNIFICANTLY GREATER RESOURCES THAN WE DO.
The telecommunications industry is highly competitive and is affected by
the introduction of new services by, and the market activities of, major
industry participants. Several of our competitors are substantially larger and
have greater financial, technical and marketing resources than we do. We have
not achieved, and do not expect to achieve, a significant market share for any
of the broadband telecommunications services we offer in our target markets. In
particular, larger competitors have certain advantages over us, including:
- long-standing relationships and brand recognition with customers;
- financial, technical, marketing, personnel and other resources
substantially greater than ours;
- more funds to deploy telecommunications services;
- potential to lower prices of competitive telecommunications services; and
- fully-deployed networks.
We face competition from other current and potential market entrants,
including:
- domestic and international long distance providers seeking to enter,
re-enter or expand entry into the local telecommunications marketplace;
and
- other domestic and international broadband telecommunications services
providers, resellers, cable television companies and electric utilities.
A continuing trend toward combinations and strategic alliances in the
telecommunications industry could give rise to significant new competitors.
THE CONDUCT OF THE ILECS, INCLUDING BELL ATLANTIC, COULD ADVERSELY AFFECT OUR
BUSINESS.
Currently, we depend on our interconnection agreements with Bell Atlantic
and GTE, and in the future, we will need to execute similar agreements with the
other ILECs operating in our target markets. Interconnection agreements are
agreements between local telecommunications services providers that set forth
the terms and conditions governing how those providers will interconnect their
networks and/or purchase or lease certain network facilities and services. Our
interconnection agreements with Bell Atlantic and GTE provide that our
connection and maintenance orders will receive the same attention as Bell
Atlantic's and GTE's end-user customers and that Bell Atlantic and GTE will
provide capacity at key telecommunications intersections to keep call blockage
within industry standards. Accordingly, we are and will continue to be dependent
on Bell Atlantic and GTE and, as we expand our network, we will be dependent on
other ILECs, to assure uninterrupted service and competitive services. Blocked
calls result in customer dissatisfaction and risk the loss of business.
Interconnection agreements, such as our agreements with Bell Atlantic and GTE,
typically have short terms, requiring us to
8
<PAGE> 11
renegotiate frequently. Some of our agreements with Bell Atlantic have one year
or less remaining before we will have to renegotiate them. If the terms of any
interconnection agreements are not favorable to us, it could have a material
adverse effect on our business.
ILECs may not provide timely installation of business access lines or
adequate service quality, thereby impairing our reputation with customers who
can choose to switch back to the ILEC. In addition, the prices set forth in our
interconnection agreements may be subject to significant rate increases at the
discretion of the regulatory authority in each state in which we operate. Part
of our profitability depends on these state-regulated rate structures. We cannot
assure you that the rates charged to us under the interconnection agreements
will allow us to offer low enough usage rates to attract a sufficient number of
customers and to operate our business profitably.
THE TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGES, AND
OUR FAILURE TO KEEP UP WITH SUCH CHANGES COULD ADVERSELY AFFECT OUR BUSINESS.
The telecommunications industry is subject to rapid and significant changes
in technology, customer requirements and preferences. New technologies could
reduce the competitiveness of our network. We may be required to select one
technology over another, but at a time when it would be impossible to predict
with any certainty which technology will prove to be the most economic,
efficient or capable of attracting customer usage. Subsequent technological
developments may reduce the competitiveness of our network and require
unbudgeted upgrades or additional products that could be expensive and time
consuming. If we fail to adapt successfully to technological changes or
obsolescence or fail to obtain access to important technologies, our business
could be materially and adversely affected.
A SYSTEM FAILURE COULD CAUSE DELAYS OR INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS
WHICH MAY HARM OUR BUSINESS.
Our success will require that our network provides competitive reliability,
capacity and security. Some of the risks to our network and infrastructure
include:
- physical damage to business access lines;
- power surges or outages;
- capacity limitations;
- software defects;
- lack of redundancy; and
- disruptions beyond our control.
Such disruptions may cause interruptions in service or reduced capacity for
customers, any of which could have a material adverse effect on us.
IF OUR BACK OFFICE AND CUSTOMER CARE SYSTEMS ARE UNABLE TO MEET THE NEEDS OF OUR
CUSTOMERS, OUR GROWTH COULD BE LIMITED.
Sophisticated back office processes and information management systems are
vital to our growth and our ability to achieve operating efficiencies. We are
dependent on Saville for our billing system, Metasolv for our provisioning
systems, and Siebel for our customer support system. We cannot assure you that
these systems will perform as expected as we grow our customer base. The
following could have a material adverse effect on our operations:
- failure of third-party vendors to deliver products and services in a
timely manner at acceptable costs;
9
<PAGE> 12
- our failure to identify key information and processing needs;
- our failure to integrate products or services effectively;
- our failure to upgrade systems as necessary; or
- our failure to attract and retain qualified systems support personnel.
OUR FAILURE OR THE FAILURE OF OTHERS UPON WHOM WE RELY TO BE YEAR 2000 COMPLIANT
COULD INTERRUPT OUR SERVICE AND HARM OUR BUSINESS.
The Year 2000 issue generally describes the various problems that may
result from the improper processing of dates and date-sensitive transactions by
computers and other equipment as a result of computer hardware and software
using two digits, rather than four digits, to identify the year in a date. Any
of our computer programs or systems, or those of our suppliers, that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruption of our operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar routine
business activities and interruptions in customer care. If we fail to achieve
Year 2000 readiness with respect to our systems and hardware, our business may
be adversely affected. Our computerized business applications that could be
adversely affected by the Year 2000 issue include:
- information processing and financial reporting systems;
- customer billing systems;
- customer care systems;
- telecommunication transmission systems; and
- facility systems.
A significant portion of our computerized systems and technologies has been
developed, installed or upgraded in recent years and is more likely to be Year
2000 ready. We are performing an internal assessment of our own material
information systems, including our internal computers, network servers and
switching facilities, to determine whether our systems and hardware are Year
2000 compliant. To date, we have discovered no material information systems
which are not Year 2000 compliant. Nonetheless, we may not be able to fully
identify the impact of Year 2000 on such systems prior to Year 2000, or resolve
any identified issues, without disruption to our business and without incurring
significant expense.
We are currently deploying our own network which minimizes the potential
third party impact of the Year 2000 issue on our facilities, customer care,
telecommunications and other business systems. We are continuing to evaluate and
determine whether our significant suppliers are in compliance or have
appropriate plans to remedy Year 2000 issues when their systems interface with
our systems. We do not expect that this will have a material impact on our
operations. However, there can be no assurance that the systems of other
companies on which we rely will be Year 2000 compliant in a timely fashion, or
that failure to successfully convert by another company, or conversion that is
incompatible with our systems, would not have an impact on our operations. The
inability of our principal suppliers to be Year 2000 compliant could result in
delays in service deliveries from those suppliers and materially impact our
ability to do business.
Specifically, because we currently lease 100% of our transport facilities,
we are dependent on the availability of fiber transport facilities owned by
other telecommunications services providers. The risks associated with the
failure of these telecommunications services providers' systems or transport
facilities include potential interruption of service, blocked calls and delayed
call completion. There are few, if any, contingency measures we can take if Year
2000 problems
10
<PAGE> 13
cause these telecommunications services providers' facilities to fail. We lease
transport facilities from multiple telecommunications services providers in each
market in which we operate in an attempt to provide redundancy and diversity in
service. However, we cannot guarantee that there will not be multiple network
failures in one or more of our markets. If our transport vendors experience
facilities failures, our business may be disrupted and we may suffer a
significant adverse effect. In addition, we are reliant upon the networks of
other local exchange carriers and interexchange carriers to successfully
complete calls to and from our network. To the extent these carriers experience
Year 2000 issues, our telecommunications services may be materially and
adversely affected.
DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY INVOLVES UNCERTAINTIES, AND THE
RESOLUTION OF THESE UNCERTAINTIES COULD ADVERSELY AFFECT OUR BUSINESS.
The Telecommunications Act of 1996, or the Telecommunications Act provides
for significant deregulation of the telecommunications industry, including the
local exchange and long distance industries. This statute and the related
regulations remain subject to judicial review and additional rulemakings of the
Federal Communications Commission, or FCC, making it difficult to predict what
effect the legislation will have on us, our operations and our competitors.
Several regulatory and judicial proceedings are underway or have recently
concluded, that address issues affecting our operations, and those of our
competitors, which may cause significant changes to our industry. We cannot
predict the outcome of these developments, nor can we assure you that these
changes will not have a material adverse effect on us. Specifically, the
following is a non-exhaustive list of proceedings and regulatory developments
that could have a material impact on our business operations:
REGIONAL BELL OPERATING COMPANY PROVISION OF INTERLATA LONG DISTANCE
SERVICES. In September 1999, Bell Atlantic filed an application with the
FCC seeking authority to begin providing interLATA long distance services
to customers located in the State of New York. Local area and transport
areas, or LATAs, are service areas between which the Regional Bell
Operating Companies are precluded from providing services. The
Telecommunications Act provides relief from this restriction so long as
these companies meet certain pro-competitive criteria. Service between
LATAs is known as "interLATA service" and is often referred to as long
distance service. In October 1999, we and other competitors commented in
opposition to Bell Atlantic's application. The New York Public Service
Commission filed in support of the application at the same time. On
November 1, 1999, the Department of Justice, or DOJ, stated that Bell
Atlantic has not yet met all its market opening obligations and that, as a
result, the FCC could deny the application. The DOJ also indicated that if
the FCC were to approve the application, it should impose conditions to
ensure Bell Atlantic continues to comply with its obligations to provide
others with access to its local markets as established by the
Telecommunications Act and FCC regulations. The FCC must act on the
application by December 28, 1999. If Bell Atlantic's application to provide
interLATA long distance services is approved, its competitive position in
New York is likely to be strengthened substantially, which could have a
materially adverse effect on our continued ability to attract and retain
customers. We anticipate that Bell Atlantic will soon submit similar
applications to obtain interLATA long distance service authority in other
states in its 14-state operating region. Currently, no other application
for the provision of in-region long distance services is pending at the
FCC. Upon passage of the Telecommunications Act, however, Bell Atlantic, as
well as the rest of the Regional Bell Operating Companies, were permitted
to immediately enter the long distance business in those states in which
they do not currently provide local exchange services. While we have not
seen significant competition from them to date, their widespread entry into
the long distance business could result in substantial competition with our
services and may have a material adverse effect on our business.
11
<PAGE> 14
FCC NETWORK ELEMENT REMAND ORDER. On November 5, 1999, the FCC
released an order responding to the U.S. Supreme Court decision directing
the FCC to re-evaluate the list of network elements which it required to be
provided by ILECs to competitors. The FCC's order requires that ILECs make
available most, but not all, of the network elements specified in its
initial Interconnection Order, released in 1996. Specifically, ILECs are no
longer required to provide access at cost-based rates to operator services
and directory assistance or shared transport. While we currently utilize
alternative providers for these services, to the extent we must rely on any
ILECs for the provision of such services in the future, our business
operations could be materially affected. We expect interested parties to
seek reconsideration or appeal of the FCC's order on remand, and cannot
predict the outcome of such reconsideration or appeal. If the ILECs fail to
fully implement the FCC's decision, we, along with other telecommunications
services providers, could be forced to file formal litigation in order to
ensure compliance.
DEREGULATION OF ILEC ADVANCED DATA SERVICES. The FCC has initiated a
proceeding to determine, among other things, whether ILECs will be able to
avoid some of their obligations under the Telecommunications Act by
providing data services through separate affiliates, and whether the ILECs
should be granted relief from restrictions on local area transport for data
only services. Several ILECs have filed petitions with the FCC seeking
relief from pricing regulation for their data services in certain regions.
A decision adverse to CLECs could provide the ILECs with a significant
competitive advantage in the provision of data services in these areas.
REGULATION OF ACCESS CHARGES. The FCC has asked for public comment on
whether it should begin to regulate the access charges imposed by
competitive local telecommunications services providers. Currently,
competitive local telecommunications services providers for the origination
and termination of long distance calls, as opposed to the ILECs, are free
to charge access rates at any levels they deem appropriate. A decision by
the FCC to regulate access charges assessed by service providers, like us,
could result in the reduction in the amount we can charge for long distance
carriers to use our network to originate and terminate calls to and from
our customers.
PRICING FLEXIBILITY FOR HIGH-CAPACITY SERVICES. In August 1999, the
FCC released an order that granted substantial additional pricing
flexibility to ILECs for interstate special and switched access services
including the removal of some services from price cap regulation. The FCC
also established a framework for granting many ILECs greater flexibility in
the pricing of all interstate access services once they satisfy prescribed
competitive criteria. This pricing flexibility will likely result in ILECs
lowering their prices in high traffic density areas, the probable areas of
competition with us, placing greater downward pressure on our prices and
potentially lowering our margins.
MANDATORY DETARIFFING OF FCC SERVICES. Beginning in November 1996, and
most recently in March 1999, the FCC issued a series of orders requiring,
among other things, non-dominant, long distance carriers, like us, to cease
filing tariffs for domestic long distance services. The FCC's original
detariffing order subsequently was stayed by a federal appeals court, and
it is unclear at this time whether or when the detariffing order will be
implemented. In its March 1999 order, the FCC adopted further rules that,
while still maintaining mandatory detariffing, required long distance
carriers to make specific public disclosures on the carriers' Internet
websites of their rates, terms and conditions for domestic interstate
services. The effective date of all mandatory detariffing rules has been
delayed due to the pending appeal of the mandatory detariffing issue in
federal court. If the FCC's orders become effective, non-dominant
interstate service providers will no longer be able to rely on the filing
of tariffs with the FCC as a means of providing notice to customers of
prices, terms and conditions under which they offer their domestic
interstate services. This could result in greater reliance on
12
<PAGE> 15
individual customer contracts for legal protections associated with the
provision of interstate long distance services.
RECIPROCAL COMPENSATION FOR DIAL-UP INTERNET TRAFFIC. Recently, the
FCC determined that both dedicated access and dial-up calls from a customer
to an Internet service provider are primarily interstate in nature and
subject to the FCC's jurisdiction. The FCC has initiated a proceeding to
determine the effect that this regulatory classification will have on the
obligation of a local exchange carrier to pay reciprocal compensation for
dial-up calls to Internet service providers that originate on one local
exchange carrier's network and terminate on another local exchange
carrier's network. A decision which invalidates current reciprocal
compensation arrangements could result in the reduction or elimination of
reciprocal compensation payments for traffic terminated to Internet service
providers, thereby negatively affecting the revenue generated by this type
of traffic over our network.
FCC COST-BASED PRICING METHODOLOGY FOR NETWORK ELEMENTS. The U.S.
Court of Appeals for the Eighth Circuit is currently addressing whether the
FCC's methodology for pricing network elements on a cost-basis, as set
forth in the FCC's Interconnection Order, violates the Telecommunications
Act. An adverse decision by the Eighth Circuit could cause significant
uncertainty as to how network elements are priced and could have the effect
of raising the rates ILECs can charge for network elements. Such a decision
could have a material adverse effect on our ability to purchase network
elements and to sustain margins necessary to compete in our marketplace.
NEGOTIATION OF INTERCONNECTION AGREEMENTS. The Telecommunications Act
requires ILECs to negotiate the terms governing the provision of network
elements and interconnection services between ILECs and competitive
telecommunications services providers, and to the extent an agreement is
not reached, file for arbitration with the state public service commission
in order to resolve any disputes. The Telecommunications Act and related
regulations require ILECs to make the provisions of previously negotiated
agreements available to other telecommunications services providers. As a
result, telecommunications services providers have the opportunity to adopt
a completed agreement of other carriers if they prefer not to negotiate a
new agreement. While we have interconnection agreements for all markets in
which we currently operate, agreements will be subject to renewal, and we
will be entering new markets, within the next six to 18 months. Our ability
to obtain new, or renew our existing, interconnection agreements on
favorable terms and conditions will be dependent on new regulatory
developments, and our business could be adversely affected to the extent
these developments are against our interests.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING,
WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
We intend to use the proceeds of the offering to expand our sales force and
sales office locations, fund the expansion and development of our network and
information technology systems, repay debt and provide for working capital and
other general corporate purposes. We cannot predict in which, if any, of our
existing or future opportunities we will ultimately invest. While we currently
expect to use the proceeds of the offering as described above, if our plans
change, we would use any remaining cash to fund other development projects or
acquisitions and for general corporate and working capital purposes.
OUR EXECUTIVE OFFICERS AND DIRECTORS ARE ABLE TO EXERCISE SIGNIFICANT INFLUENCE
OVER OUR COMPANY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
After this offering, our executive officers and directors will continue to
control approximately % of our common stock and will exercise significant
influence over stockholder voting matters which will limit the influence of our
new stockholders. If our officers and directors act together,
13
<PAGE> 16
they will be able to influence the composition of the board of directors and
will continue to have significant influence over our affairs in general.
THERE IS NO PRIOR MARKET FOR OUR COMMON STOCK AND THE PRICE MAY DECLINE AFTER
THIS OFFERING.
Our common stock has not been traded in the public market before this
offering. We have applied to have our common stock listed on the Nasdaq National
Market, but we do not know whether active trading in our common stock will
develop or continue after this offering. If active trading does not develop, it
could cause the market price of our common stock to decrease. The price for our
common stock has been determined through negotiations with the underwriters. You
may not be able to resell your shares at or above the price you will pay for our
common stock.
FUTURE SALES OF OUR COMMON STOCK MAY LOWER OUR STOCK PRICE.
If our existing stockholders sell a large number of shares of our common
stock, the market price of the common stock could decline significantly. The
perception in the public market that our existing stockholders might sell shares
of common stock could depress our market price. Immediately after this offering,
approximately shares of our common stock will be outstanding. Of these
shares, of the shares included in this offering will be available for
immediate resale in the public market. The remaining shares, or % of
our total outstanding shares, will become available for resale in the public
market as shown on the chart below. All of these remaining shares are
subject to lock-up agreements restricting the sale of such shares for 180 days
from the date of this prospectus. However, the underwriters may waive this
restriction and allow these stockholders to sell their shares at any time.
<TABLE>
<CAPTION>
NUMBER OF SHARES/ DATE OF FIRST AVAILABILITY FOR RESALE
% OF OUTSTANDING -------------------------------------
<S> <C> <C>
/ % Immediately after the date of this prospectus, all of which
shares are subject to lock-up agreements
/ % 90 days after the date of this prospectus, all of which
shares are subject to lock-up agreements
/ % At various times between 90 days and 180 days after the date
of the prospectus, all of which shares are subject to
lock-up agreements
</TABLE>
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF $ IN THE
BOOK VALUE OF THEIR INVESTMENT.
If you purchase shares of our common stock in this offering, you will
experience immediate dilution of $ per share because the price that you pay
will be substantially greater than the net tangible book value per share of the
shares you acquire. This dilution is due in large part to the fact that our
earlier investors paid substantially less than the public offering price when
they purchased their shares. You will experience additional dilution upon the
exercise of stock options and warrants to purchase common stock.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN.
We make forward-looking statements in the "Prospectus Summary", "Risk
Factors", "Use of Proceeds", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" sections and elsewhere in
this prospectus. These forward-looking statements include, but are not limited
to, statements about our plans, objectives, expectations, intentions and
assumptions and other statements that are not historical facts. We generally
intend the words "expect," "anticipate," "intend," "plan," "believe," "seek,"
"estimate" and similar expressions to identify forward-looking statements.
14
<PAGE> 17
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, our actual results may
differ materially from those expressed or implied by these forward-looking
statements. We do not intend to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds from the offering, after deducting estimated fees and
expenses, are estimated to be approximately $ million. We intend to use the
net proceeds of the offering to:
- expand our sales force and sales office locations;
- fund the expansion and development of our national network infrastructure
and information technology systems;
- repay the outstanding balance on the Nortel senior discount note; and
- cover other general corporate expenses, including the funding of
operating losses.
As part of our strategy, we may make acquisitions and a portion of the net
proceeds from the offering may be used for such purposes. We have no definitive
agreement with respect to any acquisition, although we regularly engage in
discussions with other companies and assess opportunities on an ongoing basis.
We may be required to obtain additional financing to complete our network
build-out if, among other reasons, we use a portion of the proceeds from the
offering to fund acquisitions, or if our plans or projections change or prove to
be inaccurate. We cannot assure you that this additional financing will be
available on terms acceptable to us or at all.
DIVIDEND POLICY
We have never paid cash dividends on our common stock nor do we have plans
to do so in the foreseeable future. The declaration and payment of any dividends
in the future will be determined by our Board of Directors, in its discretion,
and will depend on a number of factors, including our earnings, capital
requirements and overall financial condition. In addition, our ability to
declare and pay dividends is substantially restricted under our credit facility
with Nortel.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 1999, adjusted to reflect our recapitalization described below,
our pro forma capitalization which gives effect to the automatic conversion of
our redeemable convertible preferred stock into common stock and our pro forma
capitalization as adjusted to reflect the issuance and sale of shares of
common stock in this offering and the application of the resulting net proceeds.
See "Use of Proceeds." You should read this table together with "Selected
Consolidated Financial and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE DATA)
<S> <C> <C> <C>
Lease obligations, long-term portion....................... $ 1,730 $ 1,730 $ 1,730
-------- -------- --------
Notes payable, long-term portion........................... 16,556 16,556 16,556
Redeemable convertible preferred stock (non-cumulative),
par value $0.01 per share; 12,000,000 shares authorized:
11,738,437 shares issued and outstanding, actual; no
shares issued and outstanding, pro forma and pro forma as
adjusted................................................. 75,181 -- --
Stockholders' (deficit) equity:
Preferred stock, par value $0.01 per share; no shares
authorized, issued or outstanding, actual; 60,000,000
shares authorized and no shares issued and
outstanding, pro forma and pro forma as adjusted......
Common stock, par value $0.01 per share; 30,000,000
shares authorized, 8,092,258 shares issued and
outstanding, actual; 200,000,000 shares authorized,
19,830,695 shares issued and outstanding, pro forma
and shares issued and outstanding pro forma as
adjusted.............................................. 81 198
Additional paid-in capital............................... 10,509 85,572
Deferred stock compensation.............................. (2,236) (2,236) (2,236)
Accumulated deficit...................................... (61,649) (61,649)
-------- -------- --------
Total stockholders' (deficit) equity............. (53,295) (21,885)
-------- -------- --------
Total capitalization............................. $ 40,172 $ 40,172 $
======== ======== ========
</TABLE>
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<PAGE> 20
DILUTION
At September 30, 1999, we had a pro forma net tangible book value of
approximately $1.10 per share of common stock. Pro forma net tangible book value
per share of common stock at any date represents the amount of our total
tangible assets minus total liabilities divided by the total number of our
outstanding shares of common stock after giving effect to the automatic
conversion of all outstanding shares of redeemable convertible preferred stock
into 11,738,437 shares of common stock. After giving effect to the sale of the
shares of common stock offered by this prospectus at an assumed initial
public offering price of $ per share (the midpoint of the range shown on the
cover page of this prospectus) and the application of the estimated net proceeds
as described in "Use of Proceeds," our pro forma as adjusted net tangible book
value would have been approximately $ , or $ per share. Thus, under
these assumptions, purchasers of our common stock offered by this prospectus
will pay $ per share and will receive shares with a net tangible book
value per share of common stock of $ , which represents an immediate
dilution of $ per share.
<TABLE>
<S> <C> <C>
Initial public offering price per share................ $
-----
Pro forma net tangible book value per share as of
September 30, 1999............................... $1.10
Pro forma increase per share attributable to new
investors........................................
-----
Pro forma as adjusted pro forma net tangible book value
per share after the offering..........................
-----
Pro forma dilution per share to new investors.......... $
=====
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the difference between the existing stockholders and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid and the average price per share paid at the
initial public offering price of $ per share (before deducting estimated
underwriting discounts and commissions and offering expenses payable by us):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ----------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. $ % $ % $
------- ----- ------- ----- --------
New investors...................... % %
------- ----- ------- ----- --------
Total.................... $ 100.0% $ 100.0% $
======= ===== ======= ===== ========
</TABLE>
The foregoing table assumes no exercise of stock options or warrants. As of
November 30, 1999, there were options and warrants outstanding to purchase
4,411,425 shares of common stock at a weighted average exercise price of $2.30
per share. To the extent outstanding options and warrants are exercised, there
will be further dilution to new investors.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain historical consolidated financial
and other data of the Company for each of the five years in the period ended
December 31, 1998 and as of and for each of the nine month periods ended
September 30, 1998 and September 30, 1999. We derived our selected historical
consolidated financial data as of and for each of the three years in the period
ended December 31, 1998 and as of and for the nine month period ended September
30, 1999 from our audited consolidated financial statements included elsewhere
in this prospectus. We derived our selected historical consolidated financial
data as of and for the year ended December 31, 1995 from our audited
consolidated financial statements that are not included in this prospectus. We
derived our selected historical consolidated financial data as of and for the
year ended December 31, 1994 and for the nine month period ended September 30,
1998 from our unaudited consolidated financial statements which, in the opinion
of our management, reflect all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the data presented for such periods.
Our operating results for the nine month periods ended September 30, 1998
and September 30, 1999 are not necessarily indicative of results that may be
expected for a full year. You should read the following historical consolidated
financial data in conjunction with "Capitalization," "Summary Consolidated
Financial and Other Data," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes that we include elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue................................ $803 $1,238 $1,939 $ 3,544 $ 9,419 $ 5,918 $ 18,670
Operating costs and expenses:
Operating costs........................ 96 150 514 907 7,888 3,855 15,497
Selling, general and administration.... 290 749 1,313 3,833 15,138 10,032 26,520
Depreciation and amortization.......... 2 5 27 122 687 337 2,125
---- ------ ------ ------- -------- -------- --------
Total operating expenses............... 388 904 1,854 4,862 23,713 14,224 44,142
Operating income (loss)................ 415 334 85 (1,318) (14,294) (8,306) (25,472)
Other income (expenses)................ (4) (15) (17) 817 527 244 3,439
---- ------ ------ ------- -------- -------- --------
Net income (loss)...................... $411 $ 319 $ 68 $ (501) $(13,767) $ (8,062) $(22,033)
Net income (loss) applicable to common
stockholders......................... 411 319 68 (501) (22,670) (13,632) (37,811)
Net income (loss) per share applicable
to common stockholders -- basic and
diluted.............................. 0.05 0.04 0.01 (0.06) (2.81) (1.69) (4.67)
Pro forma net income (loss) per share
Applicable to common stockholders --
Basic and diluted(1)................. -- -- -- (0.06) (0.87) (0.54) (1.11)
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31 30
-------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures......... (3) (27) (34) (88) (2,031) (561) (26,111)
Cash flows provided by oper-
ating activities........... 308 220 1 (476) (11,717) (6,703) (15,451)
EBITDA(2).................... 417 329 106 (313) (13,604) (7,969) (19,770)
OPERATING DATA:
Total access lines
equivalents billed (3)..... -- -- -- -- 10,554 2,399 41,678
Total customers billed....... 1 1 21 87 567 268 694
Total employees.............. 6 12 18 58 164 149 348
Switches in service.......... -- -- -- -- -- -- 6
Voice...................... -- -- -- -- -- -- 2
Data....................... -- -- -- -- -- -- 4
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
DECEMBER 31, -----------------------------------------
----------------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 ACTUAL PRO FORMA(1) AS ADJUSTED(1)
-------- -------- -------- ---- ---- ------ ------------ --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 61 $ 33 $ 3 $ 2,350 $ 33,440 $ 13,320 $ 13,320 $
Property and equipment,
net...................... 6 49 147 500 11,500 49,623 49,623 49,623
Working capital............ 68 136 167 2,083 30,562 3,755 3,755
Total assets............... 177 380 603 4,040 50,091 74,102 74,102
Long-term debt............. -- 16 63 258 2,000 18,286 18,286 18,286
Redeemable preferred
stock.................... -- -- -- 3,500 59,403 75,181 -- --
Common stock............... 80 80 80 80 81 81 198
Total stockholders'
(deficit) equity......... 77 191 259 (1,087) (23,620) (53,295) 21,885
</TABLE>
- ---------------
(1) The pro forma net income (loss) per share data summarized below gives effect
to the automatic conversion of all of our preferred stock into common shares
as if the conversion occurred at the beginning of the respective period. The
pro forma balance sheet data gives effect to the automatic conversion of the
preferred stock as of September 30, 1999. The pro forma adjusted balance
sheet data gives effect to the issuance and sale of shares of common
stock in this offering as if these transactions occurred on September 30,
1999.
(2) EBITDA consists of net income (loss) before interest, income taxes,
depreciation and amortization. We believe that EBITDA is a useful financial
performance measure for comparing companies in the communications industry
in terms of operating performance, leverage and ability to incur and service
debt. EBITDA provides an alternative measure of cash flow from operations.
EBITDA should not be considered in isolation from, or as a substitute for,
net income (loss), net cash provided by (used for) operating activities or
other consolidated income or cash flow statement data presented in
accordance with GAAP, or as a measure of profitability or liquidity. EBITDA
does not reflect working capital changes and includes non-interest
components of other income (expense), most of which are non-recurring. These
items may be considered significant components in understanding and
assessing our results of operations and cash flows. EBITDA may not be
comparable to similarly titled amounts reported by other companies.
(3) Line equivalents calculated on the basis of 64 kilobits per second per line.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the "Selected
Consolidated Financial and Other Data" and the financial statements and notes
thereto contained elsewhere in this prospectus. Financial information contained
herein relating to periods prior to June 30, 1998 primarily reflects our
operations as a sales agent for Bell Atlantic. Because of our transition to a
telecommunications services provider and our deployment of facilities, the
financial information for periods prior to June 30, 1998 does not reflect our
current and planned business. Comparisons of financial information between such
periods will not provide valid comparisons. Certain information contained in the
discussion and analysis set forth below and elsewhere in this prospectus,
including information with respect to our plans and strategy for our business
and related financing, includes forward-looking statements that involve risk and
uncertainties. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this prospectus that
could cause results to differ materially from those expressed in such
forward-looking statements including matters set forth in "Risk Factors."
OVERVIEW
We began operations in 1993 as a sales agent selling Bell Atlantic local
services to businesses. Under this program, we received a one-time commission
for selling complex and high-capacity telecommunications services. We were the
largest producing sales agent based on the annual sales revenue which we
generated out of more than 100 sales agents during our last four full years in
the sales agent program, 1994 through 1997.
We initially used the resale of telecommunications services as a market
entry strategy while we began the build-out of our network. In January 1998, we
began offering long distance and non-local data services on a resale basis. In
June 1998, we left the Bell Atlantic sales agent program and began offering
Net2000-branded local telecommunications services on a resale basis directly to
large- and medium-sized businesses. We ceased acquiring new resale customers in
markets where we deployed our own network. In March 1999, we deployed our first
switch and began offering facilities-based telecommunications services. Also in
March 1999, we ceased reselling Bell Atlantic local services in all markets
except New York City and Long Island, where we ceased reselling in November
1999. We no longer use local resale as a primary customer acquisition strategy,
do not intend to do so in the future and plan to migrate as many of our existing
resale customers as possible to our network. In limited circumstances, we use
resale to satisfy customer needs for data and long distance services outside our
network area.
As of November 1999, we have deployed a total of nine switches in our
network, including three voice switches and six data switches throughout the
mid-Atlantic and northeastern regions of the United States under Phase I of our
network deployment schedule. When we complete Phase II in December 2000, we are
scheduled to have deployed a total of seven voice and 23 data switches in major
markets throughout the United States, thereby completing our national data
backbone network. Phase III includes the deployment of four additional data
switches and ten additional voice switches. We expect to complete Phase III by
September 30, 2002.
We estimate that, from July 1998 when we began offering our Net2000-branded
services through November 30, 1999, our average customer had approximately 68
access line equivalents. We count an access line equivalent as 64 kilobits of
bandwidth, known as a DS-0 circuit. Approximately 52% of our customers purchase
more than one service from us.
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<PAGE> 24
We expect to continue to derive revenue from the sale of integrated
telecommunications services, including:
- data communications services, including wide area network
interconnection, high speed Internet access, frame relay services and
private line services;
- voice services, including local and long distance services; and
- enhanced Internet services.
We believe that providing telecommunications services over our own
smart-build network will enable us to:
- improve operating margins;
- broaden service offerings and enhance customer control by providing more
efficient service;
- reduce network capital requirements;
- improve speed to market and mitigate the risk associated with investing
capital in long term assets, thereby preserving capital for other uses
such as sales and marketing; and
- reduce operating expenses.
Although we believe our smart-build strategy will improve our results of
operations over the long-term, this strategy is expected to have a negative
effect on our financial condition and results of operations over the short-term.
We expect significant losses and negative cash flow for at least the next
several years, which we expect will be primarily attributable to the deployment
of our national network and expected expansion of our operations.
REVENUE
We generate most of our revenue from the sale of local, long distance,
Internet access and other data services to large- and medium-sized businesses.
We are currently offering our full suite of services in markets where we have
deployed our network. Outside of these markets, we offer data and long distance
services on a resale basis to meet the needs of our large customers.
Our revenue consists of monthly recurring charges, usage charges and
initial, non-recurring charges. Monthly recurring charges include the fees paid
by our customers for lines in service, additional features on those lines and
collocation space. Usage charges consist of fees paid for each call made
generally measured by the minute but also measured by the call. Non-recurring
revenue is typically derived from fees charged to install new customer lines.
In addition to revenue generated from end-user customers, we also generate
revenue from access fees charged to long distance companies for the local
origination and termination of long distance calls from or to our customers. If
an imbalance occurs based on inbound versus outbound local calls, we may also be
owed reciprocal compensation from the ILEC. We will bill the access and
reciprocal compensation to the long distance companies and local telephone
companies on a monthly basis according to standard industry practices.
Reciprocal compensation and access charges are not significant components of our
revenue and represented less than 5% of total revenue for the nine months ended
September 30, 1999. Although we expect revenue from reciprocal compensation and
access charges to increase as more customers come onto our network, we
anticipate deriving the majority of our revenue from the sale of our
telecommunications services to large- and medium-sized businesses.
Prior to July 1998, our revenue primarily consisted of commissions earned
as a Bell Atlantic sales agent, and of telecommunications revenue earned from
the sale of long distance and data
22
<PAGE> 25
services under our own brand name. Since we began providing Net2000-branded
telecommunications services on a resale basis as a market entry strategy and
because we only provisioned our first "on-net" customer in May 1999, the
majority of our revenue for the nine months ended September 30, 1999 was derived
from the resale of telecommunications services. However, because we no longer
use resale as a primary customer acquisition strategy, we expect this revenue to
quickly diminish in the future as a percentage of revenue. We expect to
transition customers which generate approximately 70% of our existing resale
revenues to our network within the next 12 months. As a result of these
transition periods, revenue comparisons to prior periods may not be valid
comparisons.
OPERATING COSTS AND EXPENSES
We expect that our primary operating costs and expenses will consist of the
cost of providing our services and selling, general and administrative expenses.
OPERATING COSTS. Our most significant expense will be the cost of leasing
certain elements of the full "bundle" of traditional telephone services for sale
to our local service subscribers, the cost of leasing part of the data network
being used by our data customers and the cost of leasing parts of the long
distance network being used by our long distance service customers.
We purchase local telephone service for our customers on a "wholesale"
basis pursuant to interconnection agreements with the ILECs in our targeted
markets. Typically, these agreements establish the terms and conditions of the
interconnection arrangements along with the cost per minute to be charged by
each party for the calls that travel between each carrier's network.
We provide data services to our customers over our own switches in six
markets and leased fiber transport, and in other areas by leasing part of the
data network requirements from various telecommunications companies pursuant to
written agreements.
We have entered into agreements with long distance providers in order to
originate or terminate long distance traffic in areas where we cannot do so over
our own network. These agreements provide for the origination or termination of
long distance services on a per-minute basis and contain minimum usage volume
commitments. If we fail to meet minimum volume commitments, we may be obligated
to pay underutilization charges. To date, we have met our usage volume
commitments and have not incurred any underutilization charges.
To minimize our costs, we lease fiber optic transport facilities between
cities on a fixed cost basis pursuant to written agreements with the providers
of this transport capacity. The leased transport routes interconnect our
switches, enabling us to cost-effectively provide much of the data and long
distance needs of our customers. For the needs of our customers beyond our
network coverage, we purchase that capacity on a wholesale basis under our
interconnection agreements with other telecommunications companies.
If we underestimate our need for fiber optic connections, we may be
required to obtain capacity through more expensive means. These costs are usage
sensitive and will increase as our customers' long distance calling volume
increases. As traffic on specific routes increases, we may lease flat-rated long
distance trunk capacity to reduce our variable costs and improve our gross
margins.
Once we have deployed a switch in a particular market, we expect that
switch site leasing and maintenance expense will be a significant part of our
ongoing cost of services.
Our primary expense associated with providing Internet access to our
customers is the cost of interconnecting our network with a national Internet
service provider. Currently, we provide our customers direct connectivity to the
Internet through a national Internet access provider.
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<PAGE> 26
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses include our infrastructure costs, including selling and
marketing costs, customer care, billing, corporate administration, personnel and
network maintenance expenses.
We employ a direct sales force in each of our markets. To attract and
retain a highly qualified sales force, we offer our sales personnel a
compensation package that emphasizes commissions. We expect to incur significant
selling and marketing costs as we continue to hire additional personnel and
expand our operations.
We have deployed a state-of-the-art billing system that provides
consolidated billing for all services we provide to our customers on a single
invoice. We began issuing invoices in the first quarter of 1998, billing long
distance services and, subsequently, local, Internet access and other data
services.
We have developed tailored systems and procedures for operational support
and other back office systems that are required to provision and track a
customer order from point of sale to the installation and testing of service.
These systems are operational on a stand alone basis today and will interface
automatically with trouble management, inventory, billing, collection and
customer care systems by the end of the first quarter of 2000. In October 1999,
we implemented the initial phase of e.mpower, our e-commerce, web-based customer
interface. The second phase of e.mpower is targeted for release in January 2000,
and will include the capability to review real-time network utilization
statistics. Subsequent phases will continue to build on this robust feature set
while providing further enhancements and value-added customer capabilities.
Along with the development cost of the systems, we will also incur ongoing
expenses for customer care and billing. As our strategy stresses the importance
of personalized customer care, we expect that the expenses related to our
customer care department will remain a significant part of our ongoing
administrative expenses. We expect the cost to maintain, enhance and operate
these systems and provide these critical functions will grow and will continue
to be a significant part of our ongoing general and administrative expenses.
We 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 initial phases of our business expansion. However, we expect these
expenses to become smaller as a percentage of our revenue as we build our
customer base.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998.
REVENUE. Revenue for the nine months ended September 30, 1999, increased
217% to $18.7 million from $5.9 million for the nine months ended September 30,
1998. The increase resulted primarily from the additional sales of
telecommunications services to large- and medium-sized businesses which
increased to $18.7 million for the nine months ended September 30, 1999, offset
by a decrease from $3.0 million to zero in our agency revenue, as a result of
the termination of our status as a sales agent.
OPERATING COSTS. Operating costs increased 297% to $15.5 million for the
nine months ended September 30, 1999, from $3.9 million for the nine months
ended September 30, 1998. This increase was attributable to the cost of
providing the telecommunications services underlying the increased revenue from
telecommunications services.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 165% to $26.5 million for the nine months ended September 30,
1999, from $10.0 million for the
24
<PAGE> 27
nine months ended September 30, 1998. This increase was primarily attributable
to the increase in sales, delivery and support associated with the increase in
revenue discussed above, the launch of our telecommunications services and the
hiring of key senior management and other personnel to develop and implement
certain infrastructure initiatives to support our new non-agent business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 600% to $2.1 million for the nine months ended September 30, 1999,
from $0.3 million for the nine months ended September 30, 1998. This increase
was primarily due to amortization of back office systems and software, and
depreciation of network elements and staff related expenses.
OTHER INCOME. Other income increased 1,600% to $3.4 million for the nine
months ended September 30, 1999, from $0.2 million for the nine months ended
September 30, 1998. This change was primarily attributable to a $3.5 million
gain on a negotiated settlement with Bell Atlantic.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997.
REVENUE. Revenue increased 169% to $9.4 million for 1998 from $3.5 million
for 1997. The increase resulted primarily from the launch of our business as a
telecommunications services provider to large- and medium-sized businesses where
such revenue increased 6,400% to $6.5 million for 1998 from $0.1 million for
1997.
OPERATING COSTS. Operating costs increased 778% to $7.9 million for 1998
from $0.9 million for 1997. The increase resulted primarily from the launch of
our business as a telecommunications services provider to large- and
medium-sized businesses as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 297% to $15.1 million for 1998 from $3.8 million for 1997.
The increase resulted primarily from the launch of our business as a
telecommunications services provider to large- and medium-sized businesses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 600% to $0.7 million in 1998 from $0.1 million in 1997. This increase
was primarily due to the depreciation expense related to our billing system and
to our furniture and computer equipment and the amortization of software for our
growing employee base.
OTHER INCOME. Other income decreased 38% to $0.5 million for 1998 from $0.8
million for 1997. This change was attributable primarily to a one-time gain on
sale of our consulting division.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996.
REVENUE. Revenue increased 84% to $3.5 million for 1997 from $1.9 million
for 1996. The increase resulted primarily from an increase in sales to existing
customers and the development of additional customer relationships with large-
and medium-sized businesses.
OPERATING COSTS. Operating costs increased 80% to $0.9 million for 1997
from $0.5 million for 1996. This increase was attributable to additional
staffing of customer service and support necessary for the increase in customer
base as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 192% to $3.8 million for 1997 from $1.3 million for 1996,
primarily attributable to the increase in sales delivery and support associated
with the increase in sales as discussed above and certain infrastructure
initiatives to support the new non-agent business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 270% to $0.1 million for 1997 from $27,000 for 1996. This increase was
primarily due to depreciation
25
<PAGE> 28
expense associated with furniture and computer equipment and amortization of
software for our growing employee base.
OTHER INCOME. Other income increased 4,806% to $0.8 million for 1997 from
$17,000 of expenses for 1996. This change was attributable primarily to a
one-time gain on sale of our consulting division.
LIQUIDITY AND CAPITAL RESOURCES
The development of our business, the deployment and start-up of switching
facilities in our targeted markets and the establishment of reliable operations
support systems will require significant capital to fund capital expenditures,
working capital needs, debt service and the cash flow deficits generated by
operating losses. Our principal capital expenditure requirements will include
the purchase and installation of digital switches, the development of operations
support systems and other automated back office systems and, in certain cases,
the overbuilding of leased fiber optic connections in those instances where
traffic volume growth makes it economically attractive to do so. Future
overbuilds of leased fiber optic connections and potential strategic
acquisitions may increase capital requirements, although cash requirements may
be reduced if network expansions are accomplished over a longer time frame or if
we do not continue to experience significant sales growth.
To date, we have funded our start-up expenditures through the private sale
of equity securities and a senior term loan facility with Nortel. In November
1998, May 1998 and October 1997, we raised a combined total of approximately
$50.5 million through the private placement of our preferred stock. We have
entered into a credit agreement with Nortel Networks whereby Nortel will provide
draws to us under a term loan arrangement in an aggregate principal amount of up
to $75 million. These are to be used for the purchase of telecommunications
equipment and related software licenses and for working capital purposes. To
secure the facility, we have granted Nortel a security interest in all of our
assets. The loans must be repaid over a five-year period commencing November
2001. Interest payments are due monthly in the case of base rate (prime based)
draws or at the end of the LIBOR loan period. Interest will accrue at a lower
rate if we meet specified financial tests. As of September 30, 1999, we had
$24.3 million outstanding under this senior term loan facility.
In July 1999, we issued to Nortel a senior discount note with a face amount
of $75 million. This note requires no interest or principal payments until July
2004. For the next five years thereafter, we must pay interest semi-annually at
an interest rate of 13.5%. The note must be repaid in full upon the closing of
this offering.
Net cash used in operating activities was $15.5 million for the nine months
ended September 30, 1999 and $6.7 million for the nine months ended September
30, 1998. The increase of $8.8 million is primarily due to an increase in
operating losses, offset by an increase in non-cash reconciling items for
depreciation and amortization and an increase in accrued liabilities. Net cash
used in investing activities was $26.8 million for the nine months ended
September 30, 1999 and $1.5 million for the nine months ended September 30,
1998. The increase of $25.3 million represents an increase in capital
expenditures during the nine months ended September 30, 1999 for our expansion
into new markets. Net cash provided by financing activities was $22.2 million
for the nine months ended September 30, 1999 and $16.4 million for the nine
months ended September 30, 1998. The increase of $5.8 million is the result of
an increase in borrowings under notes payable of $24.3 million offset by an
increase in repayments of capital leases of $1.9 million and a decrease in funds
raised from preferred stock of $17.0 million. Our capital expenditures were
approximately $2.0 million in 1998 and are currently expected to be
approximately $37 million in 1999 and, as currently contemplated, approximately
$130 million in 2000.
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<PAGE> 29
We estimate that Phases I and II of our business plan, as currently
contemplated, including the remaining 1999 capital expenditures previously
described and future capital expenditures, operating losses associated with the
rollout of our network in new and existing markets and working capital needs,
requires approximately $430 million through the point when we anticipate these
phases will become cash flow positive. Upon completion of this offering, we will
have pre-funded more than 60% of these capital requirements with cash, cash
equivalents and short-term investments currently on hand, committed borrowing
capacity under our $75 million senior term loan facility with Nortel, and
anticipated cash flows from future operations.
We plan to raise the remaining $165 million needed to complete Phases I and
II from alternative sources, which may include additional bank or vendor debt.
We believe our equity base of $190.5 million and the continued execution of our
business plan will enable us to access these capital sources shortly after this
offering. We expect that funding the capital expenditures and operating losses
associated with Phase III, as currently designed and at current prices for
network equipment, through the projected time that it becomes cash flow positive
will require an incremental $130 million. To the extent we proceed with Phase
III as planned, we expect to pre-fund these requirements by raising additional
capital from the equity or debt markets on an opportunistic basis.
We expect to make significant capital outlays for the foreseeable future to
continue the development activities called for in our current business plan and
to fund expected operating losses. Until such time as we begin to generate
positive cash flow from operations, these capital expenditures will need to be
financed with additional debt and equity capital. We believe that our current
resources, together with the net proceeds of this offering, will be sufficient
to satisfy our liquidity needs for the succeeding 12 months; however, we cannot
assure you to that effect. Thereafter, we will need substantial additional
capital. If our plans or assumptions change, if our assumptions prove to be
inaccurate, or if we experience unexpected costs or competitive pressures, we
will be required to seek additional capital sooner than currently expected. In
particular, if we elect to pursue significant additional acquisition
opportunities, our cash needs may be increased substantially, both to finance
any such acquisitions and to finance development efforts in new markets. We
cannot assure you that our current projection of cash flow and losses from
operations, which will depend upon numerous future factors and conditions and
many of which are outside of our control, will be accurate. Actual results will
almost certainly vary materially from our current projections. Because our cost
of expanding our network services and sales efforts, funding other strategic
initiatives and operating our business will depend on a variety of factors,
including, among other things, the number of subscribers and the services for
which they subscribe, the nature and penetration of services that may be offered
by us, regulatory and legislative developments, the response of our competitors
to a loss of customers to us and changes in technology, it is likely that actual
costs and revenues will vary from expected amounts, very likely to a material
degree, and such variations are likely to affect our future capital
requirements.
We intend to seek additional debt and equity financing to fund our
liquidity needs after we use the proceeds from this offering. We cannot assure
you that we will be able to raise additional capital on satisfactory terms or at
all. If we decide to raise additional funds through the incurrence of debt, our
interest obligations will increase and we may become subject to additional or
more restrictive financial covenants. If we decide to raise additional funds
through the issuance of equity, the ownership interests represented by the
common stock will be diluted. In the event that we are unable to obtain such
additional capital or to obtain it on acceptable terms or in sufficient amounts,
we may be required to delay the development of our network and business plans or
take other actions that could materially and adversely affect our business,
operating results and financial condition.
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<PAGE> 30
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the year. Any of our computer programs or
systems, or those of our suppliers, that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing the disruption of
operations, including among other things:
- A temporary inability to process transactions;
- A temporary inability to send invoices;
- A temporary inability to engage in normal business activities; and
- Interruptions of customer care.
To date, we have not experienced, nor are we aware of, any material Year
2000 issues with any of our internal systems or our products, and we do not
anticipate experiencing such issues in the future. However, the Year 2000
problem potentially affects the computers, software and other equipment that we
use, operate or maintain for our operations. Accordingly, we have organized a
Year 2000 Steering Committee which oversees a team responsible for monitoring
the assessment and remediation status of our Year 2000 issues and reports the
findings to our management and Board of Directors. This Steering Committee
retained an outside consulting firm to assess the potential effect and costs of
remediating Year 2000 issues for our internal systems.
We believe that we have identified all major computers, software
applications and related equipment used in connection with our internal
operations that will need to be modified, upgraded or replaced to minimize the
possibility of a material disruption to our business. Under the direction of the
Steering Committee, we have completed assessing the potential impact of Year
2000 issues on these computers, equipment and applications and have modified,
upgraded and replaced major systems that we believe have Year 2000 issues.
In addition to computers and related information, operation, and network
systems, the operation of office systems, facilities and equipment, such as fax
machines, security systems and other common office devices, may have Year 2000
issues. We are currently assessing the potential effect on such office systems,
equipment and facilities, and the costs of remediating such issues in each of
our office locations.
We are actively contacting third-party suppliers of components and
telecommunications services, and our key subcontractors used in the delivery of
our services to identify, and to the extent possible, resolve issues relating to
the Year 2000 issue. While we expect that we will be able to resolve any
significant Year 2000 issues identified with these third parties, because we
have no control over the actions of these parties, these third parties may not
remediate any or all of the Year 2000 issues identified. Any failure of any of
these third parties to timely resolve Year 2000 issues with either their
products sold to us, or their systems could have a material adverse effect on
our business, operating results and financial condition. In addition, the
delivery of our services is also dependent on the operation of the networks of
many local exchange carriers and long distance carriers with whom we must
interact as part of our normal business operations, but with whom we do not have
formal contractual arrangements. Consequently, failure of these carriers'
networks to fully operate as a result of Year 2000 issues could also affect our
operations.
We currently anticipate that our total cost to proactively address our Year
2000 issues will be approximately $0.3 million. The cost of addressing Year 2000
issues will be reported as a general and administrative expense. We have not
deferred any material information technology projects due to our Year 2000
efforts.
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<PAGE> 31
We expect to identify and resolve all Year 2000 issues that could
materially and adversely affect our business operations. However, for the
reasons discussed above, we believe that it is not possible to determine with
complete certainty that all Year 2000 issues affecting us have been identified
or corrected. As a result, we believe that the following consequences are
possible:
- operational inconveniences and inefficiencies for us that will divert our
management's time and attention and our financial and human resources
from ordinary business activities;
- business disputes and claims for pricing adjustments or penalties by our
customers due to Year 2000 issues, which we believe will be resolved in
the ordinary course of business; and
- business disputes alleging that we failed to comply with the terms and
conditions of contracts or industry standards of performance that result
in litigation or contract termination.
Under the direction of the Year 2000 Steering Committee, we are currently
developing contingency plans to be implemented if our efforts to identify and
correct Year 2000 issues affecting our internal systems are not effective. Our
contingency plans will be designed to minimize the disruptions or other adverse
effects resulting from Year 2000 incompatibilities with critical business
systems. Our contingency plans will consider an assessment and recovery plan for
all our critical internal information and operation systems that use
computer-based controls. We completed our contingency plans in November 1999.
These plans include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of backup equipment and software;
- increased work hours for our personnel; and
- use of contract personnel to correct on an accelerated schedule any Year
2000 issues that arise or to provide manual workarounds for information
systems.
Our implementation of any of these contingency plans could require us to
expend additional funds and could have a material adverse effect on our
business, operating results and financial conditions. Our efforts in this
regard, if necessary, will be to minimize expense associated with the
implementation and use of any contingency planning with our objective to employ
the least costly plan necessary to address the relevant Year 2000 issues.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our operations
or investment portfolio. Our earnings are affected by changes in interest rates
as our long term debt has variable interest rates based on either the Prime Rate
or LIBOR. If interest rates for our long term debt average 10% more in 1999 than
they did during 1998, our interest expense would increase, and loss before taxes
would increase by $1.7 million for the nine months ended September 30, 1999.
These amounts are determined by considering the impact of the hypothetical
interest rates on our borrowing cost and outstanding debt balances. These
analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in our financial structure.
29
<PAGE> 32
BUSINESS
OVERVIEW
We are a rapidly-growing, innovative provider of state-of-the-art broadband
telecommunications services. Our strategy is to focus on high-end customers,
primarily large- and medium-sized businesses, having a minimum of 50 business
access lines and spending over $50,000 annually for Internet, data and voice
telecommunications services. As a CLEC, we offer businesses located throughout
the mid-Atlantic and northeastern regions of the United States cutting-edge,
responsive solutions as an alternative to the ILECs. Today, we offer an
integrated package of high-speed data services, Internet services, local
services and long distance services, primarily delivered from our own network
over a single broadband connection and conveniently billed on a single invoice.
Since the introduction of our Net2000-banded services in July 1998, we have
successfully acquired over 1,000 new business customers, representing
approximately 70,000 access lines. As of November 30, 1999, our rapidly growing
sales force consisted of 104 people.
BUSINESS STRATEGY
We strive to be the provider of choice for integrated business
telecommunications services in our target markets. We believe that our six-year
operating history, existing customer base and substantial experience will enable
us to implement effectively our growth strategy. The key elements of our
strategy include the following:
ACQUIRE CUSTOMERS BY USING OUR PROVEN SALES AND MARKETING TECHNIQUES
We continue to use our proven sales model to obtain and retain higher-end,
quality business customers. We have sold successfully advanced
telecommunications services to businesses in the mid-Atlantic and northeastern
regions of the United States for the past six years. Through our experience in
selling and marketing local exchange services and the intensive training of our
sales staff, we have succeeded in attaining an average customer with over 68
access lines, having bandwidth equivalent to three high capacity T-1 lines. In
contrast, we believe that most other CLECs have fewer than 20 business access
lines per customer. Some of our customers include American Diabetes Association,
AskJeeves.com, Cable & Wireless plc, Dunbar Armored, Duron Paint, Georgetown
University Law Center, Icelandair, Johns Hopkins University, Newsweek, Pepco
Energy Services, Rolls-Royce plc, soldout.com, Teleglobe, The Corcoran Group,
The George Washington University Health Plan, and Vialog Communications. Since
1993, we have utilized a highly-consultative sales approach whereby experienced
sales executives work with new and existing customers to analyze their needs.
This personalized approach enables us to optimally configure each customer's
services and deliver superior customer care. Using this approach, we have
established close relationships with over 3,000 businesses, of which over 1,000
are current customers of Net2000-branded services. We were one of the first
companies in the industry to offer a bundled package of high-speed data
services, Internet services, local services and long distance services through a
single broadband connection and conveniently billed on a single invoice. We
believe that our ability to offer this enhanced package will continue to provide
us with a strategic advantage in the marketplace.
USE TECHNOLOGY, INCLUDING WEB-BASED SOLUTIONS, AND STATE-OF-THE-ART BACK
OFFICE SYSTEMS TO DELIVER SUPERIOR CUSTOMER CARE
We plan to increase customer loyalty with our proprietary customer
interface, e.mpower, that leverages the power of the Internet by providing our
customers with an e-commerce tool to manage and procure their telecommunications
services. We believe we are revolutionizing our customers' buying experiences by
providing them direct access to information regarding network performance,
ordering services, capacity use on the network, billing data and management
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<PAGE> 33
reports. Currently, e.mpower enables our customers to order services, report
troubles, initiate and view the status of trouble tickets and analyze invoice
data 24 hours per day, seven days per week. The second phase of e.mpower is
targeted for release in January 2000 and will include the real-time capability
to review network utilization statistics.
We also utilize state-of-the-art, scalable information systems. Our
operational support systems consist of software applications from Saville
Systems, Metasolv, Siebel Systems, Wisor, Linguateq and DSET. These systems,
which are integrated and scalable, enable us to reduce costs and shorten the
interval between a customer's order and service installation by eliminating
repeated manual data entry.
Our heritage and focus as a sales, marketing and customer care company have
generated customer loyalty and, we believe, one of the lowest customer churn
rates in our industry of approximately 3% annually.
CONTINUE BUILD-OUT OF OUR DATA-CENTRIC NETWORK TO MAXIMIZE SPEED TO MARKET AND
MINIMIZE INVESTMENT RISK
Our approach is to deploy and own the key elements of our network necessary
to establish customer loyalty, including proprietary back office systems and
intelligent switches. We lease fiber transport facilities to interconnect our
switches. This strategy greatly mitigates capital risk and allows us to take
advantage of falling costs of network elements and new technologies, including
DSL technology. Our smart-build strategy differs from other telecommunications
services providers' because we enter new markets with data services, follow with
voice services and use DSL lines to reduce transport cost and increase capacity.
We initiate service in new markets by first deploying lower-cost data
switches. This better positions us to address the complex data needs of larger
customers and to generate traffic on our national network in targeted cities
before investing significant capital in multi-service communications centers.
When data traffic and customer concentration reaches an optimal level, we
install multi-service communications centers, capable of supporting data, voice
and multi-media services, in an incremental fashion to meet our customers'
growing needs. We can leverage the industry's rapid deployment of DSL technology
and the effects of recent regulatory rulings to reduce our cost of connecting
customers to our network by up to 50%.
Unlike other smart-build CLECs, we do not presently collocate our network
equipment in ILEC central offices. This allows us to open new markets faster and
have greater control over service quality. In order to capitalize on a recent
regulatory ruling, we plan to establish one ILEC collocation in each market to
allow us to reduce the cost of our customer connections.
Our Nortel-based flexible network design supports state-of-the-art,
broadband data and voice telecommunications services, and is designed to support
evolving data technologies with minimal additional capital expenditures. By
utilizing newly developed equipment, we can place more services on the same
three T-1 lines at our average customer site, thereby allowing us to generate
more revenue without increasing our operating costs.
LEVERAGE EXPERIENCE OF PROVEN MANAGEMENT TEAM
Our proven senior management team, with an average of 20 years of
telecommunications experience in industry leading corporations, has been a major
factor in our success to date and will continue to play a key role in the
execution of our strategy.
CAPITALIZE ON OUR STRATEGIC BUSINESS PARTNERSHIP WITH NORTEL NETWORKS
As part of our agreement, Nortel has provided us with 22 dedicated on-site,
full-time employees to support our network build-out. The Nortel equipment in
our network can be upgraded from circuit to packet switching at modest cost.
Nortel has provided us with a
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<PAGE> 34
$30 million equity investment and a $150 million debt and equipment financing
for the build-out of our network. This investment more closely aligns our mutual
business and technical interests.
MARKET OPPORTUNITY
We believe that the Telecommunications Act and certain state regulatory
initiatives provide substantial opportunities in the telecommunications
marketplace by opening local markets to competition and requiring the ILECs to
provide increased access to connect our network to theirs for exchanging data
and voice traffic. In addition, we believe that accelerated growth rates in
local traffic related to increased demand for Internet access, interoffice
communications and other data service applications and the desire for "one-stop
shopping" by business customers presents an attractive opportunity for new
entrants to achieve product differentiation and significant penetration into
this very large, established market.
The two main segments of the telecommunications industry, voice and data
services, continue to drive growth. International Data Corp., a leading industry
analyst, estimates that the voice services market in the United States is
expected to grow from $162 billion in 1998 to $206 billion in 2002, and the data
services market will grow from $30 billion in 1998 to $93 billion in 2002. This
growth in the data services market represents a compounded annual growth rate of
32.7%. High-speed data services and Internet connectivity have become important
to business due to the dramatic increase in Internet usage and the proliferation
of personal computer and IP-based applications. According to IDC, the number of
Internet users worldwide reached approximately 142 million in 1998 and is
forecasted to grow to approximately 502 million by 2003. In addition, according
to the United States Department of Commerce, the e-commerce market will grow to
$130 billion in annual revenues, 90% of which will be business-to-business
applications by 2002.
We believe we are well-positioned to capitalize on the overall growth of
the telecommunications industry. As of November 1999, our 13 Phase I cities
represented a region with greater than 9 million business access lines. This
equates to approximately one-fifth of total United States business lines
according to TeleCon, LLC, an independent telecommunications research firm. In
Phase III of our deployment, we plan to extend our network to include cities
encompassing approximately one-half of the business access lines in the United
States. The following table sets forth certain information from TeleCon
regarding the markets in which we currently operate and the markets we plan to
enter by the end of 2002.
<TABLE>
<CAPTION>
BUSINESS ACCESS
MARKET LINES
- ------ ---------------
<S> <C>
Phase I:
Washington, DC 1,527,799
Baltimore, MD 585,289
Richmond, VA 248,548
Norfolk, VA 344,960
New York, NY 2,289,680
Boston, MA 1,440,942
Williamsburg, VA 16,247
Roanoke, VA 65,911
Newark, NJ 931,929
Long Island, NY 759,989
Providence, RI 230,876
Frederick, MD 37,616
Philadelphia, PA 1,180,532
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
BUSINESS ACCESS
MARKET LINES
- ------ ---------------
<S> <C>
Phase II:
Atlanta, GA 875,543
Charlotte, NC 279,263
Chicago, IL 2,191,806
Dallas/Fort Worth, TX 1,054,348
Denver, CO 480,972
San Jose, CA 564,285
Los Angeles, CA 3,179,616
Philadelphia, PA Included Above
Wilmington, DE 114,260
Pittsburgh, PA 412,462
Salt Lake City, UT 227,270
Phase III:
Chicago, IL Included Above
Miami, FL 453,323
Charlotte, NC Included Above
San Francisco, CA 1,169,218
Houston, TX 922,816
Los Angeles, CA Included Above
Denver, CO Included Above
Dallas/Fort Worth, TX Included Above
Pittsburgh, PA Included Above
Seattle, WA 458,393
</TABLE>
Data for Los Angeles, CA includes Orange County, CA and data for San Francisco,
CA includes Oakland, CA.
SERVICES
We have designed our service offerings to meet the specific needs of
business customers in our target markets. Our integrated network access service
allows customers to combine data services, such as frame relay, private line or
Internet access and voice services, local and long distance, on the same high
capacity network access circuit, thereby reducing the cost of these services.
Unlike many telecommunications services providers, we can offer all Net2000
services to our customers using the same broadband network connection. We offer
a comprehensive selection of data and voice services including: (i) high-speed
data communications; (ii) voice; (iii) domestic and international long distance;
and (iv) Internet access. All of these services are supported by e.mpower, our
innovative web-based customer care application. We also provide billing for all
of these services on a single invoice. Our products and services include:
DATA COMMUNICATIONS SERVICES
- WIDE AREA NETWORK INTERCONNECTION. We provide businesses with high-speed
data connectivity between locations throughout the United States. These
connections are typically over T-1, T-3 and asynchronous transfer mode,
or ATM, connections. We currently provide this connectivity over our own
ATM backbone in the mid-Atlantic and northeastern regions of the United
States and utilize our interconnection with other carriers to provide
services throughout other areas of the United States. As we continue our
national ATM backbone deployment, which we anticipate to be substantially
complete in late 2000, we will be able to provide a large percentage of
these connections on our own network. In addition, many Internet and
other enhanced service providers are collocating
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<PAGE> 36
equipment in our switching centers, thereby allowing them to utilize our
backbone wide area network connections between major cities.
- FRAME RELAY. We offer fast packet data service, or frame relay, to
customers throughout the United States. We provide this service today
over our six data switches and network-to-network interconnections with
other national carriers.
- PRIVATE LINE SERVICE. Our private line service provides digital
connectivity between customer locations for data or voice traffic. We
offer both local private line services for connecting offices within a
metropolitan area and long distance private line services for connecting
offices beyond geographic boundaries established by regulatory bodies.
- HIGH-SPEED INTERNET ACCESS. We provide customers with a variety of
Internet access offerings. Our Internet access services range from very
high bandwidth connections to lower speed, dedicated 128 kilobits per
second and frame relay connections. For customers that subscribe to more
than one service, we provide high-speed Internet access coupled with any
of our other services over a single broadband facility.
- ENHANCED INTERNET ACCESS SERVICES. Our enhanced Internet access services
provide full-time connections to the Internet as well as several
associated services. Customers can utilize this access in combination
with customer-owned equipment and software to establish a presence on the
web or to provide e-commerce services. We also offer a managed Internet
access solution, which provides the customer with the networking
equipment required to access the Internet, (such as routers and channel
service units). Enhanced Internet access services also include obtaining
IP addresses, registration of company domain names (i.e.,
companyname.com) with the appropriate organization, newsfeeds for
participation in discussion groups and domain name services which
translate Internet addresses to facilitate routing across the Internet.
Our web based e-mail services provide the customer with electronic mail
using a web browser.
VOICE SERVICES
LOCAL SERVICES. We provide customers with a variety of local exchange
services designed to meet their specific needs.
- CONNECTION PRODUCTS. We offer the same traditional and enhanced local
exchange telecommunications services offerings as the ILECs. These
services include traditional business lines (private branch exchange, or
PBX, interconnection trunks), direct inward and outward dial trunks and
analog and digital access. In contrast to the ILECs, we offer a
simplified equipment interface which saves customers money and provides a
user-friendly billing format. With the recent advent of local number
portability, or LNP, customers can choose to keep their existing phone
numbers. We have found LNP to be an increasingly useful tool to capture
existing business from our primary competitors, the ILECs.
- ENHANCED SERVICE FEATURES. Through our advanced intelligent network
features, we offer and support over 100 features to enhance customers'
telecommunications usage with features such as call forwarding, call
transferring, caller ID, call waiting, three-way calling and call
holding. We also offer operator services, directory assistance and 911
emergency service capability.
LONG DISTANCE SERVICES. We provide a comprehensive line of domestic and
international long distance services. We offer all customers connected to our
network, low-cost dedicated access rates irrespective of calling volume. This
allows customers to further optimize their network access and equipment
configuration by minimizing the need for special access or overflow lines.
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<PAGE> 37
- INBOUND SERVICES. We provide 800/888 toll free services in all 50 states,
Canada and the surrounding territories to help our customers improve
their relations with customers, employees and investors.
- OUTBOUND SERVICES. We offer a number of long distance service packages
created to meet the needs of our customers based on volume and calling
patterns including 1+ outbound calling. Our account codes feature allows
us to provide a monthly invoice showing outbound usage by account code.
Customers typically use account codes to itemize call activity based on
department, client, business unit or individual.
- OPERATOR SERVICES. Our customers have access to operator services for
assistance in placing calls.
- CALLING CARDS. We offer calling cards to make calls while traveling in
the United States and selected international locations.
COLLOCATION, REMOTE ACCESS AND OTHER CARRIER SERVICES
We offer collocation services to Internet service providers and other
carriers. By placing their equipment in our multi-service communications
centers, these customers enjoy lower-cost access to geographically dispersed
dial-up customers through a single point of interconnection, thereby allowing
our Internet service provider customers to establish local number dial access,
or points-of-presence, in any city on our backbone network, without incurring
additional real estate, equipment, toll and transport costs. Further,
collocation allows Internet service providers and other carriers to quickly
install and provide an immediate low-cost, highly reliable connection to the
full suite of our services and ATM backbone.
We offer between 900 and 6,400 square feet of collocation space in our
multi-service communications centers. Collocation provides our customers with
inexpensive equipment housing, in a highly secure, environmentally controlled
and monitored space. As of December 31, 1999, we expect to have over 18,500
square feet of dedicated collocation space available. We expect this space to
increase significantly as our switch deployment progresses.
SALES AND CUSTOMER CARE
We market our services by providing each customer with a responsive,
highly-trained face-to-face executive sales team supported by customer care
managers. These teams provide customized solutions and a point-of-contact for
each of our customers. We believe that this personalized, attentive approach to
sales and service facilitates incremental sales of new services to existing
customers, while maximizing customer retention.
SALES
- DIRECT SALES. We currently market our telecommunications services through
our rapidly growing direct sales force as well as through sales agents. As
of November 30, 1999, we had 104 direct sales executives, excluding
contractual relationships with five sales agents. Our sales executives are
located in sales offices servicing eight markets, including metropolitan
Washington, D.C., New York City, Long Island, Boston, Providence,
Baltimore, Richmond and Norfolk. Over the next 12 months, we plan to
aggressively grow our sales staff in existing markets and open sales
offices in northern New Jersey, Philadelphia, Wilmington and Atlanta. We
supplement our sales efforts through trade shows, seminars, outsourced
telemarketing for lead generation, direct mail campaigns, regional
advertising and utilization of database tools, such as mining.
The following table sets forth each of our existing and proposed sales
office locations, the date we plan to open each proposed office, the number of
direct sales representatives currently
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<PAGE> 38
located in each office and the number of direct sales representatives we intend
to be located in each office at year-end 1999, 2000 and 2001.
<TABLE>
<CAPTION>
DIRECT SALES STAFF
-------------------------------------------------------
TOTAL AT PLANNED PLANNED PLANNED
OFFICE NOVEMBER 30, YEAR END YEAR END YEAR END
STATUS 1999 1999 2000 2001
MARKET ------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Washington, DC open 34 37 48 49
Baltimore open 15 16 31 32
Richmond open 13 13 35 38
Norfolk open 11 11 31 30
New York open 7 7 27 45
Long Island open 7 7 19 31
Newark open 3 5 21 28
Boston open 9 10 33 51
Providence open 5 3 9 13
Philadelphia planned 0 1 24 37
Phase II markets planned 0 0 48 188
Phase III markets planned 0 0 10 58
</TABLE>
We believe our target market, large- and medium-sized businesses, are
largely underserved by ILECs and have needs that are too complex for other CLECs
to serve. In order to achieve our goal of sales excellence, we employ four key
strategies:
- selectively recruit experienced sales personnel;
- provide extensive and continuous training;
- segment our sales teams based on experience; and
- offer a full portfolio of competitively priced services.
Our sales executives are segmented based on their typical experience and
track record of success:
ACCOUNT MANAGERS. Our account managers are proven professionals with two or
more years of general sales experience and focus on businesses spending
$15,000 per month or less.
SENIOR ACCOUNT MANAGERS. Our senior account managers have four or more
years of proven sales experience, including experience in the
telecommunications industry and focus on businesses spending $10,000 to
$25,000 per month.
MAJOR ACCOUNT MANAGERS. Our major account managers are our most senior
sales executives, having five to seven years of telecommunications sales
success and focus on businesses spending $20,000 to $1 million per month.
In addition to our new customer acquisition sales force, we utilize an
embedded base sales team and a carrier sales team.
EMBEDDED BASE SALES TEAM. Our embedded base sales team focuses on retaining
and selling additional services to existing customers. This team's initial
sales effort is to convert as many of our 1,000 existing resale and 2,000
former agent customers as possible to our network. After this initiative is
complete, beginning in the second half of 2000, this team will focus on
selling incremental services to all existing customers. New customers are
generally transitioned to this team 120 days after service is installed.
CARRIER SALES TEAM. Our wholesale or "carrier" sales organization focuses
on selling collocation and other tailored solutions to Internet service
providers and carriers.
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<PAGE> 39
The following table describes our direct sales force of the above types of
sales managers:
<TABLE>
<CAPTION>
DIRECT SALES STAFF BY TYPE
---------------------------------------------
AS OF PLANNED PLANNED
NOVEMBER 30, YEAR END YEAR END YEAR END
1999 1999 2000 2001
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Account Managers................................... 49 49 188 349
Senior Account Managers............................ 25 28 59 123
Major Account Managers............................. 12 13 31 53
Strategic Base Representatives..................... 6 8 26 28
Sales Management................................... 12 12 32 47
--- --- --- ---
Total......................................... 104 110 336 600
=== === === ===
</TABLE>
Our sales executives meet with prospective customers to gain a thorough
understanding of their business and telecommunications requirements. Sales
executives then submit a professional, highly-customized and comprehensive
proposal that outlines several alternatives for operational enhancements and
cost savings based on an integrated bundle of services.
To attract and motivate sales professionals, we generally provide a
comprehensive compensation package which includes a competitive base salary,
stock options and a non-capped commission plan based on sales results. The
commission structure targets approximately 60% of a sales executive's
compensation to be derived from new and incremental revenue generation.
In 1999, direct sales accounted for 99% of our revenue and we estimate 94%
of our revenue in 2000 will be generated through direct sales.
- INDIRECT SALES. In addition to our direct sales team, we utilize sales
agents who sell our services and typically focus on specific niche
markets or industries, augmenting our direct sales initiatives. Customers
acquired through agents are serviced by our customer care
representatives, are invoiced by us and have the same direct relationship
with us as any of our other customers.
Over the past six years, our customer acquisition efforts also have been
facilitated by working with alliance partners. We establish these relationships
with systems integrators, "interconnect" or equipment companies and others which
offer complementary telecommunications products and services to the same group
of target customers.
CUSTOMER CARE
Given our heritage is as a sales, marketing and customer care company, we
pride ourselves on providing the best possible customer care in the industry. To
this end, we provide an installation sales manager and customer care
representative to each new customer. The role of the installation manager is to
manage and oversee the implementation of the customer's telecommunications
services. The customer care manager is the primary point of contact for the
customer after the installation is complete. The customer care effort is
complemented by our 24 hours per day, seven days per week customer response
center.
We are investing in a sophisticated customer relationship management, or
CRM, system that is integrated with an automated call distribution, or ACD,
platform. This system identifies the incoming phone number and matches it with
the customer's name and account information including reported troubles and
services installed along with other key account information. If the designated
customer care manager is unavailable to take the call, the call is re-directed
along with all customer information to our customer response center. This call
treatment is transparent to the customer.
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<PAGE> 40
We believe that knowledgeable and well-trained employees are necessary to
provide the proper level of customer care to our large target customers. As a
result, all customer care managers, installation managers, installation
personnel, customer response center representatives and field installation
technicians receive continuous training, including rigorous technical, customer
care and corporate culture training. Extensive case studies, role playing and
immediate peer and instructor feedback during the training program give our
employees the knowledge and confidence to provide comprehensive support to
customers on the full range of Net2000 services. All training is developed and
conducted in-house by full-time "faculty" at "Net2000 University". We believe
our training program provides us with a key strategic advantage.
Each customer care team is carefully selected and closely managed to ensure
that a broad range of technical and support experience is available to address
customer requests or concerns. Sales executives work closely with customer care
and installation professionals to provide responsive service and support for the
customer.
Our customer response center operates 24 hours per day, seven days per week
from our new operations center in Herndon, Virginia. Our network operations
center, located adjacent to our customer care personnel, houses technical staff
who monitor our network and switches. This center allows us to remotely diagnose
and correct problems or dispatch technicians. Our investment in service
automation and trouble resolution software reduces the time required for
customer care resolution. In addition, Nortel provides on-site switch
technicians to support our network operations center.
We have launched e.mpower, our user-friendly web-based tool to provide our
customers with billing data as well as access to network performance and
bandwidth utilization information. The initial phase of e.mpower was released in
October 1999 and enables our customers to order services, report and check on
the status of troubles and outages and view and analyze invoice data, 24 hours
per day, seven days per week. The second phase of e.mpower, targeted for release
in January 2000, will include real-time capability to review network
utilization. Subsequent phases will continue to build on this robust feature set
while continuing to provide customer centric capabilities. We believe this
web-based interface will further strengthen our bond with customers and enhance
our customer retention programs.
Formal recognition programs are an inherent aspect of our culture. Progress
toward specific internal and external customer satisfaction goals is measured
through monthly customer care surveys. Customer care managers are paid quarterly
bonuses which comprise 25% of their annual compensation and are based on key
customer satisfaction indices.
Our focus on customer care is reflected in our low churn rate of 3%
annually. Since initiation of our network services in July 1998, we have lost
only one network customer.
BACK OFFICE
Back office refers to the hardware and software systems that support the
primary functions of our operations, including:
- sales support;
- order entry and provisioning;
- billing; and
- customer care and trouble management.
Our goal is to have a back office that allows customers to switch service
from their current local providers to our network as easily and as quickly as
they can switch long distance providers today. Over time, we strive to have
"flow-through" provisioning capabilities, allowing services to be implemented
with limited human intervention.
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<PAGE> 41
We have implemented the primary elements of our back office, including
order entry, provisioning, billing and customer care. We believe we have
implemented the best application for each function. The following table
describes our key back office systems, their purpose, their status and timeline
for integration.
<TABLE>
<CAPTION>
SYSTEM PURPOSE IN-SERVICE INTEGRATION
------ ------- ---------- -----------
<S> <C> <C> <C>
Siebel Systems............ customer care 2nd Quarter 2000 2nd Quarter 2000
Wisor..................... sales support Yes 2nd Quarter 2000
Metasolv.................. provisioning Yes 1st Quarter 2000
DSET...................... communications center 1st Quarter 2000 1st Quarter 2000
connection
Saville................... billing Yes 1st Quarter 2000
e.mpower.................. extranet Yes Integrated
INM-3..................... Network Operations Center, Yes 2nd Quarter 2000
network management
Linguateq................. call record consolidation Yes 1st Quarter 2000
CHA....................... wholesale billing Yes 1st Quarter 2000
Oracle Financial.......... accounting/finance 1st Quarter 2000 2nd Quarter 2000
Super Sleuth.............. fraud prevention 4th Quarter 1999 1st Quarter 2000
Vitria.................... application integration 1st Quarter 2000 2nd Quarter 2000
</TABLE>
SALES SUPPORT
Sales support includes customer prospect management, customer sales record
extraction and analysis, pricing and proposal generating. We use systems
provided by Siebel Systems and Wisor. We anticipate that these systems will be
fully-implemented and integrated by the second quarter of 2000.
ORDER ENTRY AND PROVISIONING
Order entry involves the initial loading of customer data into our
information systems. Currently, our sales executives take orders and our
customer care and provisioning representatives load the initial customer
information into our Saville billing system and load the initial customer
information into our Metasolv provisioning system. We are in the process of
integrating our systems which will increase efficiency and reduce duplicative
data entry and error.
We use the Metasolv TBS system to manage and track the timely completion of
each step in the provisioning process. When Metasolv is coupled with
capabilities of DSET, orders can be submitted to business partners
electronically, thereby minimizing implementation time, coordination
complexities and installation costs.
In addition to the cost benefits associated with the electronic
installation of access lines and inventory management system, the Metasolv
system improves our internal processes in various other ways, including:
- directing electronic customer orders to the appropriate employee, network
component or outside vendor;
- tracking order progress and alerting operations personnel of steps
required to fulfill orders within standard work intervals; and
- the ability to forecast, control and communicate customer care
commitments.
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<PAGE> 42
The system is designed to enable the sales executive or customer care
coordinator to keep an installation on schedule and notify the customer of any
potential delays. Once an order has been completed, we update our billing system
to initiate billing of installed services.
BILLING
The Saville billing system provides our customers with a consolidated
invoice for all of our services. Customer calls generate billing records that
are automatically transmitted from the switch to the billing systems. These
records are then processed by the billing software which calculates usage costs,
integrates fixed monthly charges and assembles bills in a customer-specific
billing format.
For those customers who request electronic billing, we have the capability
to provide the invoice and call detail records on CD-ROM. This Saville system
allows us to add advanced features such as special discounts based on call
volume, or number of services used, complex local taxation and discrete billing
options by type of service ordered. We believe these features are exceptionally
important given our sophisticated client base.
CUSTOMER CARE AND TROUBLE MANAGEMENT
A fully-integrated back office system allows customer care representatives
to call up a customer while simultaneously electronically accessing all aspects
of a customer's service profile. This capability requires full system
integration accomplished through the use of Vitria, a middle wear software
package and Siebel's CRM module. Our trouble management system is integrated
into the operational support system. It enables our customer care personnel to
track customer problems proactively, assign repair work to the appropriate
technical teams and provide employees and management access to comprehensive
reports on the status of service activity.
To further improve our customer support, we have entered into a service
agreement with Nortel to assist us the continuous monitoring and operating our
switch network. The network management system is also designed to anticipate
failures and intervene before many service interruptions or service degradations
occur.
CUSTOMER SELF-CARE -- E.MPOWER
In October 1999, we launched the first phase of e.mpower, which includes
our on-line Internet-based bill presentment and analysis system. Currently,
e.mpower enables our customer to order services, report troubles, initiate and
view the status of trouble tickets and analyze invoice data 24 hours per day,
seven days per week. The second phase of e.mpower, targeted for release in
January 2000, will include real-time capability to review network utilization
statistics such as call blocking, network availability and traffic studies.
Integration of these systems facilitates functionality, scalability,
automation and superior customer care. We are currently implementing a tailored
operational support system architecture that integrates our internal operational
processes and establishes links to our financial and accounting systems. The
system will be flexible and integrated and will provide a single interface for
all support personnel through a secure and fault-tolerant electronic network.
THE INTEGRATED COMMUNICATIONS NETWORK
OVERVIEW
We plan to deploy a nationwide integrated telecommunications network. We
began building our network in March 1999 and have deployed facilities in the
mid-Atlantic and northeastern regions of the United States. Building from this
established network base, we plan to expand our network nationally to include 27
markets over the next two years. We initiate service in new
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markets by first deploying lower-cost data switches in new markets and adding
voice switches when justified by customer traffic.
We serve each of our markets with one or more state-of-the-art integrated
data and voice central offices. These multi-service central offices will be
equipped with both broadband data and voice switches to address current customer
requirements and provide a platform for innovative future services. We plan to
interconnect our central offices using leased fiber optic connections to
minimize expenses while optimizing reliability and service flexibility. We will
continue to use other telecommunications services providers in our operating
markets and along our transmission routes to expand our geographic coverage and
provide cost effective connections to existing and new customers.
Our approach is to deploy and own the key elements of our network necessary
to establish customer loyalty, including proprietary back office systems and
intelligent switches. We lease fiber transport facilities to interconnect our
switches. This strategy greatly mitigates capital risk and allows us to take
advantage of falling costs of network equipment and new technologies, including
DSL.
Our smart-build strategy differs from other telecommunications services
providers in several ways because we:
- LEAD WITH DATA. We initiate service in new markets by first deploying
lower-cost data switches. This better positions us to address the
complex data needs of larger business customers and generates traffic on
our national network in targeted markets before investing significant
capital in multi-service communications centers.
- BACK-FILL WITH VOICE. When data traffic and customer concentration
reaches an optimal level, we install multi-service communications
centers, capable of supporting data, voice and multi-media services, in
an incremental fashion to meet our customers' growing needs.
- ENHANCE MARGINS UTILIZING DSL TECHNOLOGY. We can leverage the industry's
rapid deployment of DSL technology and the effects of recent regulatory
rulings to reduce our cost of connecting customers to our network by up
to 50%.
- MINIMIZE COLLOCATION WITH ILECS. Unlike other smart-build CLECs, we do
not presently collocate our network equipment in ILEC central offices.
This allows us to open new markets faster and have greater control over
service quality. In order to capitalize on a recent regulatory ruling,
we plan to establish one ILEC collocation in each market to allow us to
reduce the cost of new customer connections.
DEPLOYMENT
We plan to deploy our network in three phases:
PHASE I
Phase I of our network build-out plan includes the Boston to Washington
corridor. We have chosen this territory as the foundation of our networks in
order to leverage our reputation and existing relationships and capitalize on
this strategic, high volume telecommunications region.
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Our Phase I cities include:
<TABLE>
<CAPTION>
DEPLOYMENT OF DEPLOYMENT OF
CITY DATA SERVICES VOICE SERVICES
- ---- ------------- --------------
<S> <C> <C>
Washington, DC................................ In service In service
Baltimore, MD................................. In service In service
Richmond, VA.................................. In service In service
New York, NY.................................. In service In service
Boston, MA.................................... In service In service
Norfolk, VA................................... In service In service
Williamsburg, VA.............................. 4th Quarter 1999 4th Quarter 1999
Long Island, NY............................... 4th Quarter 1999 1st Quarter 2000
Newark, NJ.................................... 4th Quarter 1999 1st Quarter 2000
Philadelphia, PA.............................. 4th Quarter 1999 In Phase II
Providence, RI................................ 4th Quarter 1999 2nd Quarter 2000
Frederick, MD................................. 1st Quarter 2000 1st Quarter 2000
Roanoke, VA................................... 1st Quarter 2000 1st Quarter 2000
</TABLE>
PHASE II
In Phase II, we plan to deploy a national ATM backbone and three additional
voice switches. We believe our Phase II cities are generally tier I and contain
high concentrations of large sophisticated customers with a high density of
access lines. In addition, we believe these cities are geographically dispersed,
providing the optimal locations for originating and terminating traffic on our
own network. These cities are interconnected by existing fiber routes. We expect
to complete the build-out of Phase II by the end of 2000. Our Phase II cities
include:
<TABLE>
<CAPTION>
DEPLOYMENT OF DEPLOYMENT OF
CITY DATA SERVICES VOICE SERVICES
- ---- ------------- --------------
<S> <C> <C>
Denver, CO................................... 2nd Quarter 2000 N/A
Atlanta, GA.................................. 1st Quarter 2000 4th Quarter 2000
Los Angeles, CA.............................. 3rd Quarter 2000 N/A
Wilmington, DE............................... 4th Quarter 2000 4th Quarter 2000
Charlotte, NC................................ 2nd Quarter 2000 N/A
Pittsburgh, PA............................... 4th Quarter 2000 N/A
Chicago, IL.................................. 2nd Quarter 2000 N/A
Dallas/Ft. Worth, TX......................... 2nd Quarter 2000 N/A
San Jose, CA................................. 3rd Quarter 2000 N/A
Salt Lake City, UT........................... 4th Quarter 2000 N/A
Philadelphia, PA............................. In Phase I 3rd Quarter 2000
</TABLE>
PHASE III
In Phase III, we plan to further expand our geographic coverage and add
additional switches in our existing markets. In Phase III, we complement and
upgrade our Phase I and II network facilities in order to provide our full suite
of services and to more fully utilize the national
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<PAGE> 45
backbone network constructed during Phases I and II. We anticipate we will
substantially complete the build-out of Phase III in the third quarter of 2002.
Our Phase III cities include:
<TABLE>
<CAPTION>
DEPLOYMENT OF DEPLOYMENT OF
CITY DATA SERVICES VOICE SERVICES
- ---- ------------- --------------
<S> <C> <C>
Chicago, IL.................................. In Phase II 1st Quarter 2001
Miami, FL.................................... 1st Quarter 2001 2nd Quarter 2001
Charlotte, NC................................ In Phase II 1st Quarter 2001
San Francisco, CA............................ 1st Quarter 2001 2nd Quarter 2001
Houston, TX.................................. 2nd Quarter 2001 2nd Quarter 2002
Los Angeles, CA.............................. In Phase II 3rd Quarter 2001
Denver, CO................................... In Phase II 4th Quarter 2001
Dallas/Ft. Worth, TX......................... In Phase II 1st Quarter 2002
Pittsburgh, PA............................... In Phase II 2nd Quarter 2002
Seattle, WA.................................. 1st Quarter 2002 3rd Quarter 2002
</TABLE>
NETWORK ARCHITECTURE
We have deployed, and plan to deploy, Nortel DMS-500 voice switches and
Nortel Passport data switches throughout our network. The DMS-500 voice switch
integrates local and long distance service capabilities. We chose these switches
based on their robust and completely integrated local and long distance service
capabilities, including:
- local number portability;
- emergency services;
- integrated services digital network; and
- least cost routing.
By using an integrated switching platform, we believe that we can provide
more efficient service, reduce network capital requirements and reduce operating
expenses, including:
- training and payroll;
- spare parts;
- maintenance;
- equipment space; and
- power expenses.
To complement the DMS-500, we have deployed a Tellabs Titan 5500 and 532
Digital Access Cross-connect System or DACS, to manage all transmission
connections. This data and voice architecture allows us to offer integrated
services not currently offered by other telecommunications services providers,
thereby resulting in higher service revenue and increased customer reliance upon
us as a single source telecommunications services provider. Use of a DACS and an
integrated access circuit reduces our maintenance and local connection expenses.
It also improves our network monitoring capabilities, facilitates reliability
through alternate routing and provides efficiency through bandwidth
optimization.
Our strategy to target high-end users of telecommunications services and
the smart-build network configuration we have deployed to serve these customers
provides the opportunity for us to significantly lower our costs to connect to
our customers. Our use of packet-based transmission functionality provides the
ability to integrate multiple services over a single customer connection.
Further, this technology enables us to monitor individual customers' capacity
needs,
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in real-time, and allocate the appropriate bandwidth on demand. This capability
allows us to offer customers more billable services over fewer network
connections than our competitors.
Additionally, we can lower our costs of connecting customers to our network
through the use and exploitation of DSL and enhanced extended links, or EEL. DSL
can provide a T-1 equivalent connection between the customer and the Net2000
network at savings of up to 50% off traditional T-1 connections. Recent
regulatory rulings have created the opportunity to deploy EEL circuits between
our network and our customers in lieu of traditional T-1 connections, which we
believe may reduce our cost of these connections from 20% to 50%.
To address the growing need for data telecommunications services, we
continue to deploy the latest generation Nortel Passport data switches. These
switches are based on a modern transport technology called ATM. ATM is a
transport technology that moves data traffic in bundles or packets and allows
multiple services to be aggregated on one network with complete control of the
quality of each. We have deployed data switches in our central offices and at
key transmission points of presence, or POPs, within and in our future target
markets. This allows us to:
- increase the proportion of traffic carried on our network;
- provide a foundation for our integrated data network;
- enhance network control; and
- simplify the provisioning effort.
As part of our smart-build strategy, we deploy data switches in
multi-service communications centers of other service providers, on a
collocation basis. This allows us to enter a new market and provide data
services and long distance voice services within a few months.
We believe that the traditional voice networks of other telecommunications
providers will be required to change significantly over the next several years.
Our deployment of the Nortel Passport equipment may reduce the risk of network
obsolescence and positions us to transition our traditional voice network with
our ATM packet based network in response to technology advances. This transition
will enable us to offer more advanced services while further reducing network
costs. We have agreements with Nortel to credit and replace any network
components that need to be upgraded.
COMPETITION
We operate in the highly competitive telecommunications services industry.
We do not have a significant market share in any segment of the market, and many
of our existing and potential competitors have financial resources significantly
greater than our own. We believe that the traditional distinctions between the
local, long distance, data and Internet access markets are eroding.
Competition for our products and services is based on price, quality,
reputation, geographic scope, name recognition, network reliability, service
features, billing services, perceived quality and responsiveness to customers'
needs. Implementation of the Telecommunications Act and the related trend
towards business combinations and alliances in the telecommunications industry
may create significant new competitors for us. The Telecommunications Act was
designed to eliminate most barriers to local competition and to permit the
traditional local telephone companies, if they demonstrate compliance with
certain pro-competitive conditions, to provide in-region interLATA long distance
services.
Our primary competitors in local service markets are the traditional local
telephone companies which provide local telephone services to most telephone
subscribers within their respective service areas. These providers have
long-standing relationships with customers and
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<PAGE> 47
regulatory authorities at the federal and state levels. In addition, they have
existing fiber optic networks and switches. If future regulatory or court
decisions afford traditional local telephone companies increased rates for
access or interconnection services, greater pricing flexibility, the ability to
refuse to offer particular services or network elements on an unbundled basis,
or other regulatory relief, such decisions could have a material adverse effect
on us.
In addition, AT&T and MCIWorldCom, the two largest long distance carriers
in the United States, each offer local communications services in major U.S.
markets using their own facilities or by resale of other providers' services.
New competitive local telephone companies, cable television companies, electric
utilities, microwave providers, wireless telephone system operators and large
customers who build private networks also seek to compete in the local services
market. These entities, upon entering into appropriate interconnection
agreements or resale agreements with the traditional telephone companies, may
offer single-source local, long distance and Internet access services similar to
those that we offer or propose to offer. Today, our most typical competitor in
our target markets is the traditional local telephone companies and MCIWorldCom.
Significant competition in the long distance market is expected to be
provided by the traditional local telephone companies when permitted under
government regulation. Prior to enactment of the Telecommunications Act, a
federal court order known as the Modified Final Judgment prohibited Regional
Bell Operating Companies from providing long distance service that originated,
or, in certain cases, terminated, in one of its in-region states, with several
limited exceptions. The prohibition against offering in-region local services
imposed on the Regional Bell Operating Companies by the Modified Final Judgment
will be lifted for each affected company if and when it has satisfied certain
statutory conditions specified in the Telecommunications Act. The process for
demonstrating compliance with the statutory fourteen point checklist of pro-
competitive actions includes approval by the relevant state regulatory authority
and the FCC. Once the Regional Bell Operating Companies are allowed to offer
widespread in-region interLATA long distance services, both they and the largest
long distance providers will be in a position to offer single-source local and
long distance services. Our success will depend upon our ability to provide
high-quality services at prices generally competitive with, or lower than, those
charged by our competitors.
Additional pricing pressure may come from telecommunications services
providers providing services through Internet Protocol transport, a
packet-switched technology that currently can be used to provide data and voice
services at a cost that may be below that of traditional circuit-switched
telecommunications services. Although this service currently is not regarded as
comparable to traditional voice telecommunications service, it could potentially
be used as a substitute for traditional voice service and put pricing pressure
on rates. Any reduction in prices may have a material adverse affect on our
results of operations.
We also will face competition from fixed and mobile wireless services
providers. The FCC has authorized cellular, personal communications services and
other providers to offer wireless services to both fixed and mobile locations.
These providers can offer wireless local loop service and other services to
fixed locations, such as office and apartment buildings, in direct competition
with us and existing providers of traditional wireline telephone service.
In addition, FCC rules went into effect in February 1998 that will make it
substantially easier for many non-U.S. telecommunications companies to enter the
U.S. market, thus potentially further increasing the number of competitors.
The market for data telecommunications and Internet access services also is
extremely competitive. Existing telecommunications companies, cable companies,
wireless telecommunications companies and new companies such as Internet service
providers compete to offer data and Internet services. There are no substantial
barriers to entry, and we expect that competition
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<PAGE> 48
will intensify in the future. Our success in selling these services will depend
heavily upon our ability to provide high-quality Internet access connections at
competitive prices.
EMPLOYEES
As of November 30, 1999, we had 419 full-time employees. We also hire
temporary employees and independent contractors as needed. In connection with
our growth strategy, we anticipate hiring a significant number of additional
personnel in sales and other areas of our operations by year-end 2000. Our
employees are not unionized, and we believe our relations with our employees are
good. Our success will continue to depend in part on our ability to attract and
retain highly qualified employees.
PROPERTIES
Our corporate headquarters is located in a 126,000-square foot facility
which we lease in Herndon, Virginia. The headquarters facility also houses our
customer care operations, our network operations center and certain network
facilities. We lease additional sales offices and switching facilities. The
aggregate amount we paid under our leases for the nine months ended September
30, 1999 was $1.5 million. Although our facilities are adequate at this time, we
will need to lease additional facilities, including additional sales offices and
switching facilities, as a result of anticipated growth.
LEGAL PROCEEDINGS
From time to time, we are a party to routine litigation and proceedings in
the ordinary course of business. We are not aware of any current or pending
litigation to which we are or may be a party that we believe could materially
and adversely affect our results of operations or financial condition.
GOVERNMENT REGULATION
OVERVIEW
Our telecommunications services are subject to regulation by federal, state
and local government agencies. Generally Internet and certain data services are
not directly regulated, although the underlying telecommunications services may
be regulated in certain instances. We hold various federal, state and local
regulatory authorizations for our regulated service offerings. The FCC has
jurisdiction over our facilities and services to the extent those facilities are
used in the provision of interstate or international telecommunications. State
regulatory commissions also have jurisdiction over our facilities and services
to the extent they are used in intrastate telecommunications. Municipalities and
other local government agencies may require telecommunications services
providers to obtain licenses or franchises regulating use of public rights-of-
way necessary to install and operate their networks. The networks also are
subject to certain other local regulations such as building codes and generally
applicable public safety and welfare requirements. Many of the regulations
issued by these regulatory bodies may change and are the subject of various
judicial proceedings, legislative hearings and administrative proposals. We
cannot predict what impact, if any, these proceedings or changes will have on
our business or results of operations.
FEDERAL REGULATION
The FCC regulates us as a non-dominant common carrier, or one that is not
considered to be dominant over other service providers in the relevant product
or geographic markets in which it operates. Non-dominant carriers are subject to
lesser regulation than dominant carriers but remain subject to the general
requirements that they offer just and reasonable rates and terms of
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service and do not unreasonably discriminate in the provision of services. We
have obtained authority from the FCC to provide domestic interstate long
distance services and international services between the United States and
foreign countries and have filed the required tariffs. While we believe we are
in compliance with applicable laws and regulations, we cannot assure you that
the FCC or third parties will not raise issues with regard to our compliance.
THE TELECOMMUNICATIONS ACT
In February 1996, the Telecommunications Act was passed by the United
States Congress and signed into law by President Clinton. This comprehensive
telecommunications legislation was designed to increase competition in the
long-distance and local telecommunications industries. The Telecommunications
Act imposes a variety of duties on providers of local telecommunications
services to facilitate competition in the provision of local telecommunications
and access services. Like all local exchange carriers, where we provide local
services, we are required to:
- interconnect our networks with those of other telecommunications
carriers;
- originate calls to and made by competing providers on a reciprocal basis;
- permit resale of our services;
- permit users to retain their telephone numbers when changing providers;
and
- provide competing providers with access to poles, ducts, conduits and
rights-of-way, if any.
ILECs, such as the Regional Bell Operating Companies, are subject to
requirements in addition to these, including the duty to:
- undertake additional obligations applicable to the interconnection of
their networks with those of competitors;
- permit collocation of competitors' equipment at their central offices;
- provide access to individual network elements, "unbundled elements,"
including network facilities, features and capabilities, on
non-discriminatory and cost-based terms; and
- offer their retail services for resale at wholesale rates.
The Telecommunications Act also eliminates certain pre-existing
prohibitions on the provision of interLATA long distance services by the
Regional Bell Operating Companies and GTE on a phased-in basis. Regional Bell
Operating Companies currently are permitted to provide long distance service
outside those states in which they provide local telecommunications service
("out-of-region") pursuant to the Telecommunications Act. In order to provide
out-of-region long distance services, the Regional Bell Operating Companies must
receive all requisite state or federal regulatory approvals customary to the
provision of long distance services. Regional Bell Operating Companies will be
permitted to provide interLATA long distance service within the regions in which
they also provide local telecommunications service ("in-region") upon
demonstrating to the FCC, with input from state regulatory agencies and the
Department of Justice, that they have complied with a statutory checklist of
requirements intended to open local telephone markets to competition. GTE and
other independent local exchange carriers are not limited by this regional
restriction. Although to date no Regional Bell Operating Companies have been
granted approval to provide in-region interLATA long distance services, entry of
such companies into the long distance business could result in substantial
competition to our services and may have a material adverse effect on us and our
customers.
The FCC is charged with establishing national rules implementing certain
portions of the Telecommunications Act. In August 1996, the FCC released an
order adopting an extensive set
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of regulations governing network interconnection, network unbundling and resale
of ILEC services, under the Telecommunications Act. In July 1997, the United
States Court of Appeals for the Eighth Circuit issued a decision vacating
substantial portions of these rules, principally on the ground that the FCC had
improperly intruded into matters reserved for state jurisdiction. In January
1999, the United States Supreme Court reversed many aspects of the Eighth
Circuit's decision, concluding that the FCC has jurisdiction to implement the
local competition provisions of the Telecommunications Act. In so doing, the
Supreme Court found that the FCC has authority to establish pricing guidelines
applicable to the provision of unbundled network elements and the resale of ILEC
services, to prevent ILECs from disaggregating existing combinations of network
elements, and to establish rules enabling competitors to select all or portions
of any existing ILEC interconnection agreements for use in their own
interconnection agreements with ILECs. The Supreme Court, however, did not
evaluate the specific pricing methodology adopted by the FCC and has remanded
the case to the Eighth Circuit for further consideration. While the Supreme
Court resolved many issues, including the FCC's jurisdictional authority, other
issues remain subject to further consideration by the courts and the FCC.
Although most of these FCC rules were upheld by the Supreme Court, the
Court found that the FCC had not adequately considered certain statutory
criteria for requiring ILECs to make unbundled network elements available to
CLECs. The FCC then conducted new proceedings to reexamine which unbundled
network elements ILECs must provide. On November 5, 1999, the FCC released an
order in which it required that ILECs make available most, but not all, of the
network elements specified in its initial order, as well as certain new network
elements not included on the original list. The FCC also clarified the
obligation of ILECs to provide certain combinations of network elements. We
expect interested parties to seek reconsideration or appeal of the FCC's order.
In the spring of 1998, four Regional Bell Operating Companies petitioned
the FCC to be relieved of certain regulatory requirements in connection with
their provision of advanced telecommunications services. Advanced
telecommunications services are wireline, broadband telecommunications services,
as opposed to traditional voice services, and are widely used for Internet
access, often relying on DSL technology and packet-switched technology. In
response, in August 1998, the FCC issued an order and notice which clarified its
views on the applicability to advanced services of existing statutory
requirements in the Telecommunications Act relating to network interconnection
and unbundling. The FCC also solicited public comments on a wide variety of
issues associated with the provision of advanced services by wireline carriers.
In March 1999, the FCC adopted a further order strengthening the rights of
CLECs to obtain physical collocation for purposes of interconnecting with ILEC
networks, as well as requiring that ILECs permit CLECs to collocate equipment
used for interconnection and/or access to unbundled network elements even if
such equipment includes certain switching or enhanced services functions. The
FCC also adopted rules designed to limit ILECs' ability to deny CLECs the
ability to deploy transmission hardware in collocation space by purporting that
the equipment will cause electrical interference with other wires, and it
proposed rules making these requirements more specific. In the recent proceeding
addressing unbundled network elements, however, the FCC declined to require
ILECs to provide CLECs with unbundled access to packet-switching services,
except in limited circumstances. The FCC also has not yet determined whether it
will permit ILECs to deploy advanced communications services through a separate
affiliate, which would not be regulated as an ILEC and therefore would not be
subject to the Telecommunication's Act unbundling and resale provisions. The FCC
also has pending requests by certain ILECs for pricing flexibility for their
provision of data services in certain markets. Moreover, in November 1998, the
FCC ruled that DSL services used to provide dedicated access to interstate
services, including Internet access, need not be resold to CLECs at wholesale
rates. The FCC is also reconsidering its earlier position that advanced
telecommunications services constitute local exchange service or exchange access
services under the Telecommunications
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Act. The FCC's decisions on these matters are currently subject or expected to
be subject to judicial review.
As noted above, a Regional Bell Operating Company seeking to provide
in-region interLATA long distance services must first comply with certain market
opening conditions set forth in the Telecommunications Act as well as receive
approval from the FCC. To date, the FCC has not yet found that any Regional Bell
Operating Companies have met the requirements of the in-region interLATA long
distance entry competitive checklist. However, in September 1999, Bell Atlantic
filed an application with the FCC seeking authority to begin providing long
distance services to customers located in the State of New York, where it also
provides local service. In October 1999, we and other competitors commented in
opposition to Bell Atlantic's submission. The New York Public Service
Commission, however, recommended approval of Bell Atlantic's application. On
November 1, 1999, DOJ, in its filing, stated that Bell Atlantic has not yet met
all of its market opening obligations and that, as a result, the FCC could deny
the application. DOJ also indicated that if the FCC were to approve the
application, it should impose conditions to ensure Bell Atlantic continues to
comply with all competitive checklist requirements. The FCC must act on Bell
Atlantic's application by December 28, 1999. If Bell Atlantic's application to
provide in-region interLATA long distance services is approved, its competitive
position in New York is likely to be strengthened substantially. In addition, we
anticipate that Bell Atlantic will soon initiate similar proceedings to obtain
in-region interLATA long distance service authority in other states in its
fourteen state operating region. For example, Bell Atlantic already has begun
the necessary regulatory review process in the Commonwealth of Massachusetts. We
also expect other Regional Bell Operating Companies to seek similar relief from
the in-region interLATA long distance service ban as it applies to them.
If the FCC permits the Regional Bell Operating Companies to provide
interLATA long distance service in their local service regions, they would be
able to offer integrated local and long distance services and could enjoy a
significant competitive advantage. However, the Telecommunications Act imposes
restrictions on the Regional Bell Operating Companies after they are permitted
to enter the long distance services market in their local service regions. Among
other requirements, for the first three years, unless this time period is
extended by the FCC, the Regional Bell Operating Companies can provide these
in-region long-distance services only through separate subsidiaries with
separate books and records, financing, management and employees. In addition,
transactions between Regional Bell Operating Company affiliates and these
subsidiaries must be conducted on a non-discriminatory basis.
ACCESS REGULATION
The FCC regulates the interstate access rates charged by ILECs for the
origination and termination of interstate long distance traffic. Those access
rates make up a significant portion of the cost of providing these long distance
services. Over the past few years, the FCC has implemented changes in interstate
access rules that result in the restructuring of the access charge system and
changes in access charge rate levels. On remand from an appeals court, the FCC
is conducting further proceedings to explain and refine its recent reforms
affecting access charge rate levels. The FCC is considering several proposals to
further reform access charge rate structures. These and related actions may
change access rates. If access rates are reduced, access revenues of all local
exchange carriers, including us, could be reduced, and the costs to ILECs and
interexchange carriers to provide long distance services also could be reduced
significantly. The impact of these new changes will not be known until they are
fully implemented.
The FCC has also raised the issue of whether it should begin to regulate
the access charges imposed by CLECs. Currently, CLECs are free to charge access
rates at any levels they deem appropriate. The current proceeding seeks comment
from the industry on whether CLECs should be required to cost-justify the access
charges they impose on interexchange carriers or whether
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such rates should be limited to a range of "reasonable" charges. A decision by
the FCC to regulate CLEC access charges could result in the reduction of those
charges for all CLECs.
Over the past few years, the FCC has granted ILECs significant flexibility
in pricing their interstate special and switched access services. We anticipate
that this pricing flexibility will result in ILECs lowering their prices in high
traffic density areas, the probable areas of competition with us. We also
anticipate that the FCC will grant ILECs increasing pricing flexibility as the
number of potential competitors increases in each of these markets. In August
1999, the FCC released an order that granted substantial additional pricing
flexibility to ILECs for certain interstate services. Among other things, the
FCC granted immediate pricing flexibility to many ILECs in the form of
streamlined introduction of new services, the ability to change rates for
certain interstate services based on geographic location, and removal, after
certain intraLATA toll dialing restrictions are lifted, of certain interstate
interexchange services from restrictive pricing regulation. The FCC also
established a framework for granting many ILECs greater flexibility in the
pricing of all interstate access services once they satisfy certain prescribed
competitive criteria. The FCC also invited public comment on proposals for yet
additional ILEC pricing flexibility.
UNIVERSAL SERVICE
In 1997, the FCC established a significantly expanded universal service
regime to subsidize the cost of telecommunications services to high cost areas,
and to low-income customers and qualifying schools, libraries and rural health
care providers. Providers of telecommunications services, like us, as well as
certain other entities, must pay for these programs. Our share of the payments
into these subsidy funds will be based on our share of certain defined
telecommunications end-user revenues. Currently, the FCC is assessing these
payments on the basis of a telecommunications services provider's interstate and
international revenue for the previous year. Various states are also in the
process of implementing their own universal service programs. We are currently
unable to quantify the amount of subsidy payments we will be required to make in
the future or the effect that these requirement payments will have on our
financial condition. Moreover, the FCC's universal service rules remain subject
to change, which could increase our costs.
DETARIFFING
In November 1996, the FCC issued an order that required non-dominant, long
distance carriers, like us, to cease filing tariffs for our domestic long
distance services. The order required mandatory detariffing and gave interstate
long distance service providers nine months to withdraw federal tariffs and move
to contractual relationships with their customers. This order subsequently was
stayed by a federal appeals court, and it is unclear at this time whether or
when the detariffing order will be implemented. In June 1997, the FCC issued
another order stating that non-dominant local services providers may withdraw
their tariffs for interstate access services provided to long distance carriers.
The FCC continues to require that services providers obtain authority to provide
service between the United States and foreign points and file tariffs for
international service.
In March 1999, the FCC adopted further rules that, while still maintaining
mandatory detariffing, required long distance carriers to make specific public
disclosures on the services providers' Internet websites of their rates, terms
and conditions for domestic interstate services. The effective date of these
rules also is delayed until a court decision is rendered on the appeal of the
FCC's detariffing order. If the FCC's orders become effective, non-dominant
interstate services providers will no longer be able to rely on the filing of
tariffs with the FCC as a means of providing notice to customers of prices,
terms and conditions under which they offer their domestic interstate services.
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<PAGE> 53
RECIPROCAL COMPENSATION
Recently, the FCC has determined that both dedicated access and dial-up
calls from a customer to an Internet service provider are primarily interstate
in nature and therefore are to be considered interstate calls, subject to the
FCC's jurisdiction. The FCC has initiated a proceeding to determine the effect
that this regulatory classification will have on the obligation of a services
provider to pay reciprocal compensation for dial-up calls to Internet service
providers that originate on one services provider's network and terminate on
another services provider's network. Currently, the FCC has permitted existing
reciprocal compensation arrangements between services providers, as set forth in
interconnection agreements and approved by state regulatory commissions, to
remain intact. The FCC is currently determining whether a new compensation
mechanism should be implemented. A decision which invalidates current reciprocal
compensation arrangements could result in the reduction, or elimination, of
revenue we receive from reciprocal compensation payments for traffic terminated
over our network to Internet service providers. In addition, in various
contexts, certain ILECs have asked the FCC to rule that certain calls made over
the Internet are subject to regulation as telecommunications services, including
the assessment of interstate switched access charges and universal service fund
assessments. Although the FCC has suggested that Internet-based
telephone-to-telephone calls may be considered telecommunications services, it
has not reached a final decision on that issue.
CUSTOMER PRIVACY
The Communications Act of 1934 and FCC rules protect the privacy of certain
information that a telecommunications carrier such as us acquires by providing
telecommunications services to such customers. Such protected information known
as Customer Proprietary Network Information, includes information related to the
quantity, technological configuration, type, destination and amount of use of a
customer. Under the FCC's rules, a carrier may not use this information acquired
through one of its offerings of telecommunications services to market certain
other services without the approval of the affected customers. The United States
Court of Appeals for the Tenth Circuit, however, recently overturned the FCC's
rules regarding the use and protection of this information. The FCC relaxed
these rules recently, but has sought reconsideration of the Tenth Circuit
decision.
STATE REGULATION
The Telecommunications Act preempts state and local statutes and
regulations that would tend to prohibit the provision of competitive
telecommunications services. As a result, we will be free to provide the full
range of local, long distance and data services in all states in which we
currently operate, and in any states into which we may wish to expand. While
this action greatly increases our potential for growth, it also increases the
amount of competition to which we may be subject.
Because we provide intrastate common carrier services, we are subject to
various state laws and regulations. Most state public utility and public service
commissions require some form of certification or registration. We must acquire
this authority before commencing service. In most states, we are also required
to file tariffs or price lists setting forth the terms, conditions and prices
for services that are classified as intrastate. We are required to update or
amend these tariffs when we adjust our rates or add new products and are subject
to various reporting and record-keeping requirements in these states.
Many states also require prior approval for transfers of control of
certified providers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence of significant debt obligations.
States generally retain the right to sanction a services provider or to
revoke certification if a services provider violates applicable laws or
regulations. If any regulatory agency were to
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<PAGE> 54
conclude that we are or were providing intrastate services without the
appropriate authority or in violation of any regulation, the agency could
initiate enforcement actions, which could include the imposition of fines, a
requirement to disgorge revenues or the refusal to grant the regulatory
authority necessary for the future provision of intrastate telecommunications
services. We are authorized to provide intrastate long distance services in all
states except Alaska and New Mexico and are in the process of obtaining
intrastate long distance authority in those states. We have authority to provide
competitive local telecommunications services in Connecticut, Delaware, the
District of Columbia, Maine, Massachusetts, New Hampshire, New Jersey, New York,
North Carolina, Pennsylvania, Rhode Island, Virginia and West Virginia. We have
applications pending to provide competitive local telecommunications services in
other states, including Maryland. There can be no assurance that we will receive
the authorizations we seek currently or in the future.
LOCAL INTERCONNECTION
The Telecommunications Act imposes a duty upon all ILECs to negotiate in
good faith with potential local service competitors to provide interconnection
to their networks, exchange local traffic, make unbundled network elements
available and permit resale of most local services. In the event that
negotiations do not succeed, we have a right to seek arbitration with the state
regulatory authority of any unresolved issues. Arbitration decisions involving
interconnection arrangements in several states have been challenged and appealed
to federal courts. We may experience difficulty in obtaining timely ILEC
implementation of local interconnection agreements, and we can provide no
assurance we will offer local services in these areas in accordance with our
projected schedule, if at all. We have entered into interconnection agreements
with Bell Atlantic in New York, Maryland, Virginia, the District of Columbia,
Pennsylvania, and Massachusetts, and with GTE in Virginia. We have begun to
negotiate similar agreements in the other states where we have obtained status
as a competitive local exchange carrier. Moreover, a number of our
interconnection agreements will expire at various times over the next six to 36
months, after which time, we will be required to renegotiate each such
agreement. It is uncertain how successful we will be in negotiating the terms
critical to our provision of local data and voice services and we may be forced
to arbitrate certain provisions of such agreements.
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<PAGE> 55
MANAGEMENT
OFFICERS AND DIRECTORS
Our officers and directors, and their ages as of November 30, 1999 are
listed below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Clayton A. Thomas, Jr. .............. 37 Chairman of the Board and Chief Executive
Officer
Clyde Heintzelman.................... 61 President and Director
Mark A. Mendes....................... 37 Executive Vice President and Chief Operating
Officer and Secretary
Donald E. Clarke..................... 40 Executive Vice President and Chief Financial
Officer and Treasurer
Bruce W. Bednarski................... 41 Senior Vice President, Technology and Services
Peter B. Callowhill.................. 49 Senior Vice President, Sales -- North and
Director
Jeffrey E. Campbell.................. 37 Senior Vice President, Business Operations
Kathleen A. Dickerson................ 50 Vice President, Human Resources and
Administration
Stavros Hilaris...................... 41 Vice President, Network Engineering and
Planning
David Nelson......................... 40 Vice President, Network and Customer
Operations
Michael G. St. Jacques............... 53 Vice President, Information Technology
Lee Weiner........................... 42 Senior Vice President and General Counsel
Stephen D. Wright.................... 35 Vice President, Sales -- South
Eric Geis(1)(2)...................... 53 Director
Reid Miles(1)(2)..................... 37 Director
Mitchell Reese(2).................... 40 Director
</TABLE>
- ---------------
(1) Audit Committee
(2) Compensation Committee
CLAYTON A. THOMAS, JR., a co-founder, has been our chief executive officer
and a director since our inception in August 1993. From August 1993 to November
1999, Mr. Thomas was also our president. In May 1995, Mr. Thomas founded N2N
Communications, an Internet service provider, which was subsequently sold in
1996. From October 1986 to July 1993, he served in various sales and marketing
roles with Bell Atlantic Corporation. Mr. Thomas serves on the board of
directors for the Northern Virginia Technology Council.
CLYDE HEINTZELMAN has been our president since November 1999 and a director
since March 1997. From December 1998 to November 1999, Mr. Heintzelman served as
president and chief executive officer of SAVVIS Communications Corporation, a
national Tier 1 Internet service provider. From May 1995 to November 1997, he
was president and chief operating officer of DIGEX Incorporated, a Tier 1 public
Internet service provider. In mid-1997, DIGEX was sold to Intermedia
Communications, Inc., a national CLEC, and from November 1997 to November 1998,
he served as a retained business consultant to Intermedia. In addition, from
1964 to 1992, Mr. Heintzelman was in several executive capacities with Bell
Atlantic Corporation and its predecessor companies (AT&T). Mr. Heintzelman
serves on the boards of directors of Sonoma Systems Inc. and Optelecom, Inc., a
publicly traded fiber optic device company, and SAVVIS Communications.
MARK A. MENDES has been our executive vice president and chief operating
officer since October 1997. From March 1997 to October 1997, Mr. Mendes was
chief operating officer of US
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<PAGE> 56
WATS, Inc., a public long distance carrier. From March 1995 to March 1997, he
was vice president of service and technology at Access Teleconferencing
International, Inc., now Vialog, Inc., a conference call service provider. From
July 1993 to March 1995, Mr. Mendes was vice president, engineering and
operations of InterNet, a prepaid calling card carrier. From December 1992 to
July 1993, he was a director of network development for FiberNet Inc., a
competitive access provider. Mr. Mendes held various operating positions at
Frontier Corporation from 1985 to 1992.
DONALD E. CLARKE has been our executive vice president and chief financial
officer since December 1997. From August 1994 to April 1997, Mr. Clarke was
chief financial officer, and from September 1995 to April 1997 was president, of
Plexsys International Corp., a provider of wireless infrastructure equipment
principally to developing countries. From September 1986 to July 1994, he served
in various executive positions including vice president, chief financial
officer, controller and assistant controller at Intelicom Solutions Corporation,
affiliated with CSC Intelicom, Inc., a worldwide provider of specialized
software solutions to telecommunications services providers.
BRUCE W. BEDNARSKI, a co-founder, has been our senior vice president,
technology and services since our inception in August 1993. From May 1990 to
September 1993, he was a third level systems engineer for the Bell Atlantic
Corporation. From April 1987 to April 1990, Mr. Bednarski was a systems engineer
for the United States Senate where he managed the Senate's telecommunications
infrastructure. From March 1984 to March 1987, he was a second level technical
support engineer for Northern Telecom Inc. where he installed and engineered
central office switching platforms.
PETER B. CALLOWHILL, a co-founder and director, has been our senior vice
president, sales -- north since August 1997. From August 1993 to June 1997, Mr.
Callowhill was our vice president, marketing. In May 1995, Mr. Callowhill
co-founded N2N Communications, an Internet service provider, with Mr. Thomas.
Mr. Callowhill spent 11 years at Northern Telecom Inc. and served in various
capacities, including premier account manager and account executive.
JEFFREY E. CAMPBELL has been our senior vice president, business operations
since September 1999. From March 1999 to September 1999, Mr. Campbell was our
vice president, network operations, and from July 1998 to March 1999, he was
vice president, network implementation. From December 1996 to July 1998, he was
regional director of operations at Frontier Cellular, a wireless carrier
company. From February 1991 to September 1996, Mr. Campbell held several
positions at MFS Communications Company, Inc., including vice president of
upstate New York, vice president of sales and regional director operations.
KATHLEEN A. DICKERSON has been our vice president, human resources and
administration since June 1998. From April 1997 to April 1998, Ms. Dickerson was
vice president of administration for MA BioServices, Inc., a biotech testing
company. From May 1995 to April 1997, Ms. Dickerson was vice president of
administration for IGEN International, Inc., a biotech research and development
company, and from July 1986 to May 1995, served in various capacities, including
director of training and development at Marriott International, Inc.
STAVROS HILARIS has been our vice president, network engineering and
planning since May 1999. Mr. Hilaris held several positions at Teleglobe
International Corporation, a global telecommunications services provider,
including vice president, access network, USA and Americas from January 1999 to
May 1999, and vice president, network engineering and operations from April 1995
to January 1999. From April 1988 to April 1995, he held several positions at
Worldcom, Inc., including director of engineering, vice president of earth
station engineering and vice president of engineering planning.
DAVID NELSON has been our vice president, network and customer operations
since October 1999. Mr. Nelson also served as our vice president, customer
service and programming
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<PAGE> 57
from May 1998 to October 1999. From October 1993 to May 1998, he was vice
president, customer service and operations at Loral Orion, Inc., a satellite
owner, operator and provider of private multi-media networks. From June 1989 to
October 1998, Mr. Nelson held several positions in operations, sales and
marketing at Northern Telecom Inc., including director of operations, northern
Europe and director of sales, Norway.
MICHAEL G. ST. JACQUES has been our vice president, information technology
since August 1999. From August 1997 to February 1999, he was chief architect and
senior director of operations at Intermedia Communications, Inc., a
telecommunications services providers, where he was responsible for system
architecture, data management and operations. From December 1986 to August 1997,
Mr. St. Jacques served in various capacities, including technical contributor,
project manager and director at GTE Data Services Incorporated.
LEE WEINER has been our senior vice president and general counsel since
October 1999. From June 1998 to June 1999, Mr. Weiner served as vice president
and acting general counsel, and senior associate general counsel and assistant
secretary for Qwest Communications International Inc. after its merger with LCI
International, Inc. in June 1998. From September 1994 to June 1998, he served as
vice president and general counsel at LCI International, Inc. Mr. Weiner has
also held several managerial positions at MCI Telecommunications Corporation,
including director of legal affairs for MCI Business Services Division.
STEPHEN D. WRIGHT has been our vice president, sales -- south since August
1999. From August 1998 to August 1999, Mr. Wright was our branch sales director
in Richmond. From July 1995 to August 1998, he was business sales manager, and
from June 1991 to July 1995 was an account executive, at GTE Wireless
Incorporated.
ERIC GEIS has been a director since March 1997. In March 1997, Mr. Geis was
a founder, and has since served as a senior officer of Rhythms NetConnections
Inc., a data service carrier providing dedicated high-speed and high performance
data networking solutions, primarily using digital subscriber line technology.
At Rhythms, Mr. Geis has been vice president national deployment and ILEC
management from January 1998 to the present, and vice president and general
manager from June 1997 to December 1997. From December 1997 to the present, he
has also been secretary and treasurer of ACI Corp., now Rhythms Links Inc., a
wholly-owned subsidiary of Rhythms. From December 1995 to March 1997, Mr. Geis
was director of sales for GRC International, Inc., a seller of data networking
software, and from July 1991 to December 1995, chief executive officer and a
director of Quintessential Solutions, Inc., a provider of telecommunications
pricing and optimization software applications.
REID MILES has been a director since November 1997. From January 1996 to
the present, Mr. Miles has been a founder and managing director of Blue Water
Capital LLC, an expansion stage venture capital firm focused on investments in
the information technology arena. From April 1994 to January 1996, he was vice
president of marketing and business development of Advance, Inc.
MITCHELL REESE has been a director since May 1998. Mr. Reese has been a
managing director of The Carlyle Group since September 1997. From August 1994 to
August 1997, he was the president of the venture capital division at Morgan
Keegan, Inc.
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<PAGE> 58
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation and bylaws provide for a classified board
of directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, two of the nominees to
the board have been elected to one-year terms, two have been elected to two-year
terms and two have been elected to three-year terms. Thereafter, directors are
elected for three-year terms. Messrs. Callowhill and Thomas are class I
directors with terms expiring at the 2000 annual meeting of stockholders,
Messrs. Miles and Reese are class II directors, with terms expiring at the 2001
annual meeting of stockholders, and Messrs. Geis and Heintzelman are class III
directors, with terms expiring at the 2002 annual meeting of stockholders.
BOARD COMMITTEES
Our bylaws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.
Our audit committee, currently comprised of Messrs. Geis and Miles:
- recommends to our board of directors the independent auditors to conduct
the annual audit of our books and records;
- reviews the proposed scope and results of the audit;
- approves the audit fees to be paid;
- reviews accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
- reviews and approves transactions between us and our directors, officers
and affiliates.
Our compensation committee, currently comprised of Messrs. Geis, Miles and
Reese:
- reviews and recommends the compensation arrangements for management,
including the compensation for our president and chief executive officer;
- establishes and reviews general compensation policies with the objective
to attract and retain superior talent, to reward individual performance
and to achieve our financial goals; and
- administers our stock option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, members of our compensation committee were Messrs. Thomas,
Heintzelman, Miles and Reese. None of our executive officers has served as a
member of the compensation committee (or other committee serving an equivalent
function) of any other entity, whose executive officers served as a director of
or member of our compensation committee. In 1998, Mr. Thomas was our president
and chief executive officer.
COMPENSATION OF DIRECTORS
Since his election to our board, Mr. Geis has received $600 per board
meeting and Mr. Heintzelman, prior to becoming an employee, also received $600
per board meeting and no other directors received compensation for serving as
directors. We reimburse our directors for reasonable expenses they incur to
attend board and committee meetings. Our non-employee directors are eligible to
receive grants of options to acquire our common stock pursuant to our 1997
Equity Incentive Plan and our 1999 Stock Incentive Plan. See "1997 Equity
Incentive Plan" and "1999 Stock Incentive Plan."
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<PAGE> 59
In December 1997 and October 1998, we granted options to Mr. Geis to
purchase 32,000 and 8,000 shares of our common stock, respectively, at fair
value at the date of grant. In November 1999, Mr. Geis received an additional
option to purchase 10,000 shares of common stock at an exercise price of $7.00
per share. In December 1997 and October 1998, we granted options to Mr.
Heintzelman to purchase 32,000 and 8,000 shares of our common stock,
respectively, at fair value at the date of grant.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to our chief executive
officer and the other four most highly paid executive officers whose total
salary and bonus exceed $100,000 for the year ended December 31, 1998, whom we
refer to as our named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
----------------------------- SECURITIES
SALARY BONUS OTHER(1) UNDERLYING OPTIONS
------ ----- -------- ------------------
<S> <C> <C> <C> <C>
Clayton A. Thomas, Jr.,
president and chief executive
officer............................. $151,365 $25,000 $ 6,000 --
Mark A. Mendes,
executive vice president and chief
operating officer................... 173,268 4,343 5,600 155,844(2)
Donald E. Clarke,
executive vice president and chief
financial officer................... 140,343 8,046 4,800 103,897(3)
Bruce W. Bednarski,
senior vice president, technology
and services........................ 131,183 -- 6,000 --
Peter B. Callowhill,
senior vice president,
sales -- north...................... 151,250 -- 20,037(4) --
</TABLE>
- ---------------
(1) These amounts represent automobile allowances paid to the named executive
officers in the fiscal year ended December 31, 1998.
(2) This option becomes exercisable over a four-year period, 50% of which vested
immediately on the date of grant, 25% of which vested on the first
anniversary of the grant date and 12.5% of which vest on each of the second
and third anniversaries of the grant date.
(3) This option becomes exercisable over a four-year period, 25% of which vested
immediately on the date of grant and the remainder vesting at a rate of 25%
annually for the next three years.
(4) This amount also includes relocation reimbursement.
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<PAGE> 60
OPTION GRANTS IN 1998 AND YEAR-END OPTION VALUES
The following table sets forth information regarding options granted to the
named executive officers during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
- ------------------------------------------------------------------------------ --------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS BASED ON
UNDERLYING GRANTED TO EXERCISE OR INITIAL
OPTIONS EMPLOYEES BASE PRICE EXPIRATION OFFERING
NAME GRANTED(1) IN 1998(2) ($/SHARE) DATE(3) 5% 10% PRICE
- ---- ---------- ---------- ----------- ---------- -- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Clayton A. Thomas, Jr..... -- -- -- -- -- --
Mark A. Mendes............ 155,844 11.5% $0.95 5/19/08 $ $
Donald E. Clarke.......... 103,897 7.7 0.95 5/19/08
Bruce W. Bednarski........ -- -- -- -- -- --
Peter B. Callowhill....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) All options were granted under our 1997 equity incentive plan. These options
are subject to vesting in the event of a change in control of our company.
(2) Based on options to purchase 1,351,351 shares of our common stock granted to
employees in 1998.
(3) The options have ten year terms, subject to earlier termination upon death,
disability or termination of employment.
(4) We recommend caution in interpreting the financial significance of the
figures representing the potential realizable value of the stock options.
They are calculated by multiplying the number of options granted by the
difference between a future hypothetical stock price and the option exercise
price and are shown pursuant to rules of the SEC. They assume the fair value
of common stock appreciates 5% or 10% each year, compounded annually, for
ten years (the term of each option). They are not intended to forecast
possible future appreciation, if any, of our stock price or to establish a
present value of options. Also, if appreciation does occur at the 5% or 10%
per year rate, the amounts shown would not be realized by the recipients
until the year 2008. Depending on inflation rates, these amounts may be
worth significantly less in 2008, in real terms, than their value today.
YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Clayton A. Thomas, Jr. ................... -- -- -- --
Mark A. Mendes............................ 293,352 190,057 $ $
Donald E. Clarke.......................... 152,679 152,678
Bruce W. Bednarski........................ -- -- -- --
Peter B. Callowhill....................... -- -- -- --
</TABLE>
- ---------------
(1) Calculated on the basis of the assumed initial public offering price of our
common stock, less the exercise price payable for those shares, multiplied
by the number of shares underlying the option.
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<PAGE> 61
No compensation intended to serve as incentive for performance to occur
over a period longer than one year was paid pursuant to a long-term incentive
plan during the last year to any of the executive officers named above.
EMPLOYMENT ARRANGEMENTS
We have entered into an employment agreement with each of our named
executive officers. Each agreement has an initial term of two and one-half years
and is automatically extended for additional one year terms unless we or the
executive elects to terminate the agreement within 60 days before the end of the
current term. Under these agreements, these executives receive an initial annual
base salary that will be subject to adjustment by our board of directors,
compensation committee, or chief executive officer. These executives also
receive an annual bonus of up to 25% of the executive's then current salary,
based upon performance objectives set by our senior management. The bonus is
payable 50% in cash and the remaining 50% in options to acquire shares of our
common stock which will have an exercise price at the then fair market value and
vest according to the terms of each executives' agreement. These executives also
receive an automobile allowance of $500 per month. The following table shows
information about the current compensation arrangements for our executive
officers.
<TABLE>
<CAPTION>
ANNUAL OPTIONS GRANTED
BASE SALARY(1) ANNUAL BONUS (SHARES)(1)
-------------- ------------ ---------------
<S> <C> <C> <C>
Clayton A. Thomas, Jr. ................. $157,500 25% --
Mark A. Mendes.......................... 159,500 25% 571,001
Donald E. Clarke........................ 150,500 25% 350,357
Clyde Heintzelman....................... 190,000 25% 275,000
</TABLE>
- ---------------
(1) As of November 1999.
Under the terms of these agreements, these executives have agreed to
preserve the confidentiality and the proprietary nature of all information
relating to our business during the term of the agreement and until the
information becomes public. In addition, each of these executives has agreed to
non-competition and non-solicitation provisions that will be in effect during
the term of this agreement and for eighteen months after the agreement ends.
In November 1999, we entered into an employment agreement with Clyde
Heintzelman, our president. This agreement has an initial term of two years and
is automatically extended for an additional year unless we elect or Mr.
Heintzelman elects to terminate the agreement 60 days before the end of the
current term. The agreement provides that Mr. Heintzelman will receive
compensation in the form of a $190,000 base salary and a target annual bonus of
25% of his then current salary, based upon performance objectives set by our
chief executive officer. Mr. Heintzelman received an option to purchase 275,000
shares of our common stock at an exercise price of $4.00 per share.
1997 EQUITY INCENTIVE PLAN
Effective October 1997, we adopted our equity incentive plan. This plan
provides for the grant of stock-based awards to any of our employees, directors
or any person who provides us services.
Under the plan, we may grant:
- options that are intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code;
- options not intended to qualify as incentive stock options;
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<PAGE> 62
- stock appreciation rights; and
- other stock-based awards.
Incentive stock options may be granted only to our employees. A total of
3,498,711 shares of common stock may be issued upon the exercise of options or
other awards granted under the plan. The exercisability of options or other
awards may in certain circumstances be accelerated in connection with an
acquisition event, as defined in the plan.
The plan expires in October 2007. As of November 30, 1999, we had granted
options to purchase an aggregate of 3,972,927 shares of common stock under the
plan, of which 637,688 shares have expired according to their terms. These
options generally vest monthly over a four-year period, beginning on the first
anniversary of the date of grant. No further options will be granted under the
plan after the effective date of the offering. Options granted under this plan
prior to its termination will remain outstanding according to their terms.
1999 STOCK INCENTIVE PLAN
Our stock incentive plan was adopted in November 1999. This plan authorizes
the grant of:
- stock options;
- stock appreciation rights;
- stock awards;
- phantom stock; and
- performance awards.
The compensation committee of our board of directors administers our stock
incentive plan. The committee has sole power and authority, consistent with the
provisions of our stock incentive plan, to determine which eligible participants
will receive awards, the form of the awards and the number of shares of our
common stock covered by each award. The committee may impose terms, limits,
restrictions and conditions upon awards, and may modify, amend, extend or renew
awards, to accelerate or change the exercise timing of awards or to waive any
restrictions or conditions to an award. As of November 30, 1999, we have granted
an option to purchase 275,000 shares of our common stock out of the 3,500,000
shares available under this plan.
STOCK OPTIONS. Our stock incentive plan permits the granting of options to
purchase shares of our common stock intended to qualify as incentive stock
options under the Internal Revenue Code and stock options that do not qualify as
incentive options. The option exercise price of each option will be determined
by the committee. The term of each option will be fixed by the committee. The
committee will determine at what time or times each option may be exercised and,
the period of time, if any, after retirement, death, disability or termination
of employment during which options may be exercised.
STOCK APPRECIATION RIGHTS. The committee may grant a right to receive a
number of shares or, in the discretion of the committee, an amount in cash or a
combination of shares and cash, based on the increase in the fair market value
of the shares underlying the right during a stated period specified by the
committee.
STOCK AWARDS. The committee may award shares of our common stock to
participants at no cost or for a purchase price. These stock awards may be
subject to restrictions or may be free from any restrictions under our stock
incentive plan. The committee shall determine the applicable restrictions. The
purchase price of the shares of our common stock will be determined by the
committee.
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PHANTOM STOCK. The committee may grant stock equivalent rights, or phantom
stock, which entitles the recipient to receive credits which are ultimately
payable in the form of cash, shares of our common stock or a combination of
both. Phantom stock does not entitle the holder to any rights as a stockholder.
PERFORMANCE AWARDS. The committee may grant performance awards to
participants entitling the participants to receive cash, shares of our common
stock, or a combination of both, upon the achievement of performance goals and
other conditions determined by the committee. The performance goals may be based
on our operating income, or on one or more other business criteria selected by
the committee.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan, which will become effective upon the
closing of this offering, provides for the issuance of up to 1,500,000 shares of
common stock. This plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, provides our employees with an opportunity to purchase
shares of our common stock through payroll deductions.
All of our employees, including directors who are employees, are eligible
to participate in the purchase plan. Options to purchase our common stock will
initially be granted to each eligible employee on the first trading day on or
after the date of the initial public offering. Thereafter, options will be
granted on the first trading day on or after January 1 of each year, or such
other date as determined by the administrator. Each option will terminate on the
last trading day of a period specified by the administrator and no option period
will be longer than 27 months in duration. Subsequent option periods of equal
duration will consecutively follow, unless the administrator determines
otherwise.
Each option represents a right to purchase shares of our common stock. The
administrator determines the purchase price of each share of common stock,
provided that the purchase price will never be less than the lesser of 85% of
the fair market value of the common stock at the beginning or end of the option
period.
Any employee who immediately after a grant owns 5% or more of the total
combined voting power or value of our capital stock may not be granted an option
to purchase common stock under the purchase plan. Participation may also be
limited where rights to purchase stock under all other purchase plans accrue at
a rate which exceeds $25,000 of the fair market value of our common stock for
each calendar year.
401(K) PLAN
We adopted a tax-qualified employee savings and retirement plan, or 401(k)
plan, covering our full-time employees located in the United States. The 401(k)
plan is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended, so that contributions to the 401(k) plan by employees, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) plan. Under the 401(k) plan, employees may elect to reduce their
current compensation up to the statutorily prescribed annual limit and have the
amount of such contribution contributed to the 401(k) plan. The 401(k) plan does
permit additional matching contributions to the 401(k) plan by us on behalf of
participants in the 401(k).
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<PAGE> 64
CERTAIN TRANSACTIONS
SALE OF STOCK
In October 1997, we issued 4,087,592 shares of series A convertible
preferred stock for an aggregate purchase price of $3.5 million, including
1,167,884 shares to Mid Atlantic Venture Fund III, L.P., 1,167,884 shares to
Societe Generale Capital Corporation and 1,751,824 shares to Blue Water
Strategic Fund I, L.L.C., of which Mr. Miles, one of our directors, is a
managing director.
In May 1998, we issued 5,510,535 shares of series B convertible preferred
stock for an aggregate purchase price of $17.0 million, including 3,037,189
shares to Carlyle Venture Partners, L.P., of which Mr. Reese, a member of our
board of directors, is a managing director, 1,194,445 shares to PNC Capital
Corporation, 486,224 shares to Blue Water Strategic Fund I, L.L.C., of which Mr.
Miles, one of our directors, is a managing director, 468,528 shares to Societe
Generale Capital Corporation and 324,149 shares to Mid Atlantic Venture Fund
III, L.P.
In November 1998, we issued 2,140,310 shares of series C convertible
preferred stock for an aggregate purchase price of $30.0 million per share to
Northern Telecom Inc.
In July 1999, Corlyn Marsan, a principal stockholder, sold 50,000 shares of
common stock at a purchase price of $6.50 per share. In September and October
1999, Ms. Marsan sold 125,000 shares of common stock at a purchase price of
$7.00 per share, in three private transactions.
In connection with the preferred stock financings, we granted registration
rights to the preferred stockholders. Upon exercise of these registration
rights, these stockholders can require us to file registration statements
covering the sale of shares of common stock held by them and may include the
sale of their shares in registration statements covering our sale of shares to
the public.
ISSUANCE OF OPTIONS
In December 1997 and October 1998, we granted to Mr. Geis options to
purchase 32,000 and 8,000 shares of our common stock. In November 1999, Mr. Geis
received an additional option to purchase 10,000 shares of common stock. In
December 1997 and October 1998, we granted options to Mr. Heintzelman to
purchase 32,000 and 8,000 shares of our common stock. In November 1999, Mr.
Heintzelman received an additional option to purchase 275,000 shares of common
stock, of which 91,667 shares immediately vested.
In December 1997 and May 1998, we granted to Mr. Clarke options to purchase
201,460 and 103,897 shares of our common stock. In November 1999, Mr. Clarke
received an additional option to purchase 45,000 shares of our common stock. In
October 1997, we granted options to Mr. Mendes to purchase 87,592 and 25,373
shares of our common stock. Additionally, in December 1997 and May 1998, Mr.
Mendes received additional options to purchase 302,192 and 155,844 shares of our
common stock.
DEBT FINANCING
We entered into a credit agreement in November 1998 with Nortel. This
agreement provided for a five year, $120 million term loan facility and a five
year, $20 million revolving credit loan facility to finance a portion of our
costs to purchase Nortel equipment and services. The term loan and the revolving
credit loan facility were secured by a security agreement and a pledge agreement
whereby our subsidiaries pledged all of their stock and assets to Nortel.
In July 1999, we entered into a credit agreement with Nortel whereby Nortel
will provide draws to us under a term loan arrangement in an aggregate principal
amount of up to
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<PAGE> 65
$75 million. This loan is to be used for the purchase of telecommunications
equipment and related software licenses and for working capital purposes. To
secure the loan, we have granted Nortel a security interest in all of our
assets. The loans must be repaid over a five-year period commencing on November
2001.
Additionally, in July 1999, we issued to Nortel a senior discount note with
a principal of $75 million. This note requires no interest or principal payments
until July 2004. For the next five years thereafter, we must pay interest
semiannually at an interest rate of 13.5%. The loan must be repaid in full upon
the closing of this offering.
We have adopted a policy whereby all future transactions between us and our
officers, directors and affiliates will be on terms no less favorable to us than
could be obtained from unrelated third parties. These transactions must be
approved by a majority of the disinterested members of our board of directors.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table sets certain information regarding beneficial ownership
of our common stock as of November 30, 1999 and as adjusted to reflect the sale
of the shares offered hereby, by:
- each person who we know beneficially owns more that 5% of our common
stock;
- each member of our board of directors;
- each of our named executive officers; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed is c/o
Net2000 Communications, Inc., 2180 Fox Mill Road, Herndon, Virginia 20171.
Except as otherwise indicated, each of the persons named in this table has sole
voting and investment power with respect to all the shares indicated.
For purposes of calculating the percentage beneficially owned, 19,833,195
shares of common stock are deemed outstanding before the offering, including
8,094,758 shares of common stock outstanding as of November 30, 1999 and
11,738,437 shares of common stock issuable upon conversion of the preferred
stock. For purposes of calculating the percentage beneficially owned, the number
of shares deemed outstanding after the offering includes: (a) all shares deemed
to be outstanding before the offering and (b) shares being sold in this
offering, assuming no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENT OF COMMON
NUMBER OF STOCK OUTSTANDING
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Carlyle Venture Partners Group(2)....................... 3,037,189 15.3% %
c/o The Carlyle Group
1001 Pennsylvania Avenue, NW
Washington, DC 20004
Northern Telecom Inc.(3)................................ 3,036,254 14.7
2221 Lakeside Boulevard
Richardson, TX 75082
Blue Water Strategic Fund I, L.L.C.(4).................. 2,238,048 11.3
c/o Blue Water Capital
8300 Greensboro Drive
Suite 1210
McLean, VA 22102
Societe Generale Capital Corporation.................... 1,636,412 8.3
1221 Avenue of the Americas
New York, NY 10020
Mid-Atlantic Venture Fund III, L.P. .................... 1,492,033 7.5
11710 Plaza America Drive
Suite 120
Reston, VA 20190
PNC Capital Corporation(5).............................. 1,194,445 6.0
c/o PNC Equity Management Corporation
3150 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
PERCENT OF COMMON
NUMBER OF STOCK OUTSTANDING
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Bruce W. Bednarski...................................... 2,000,000 10.1
Peter B. Callowhill..................................... 2,000,000 10.1
Donald E. Clarke(6)..................................... 262,767 1.3
Eric Geis(7)............................................ 26,333 *
Clyde Heintzelman(8).................................... 101,851 *
Corlyn A. Marsan........................................ 1,825,000 9.2
Mark A. Mendes(9)....................................... 510,575 2.5
Reid Miles(4)........................................... 2,238,048 11.3
Mitchell Reese(2)....................................... 3,037,189 15.3
Clayton A. Thomas, Jr. ................................. 2,000,000 10.1
All executive officers and directors as a group (16
persons)(10).......................................... 12,247,340 58.7
</TABLE>
- ---------------
* Less than one percent
(1) The number of shares beneficially owned includes outstanding shares of our
common stock held by that person and shares of our common stock issuable
upon exercise of stock options exercisable within 60 days of November 30,
1999.
(2) Represents (i) 2,142,928 shares beneficially owned by Carlyle Venture
Partners, L.P., (ii) 437,635 shares beneficially owned by C/S Venture
Investors, L.P., (iii) 284,208 shares beneficially owned by Carlyle U.S.
Venture Partners, L.P. and (iv) 172,418 shares beneficially owned by
Carlyle Venture Coinvestment, L.L.C. Mr. Reese, a director, is a managing
director of The Carlyle Group. Mr. Reese disclaims beneficial ownership of
these shares, over which he does not have dispositive or voting control.
Mr. Reese's address is c/o The Carlyle Group.
(3) Includes 895,944 shares issuable upon exercise of a warrant issued in July
1999.
(4) All such shares are beneficially owned by Blue Water Strategic Fund I,
L.L.C. Mr. Miles, a director, is the founder and managing director of Blue
Water Capital, the managing member of the Blue Water Strategic Fund I,
L.L.C. Mr. Miles disclaims beneficial ownership of these shares over which
he does not have dispositive or voting control. Mr. Miles's address is c/o
Blue Water Capital.
(5) Represents (i) 999,153 shares beneficially owned by PNC Capital Corporation
and (ii) 195,292 shares beneficially owned by Wood Street Partners.
(6) Includes 262,767 shares issuable upon exercise of options to acquire our
common stock.
(7) Includes 26,333 shares issuable upon exercise of options to acquire our
common stock.
(8) Includes 101,851 shares issuable upon exercise of options to acquire our
common stock.
(9) Includes 422,983 shares issuable upon exercise of options to acquire our
common stock.
(10) Includes 12,159,748 shares issuable upon exercise of options to acquire our
common stock.
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<PAGE> 68
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock currently consists of 200,000,000 shares of
common stock, with a par value of $0.01 per share, 11,738,437 shares of
preferred stock, with a par value of $0.01 per share and 60,000,000 shares of
undesignated capital stock, with a par value of $0.01 per share. As of November
30, 1999, there were 8,094,758 shares of our common stock outstanding, held of
record by eleven stockholders. As of November 30, 1999, we had outstanding an
aggregate of 11,738,437 shares of convertible preferred stock consisting of
4,087,592 shares of series A preferred stock, 5,510,535 shares of series B
preferred stock, and 2,140,310 shares of series C preferred stock. Effective May
19, 1998 and November 4, 1998, we declared a four for one stock split in the
form of a stock dividend payable on May 19, 1998 and November 4, 1998 for
stockholders of record of our common stock and series A preferred stock,
respectively. The series A, B and C preferred stock are held of record by three,
five, and one stockholders, respectively. All outstanding shares of preferred
stock will be automatically converted into an aggregate of 11,738,437 shares of
common stock upon the closing of this offering and will no longer be issued and
outstanding. After this offering, we will have outstanding shares of common
stock if the underwriters do not exercise their over-allotment option, or
shares of common stock if the underwriters exercise their over-allotment option
in full.
The following is a description of our capital stock.
COMMON STOCK
Holders of common stock are entitled to one vote for each share of record
on all matters submitted to a vote of stockholders. The holders of common stock
are entitled to receive ratably such lawful dividends as may be declared by the
board of directors. However, such dividends are subject to preferences that may
be applicable to the holders of any outstanding shares of preferred stock. In
the event of a liquidation, dissolution, or winding up of the affairs of our
company, whether voluntary or involuntary, the holders of common stock will be
entitled to receive pro rata all of our remaining assets available for
distribution to stockholders. Any such pro rata distribution would be subject to
the rights of the holders of any outstanding shares of preferred stock. Our
common stock has no preemptive, redemption, conversion or subscription rights.
Piper Marbury Rudnick & Wolfe LLP, our counsel, will opine that the shares of
common stock to be issued by us in this offering, when issued and sold in the
manner described in the prospectus and in accordance with the resolutions
adopted by the board of directors, will be fully paid and non-assessable. The
rights, powers, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock that we may designate and issue in the
future.
PREFERRED STOCK
At the closing of the offering, our outstanding shares of preferred stock
will be automatically converted into common stock. For a description of this
preferred stock, please see note 7 to the notes to financial statements included
elsewhere in this prospectus.
UNDESIGNATED CAPITAL STOCK
Immediately following the offering, our board will have the authority to
designate and issue up to 60,000,000 shares of capital stock, in one or more
series. Our board can establish the preferences, rights and privileges of each
series, which may be superior to the rights of the common stock.
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<PAGE> 69
WARRANTS
We have outstanding a warrant to purchase up to 895,944 shares of our
common stock at an exercise price of $0.01 per share, expiring July 30, 2009.
REGISTRATION RIGHTS
After this offering, holders of (i) an aggregate of 4,087,592 shares of
common stock issued upon the conversion of the series A preferred stock (the
"series A registrable shares"); (ii) 5,510,535 shares of common stock issued
upon the conversion of the series B preferred stock (the "series B registrable
shares"); and (iii) 2,140,310 shares of common stock issued upon the conversion
of the series C preferred stock (the "series C registrable shares") will be
entitled to rights with respect to the registration of such shares under the
Securities Act.
We have an agreement with these stockholders that gives them registration
rights. Subject to limitations provided in the agreement, including those in
lock-up agreements that these stockholders have signed relating to this
offering, these stockholders have the right, after , 2000, upon request of
the holders of at least a majority in interest in the series A registrable
shares, series B registrable shares or series C registrable shares, to require
us to register under the Securities Act the sale of shares having an aggregate
offering price of at least $20,000,000 (a "demand registration"). The number of
demand registrations for each class is limited to one, provided that each group
of registrable shares has not previously requested four registration statements
on Form S-3. Each class of registrable shares is entitled to an additional
demand registration in the event that less than 70% of the registrable shares
requested to be registered were not included in a demand registration. In
addition to these demand registration rights and, subject to conditions and
limitations provided in the agreement, each class of these stockholders may
require us to file a maximum of four registration statements on Form S-3 under
the Securities Act, or three if a demand registration was requested, when such
form is available for our use, generally one year after this offering.
If we propose to register our securities under the Securities Act after
this offering, these stockholders will be entitled to notice of the registration
and to include their shares in the registration provided that the underwriters
of the proposed offering will have the right to limit the number of shares
included in the registration. We must pay for all expenses in connection with
these registrations, other than underwriters' discounts and commissions.
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
DELAWARE GENERAL CORPORATION LAW
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE GENERAL
CORPORATION LAW. Certain provisions of Delaware law and our certificate of
incorporation and bylaws could make the following more difficult:
- the acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise; or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board. We believe that the benefits of increased
protection of the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
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ELECTION AND REMOVAL OF DIRECTORS. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us because it generally makes
it more difficult for stockholders to replace a majority of the directors.
In addition, our bylaws provide that, except as otherwise provided by law
or our certificate of incorporation, newly created directorships resulting from
an increase in the authorized number of directors or vacancies on the board may
be filled only by:
- a majority of the directors then in office, though less than a quorum is
then in office; or
- by the sole remaining director.
STOCKHOLDER MEETINGS. Under our certificate of incorporation and bylaws,
only the chairman of the board, the president or a majority of the board of
directors may call special meetings of stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws will establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
DELAWARE ANTI-TAKEOVER LAW. We are subject to Section 203 of the Delaware
general corporation law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. Upon the completion
of the offering, our certificate of incorporation will eliminate the right of
stockholders to act by written consent without a meeting, unless the consent is
unanimous.
NO CUMULATIVE VOTING. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.
UNDESIGNATED CAPITAL STOCK. The authorization of undesignated capital stock
will make it possible for our board of directors to issue stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of Net2000. These and other provisions may have the effect of
deterring hostile takeovers or delaying changes in control of our company or
management.
LIMITATION OF LIABILITY. As permitted by the Delaware general corporation
law, our certificate of incorporation provides that our directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
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<PAGE> 71
- under Section 174 of the Delaware general corporation law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption of
stock; or
- for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and bylaws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
general corporation law. The indemnification provided under our certificate of
incorporation and bylaws includes the right to be paid expenses in advance of
any proceeding for which indemnification may be had, provided that the payment
of these expenses incurred by a director or officer in advance of the final
disposition of a proceeding may be made only upon delivery to us of an
undertaking by or on behalf of the director or officer to repay all amounts so
paid in advance if it is ultimately determined that the director or officer is
not entitled to be indemnified. If we do not pay a claim for indemnification
within 60 days after we have received a written claim, the claimant may at any
time thereafter bring an action to recover the unpaid amount of the claim and,
if successful, the director or officer will be entitled to be paid the expense
of prosecuting the action to recover these unpaid amounts.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person or incurred by the
person in any of these capacities, or arising out of the person's fulfilling one
of these capacities, and related expenses, whether or not we would have the
power to indemnify the person against the claim under the provisions of the
Delaware general corporation law. We intend to purchase director and officer
liability insurance on behalf of our directors and officers.
STOCK TRANSFER AGENT
The transfer agent and registrar for our common stock is .
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<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have shares of common stock outstanding.
If the underwriters exercise their over-allotment option in full, we will have
shares of common stock outstanding. of the shares we sell in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by our affiliates, as
that term is defined in Rule 144, may generally only be sold in compliance with
the limitations of Rule 144, which is summarized below.
The remaining %, or shares of common stock outstanding after this
offering, will be restricted shares under the terms of the Securities Act, all
of which shares are subject to lock-up agreements as described below. Restricted
shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144, 144(k) or 701 promulgated
under the Securities Act, and subject to the lock-up requirements which rules
are summarized below. Subject to the lock-up agreements described below, these
restricted shares will be available for resale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES/
% OF OUTSTANDING DATE OF FIRST AVAILABILITY FOR RESALE
----------------- -------------------------------------
<C> <S>
/% Immediately after the date of this prospectus, all of which
shares are subject to lock-up agreements
/% 90 days after the date of this prospectus, all of which
shares are subject to lock-up agreements
/% At various times between 90 days and 180 days after the date
of the prospectus, all of which shares are subject to
lock-up agreements
</TABLE>
Before this offering, there has been no public market for our common stock,
and we cannot predict what effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time. Sales
of substantial amounts of our common stock in the public market could adversely
affect prevailing market prices and could impair our future ability to raise
capital through the sale of our equity securities.
RULE 144
In general, under Rule 144, beginning 90 days after the effective date of
the offering, a stockholder who owns restricted shares that have been
outstanding for at least one year is entitled to sell, within any three-month
period, a number of these restricted shares that does not exceed the greater of:
- one percent of the then outstanding shares of our common stock, or
approximately shares immediately after this offering; or
- the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock that are not restricted securities.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The one-
and two-year holding periods described above do not begin to run
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until the full purchase price is paid by the person acquiring the restricted
shares from us or an affiliate of ours.
REGISTRATION RIGHTS
We have entered into an investor rights agreement with some of our
stockholders, who will own an aggregate of 11,738,437 shares of our common stock
following this offering. These stockholders have registration rights which, upon
exercise, require us to file registration statements covering the sale of their
shares of common stock and to include the sale of their shares in registration
statements covering our sale of shares to the public. See "Description of our
Capital Stock -- Registration Rights."
STOCK OPTIONS
We intend to file one or more registration statements under the Securities
Act within 180 days after this offering to register up to 3,498,711 and
3,500,000 shares of our common stock underlying outstanding stock options or
reserved for issuance under our 1997 equity incentive plan and 1999 stock
incentive plan, respectively. We expect these registration statements will
become effective upon filing, and shares covered by these registration
statements will be eligible for sale in the public market immediately after the
effective dates of these registration statements, subject to the lock-up
agreements described below.
LOCK-UP AGREEMENTS
All of our officers and directors and the holders of all of our capital
stock have agreed that they will not, without the prior written consent of
Goldman, Sachs & Co., offer, sell, pledge or otherwise dispose of any shares of
our capital stock or any securities convertible into or exercisable or
exchangeable for, or any rights to acquire or purchase, any of our capital stock
or publicly announce an intention to effect any of these transactions, for a
period of 180 days from the date of this prospectus.
Goldman, Sachs & Co. currently has no plans to release any portion of the
securities subject to lock-up agreements. When determining whether or not to
release any portion of the securities subject to lock-up agreements, Goldman,
Sachs & Co. will consider, among other factors, the stockholder's reasons for
requesting the release, the number of shares for which the release is being
requested and market conditions at the time.
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UNDERWRITING
Net2000 and the underwriters named below (the "Underwriters") have entered
into an underwriting agreement with respect to the shares being offered. Subject
to certain conditions, each Underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan Securities Inc.
and Legg Mason Wood Walker, Incorporated are the representatives of the
Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
J.P. Morgan Securities Inc. ................................
Legg Mason Wood Walker, Incorporated........................
---------
Total.............................................
=========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
shares from Net2000 to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the Underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by Net2000. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Net 2000 No Exercise Full Exercise
---------------- ----------- -------------
<S> <C> <C>
Per Share.............................................. $ $
Total........................................ $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Net2000 has agreed with the Underwriters not to dispose of or hedge any of
its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price has been negotiated among Net2000 and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Net2000's historical performance, estimates of the business
potential and earnings prospects of Net2000, an assessment of Net2000's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "NTKK."
72
<PAGE> 75
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Net2000 estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $ .
Net2000 has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF THE SHARES
Piper Marbury Rudnick & Wolfe LLP, Reston, Virginia, will pass upon the
validity of the shares of common stock on our behalf. Latham & Watkins, New
York, New York will pass upon legal matters for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at September 30, 1999, December 31, 1998 and December 31,
1997, and for each of the three years in the period ended December 31, 1998 and
the nine months ended September 30, 1999, as set forth in their report. We've
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information that we believe is material to an
investor considering whether to make an investment in our common stock. We refer
you to the registration statement for additional information about us, our
common stock and this offering, including the full texts of the exhibits, some
of which have been summarized in this prospectus. The registration statement is
available for inspection and copying at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site that contains the registration
statement. The address of the SEC's Internet site is "http://www.sec.gov."
73
<PAGE> 76
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NET2000 COMMUNICATIONS, INC.
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997, 1998,
September 30, 1999 and September 30, 1999 (pro forma)..... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997, 1998 and for the Nine Months
Ended September 30, 1998 and 1999......................... F-3
Consolidated Statements of Stockholders' Equity / (Deficit)
for the Years Ended December 31, 1996, 1997, 1998 and for
the Nine Months Ended September 30 1999................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997, 1998 and for the Nine Months
Ended September 30, 1998 and 1999......................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
<PAGE> 77
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Net2000 Communications, Inc.
We have audited the accompanying consolidated balance sheets of Net2000
Communications, Inc. as of December 31, 1997, 1998 and September 30, 1999 and
the related consolidated statements of operations, stockholders'
equity/(deficit) and cash flows for each of the three years in the period ended
December 31, 1998 and for the nine months ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Net2000
Communications, Inc. at December 31, 1997, 1998 and September 30, 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended in December 31, 1998 and the nine months ended September 30,
1999, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 19, 1999
McLean, VA
F-1
<PAGE> 78
NET2000 COMMUNICATIONS, INC
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash & cash equivalents........................ $ 2,347,803 $33,439,030 $ 13,319,806 $ 13,319,806
Restricted cash................................ -- 948,707 1,687,275 1,687,275
Accounts receivable, net of allowance for
doubtful accounts of approximately $10,000,
$229,000, and $1,660,000 at December 31,
1997, 1998 and September 30, 1999,
respectively................................. 1,035,599 3,618,646 5,476,601 5,476,601
Other current assets........................... 68,843 50,950 738,668 738,668
----------- ------------ ------------ ------------
Total current assets............................. 3,452,245 38,057,333 21,222,350 21,222,350
Property and equipment, net of accumulated
depreciation................................... 509,516 11,528,518 49,623,461 49,623,461
Other noncurrent assets.......................... 78,185 504,657 3,255,947 3,255,947
----------- ------------ ------------ ------------
Total assets..................................... $ 4,039,946 $50,090,508 $ 74,101,758 $ 74,101,758
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)
Current liabilities:
Line of credit................................. $ 440,176 $ -- $ -- $ --
Accounts payable............................... 365,924 1,402,010 471,944 471,944
Accrued expenses and other current
liabilities.................................. 415,109 3,670,907 13,921,324 13,921,324
Current maturities of capital lease
obligation................................... 148,337 2,422,597 3,073,818 3,073,818
----------- ------------ ------------ ------------
Total current liabilities........................ 1,369,546 7,495,514 17,467,086 17,467,086
Capital lease obligation, less current
maturities..................................... 257,885 2,000,155 1,729,896 1,729,896
Related party noncurrent liabilities............. -- 4,811,381 16,463,595 16,463,595
Note payable (net of unamortized discount of
$7,700,215).................................... -- -- 16,555,734 16,555,734
Redeemable convertible Series A, B and C
preferred stock, $0.01 par value; 12,000,000
shares authorized, 4,087,592, 11,738,437 and
11,738,437 issued and outstanding at December
31, 1997, 1998 and September 30, 1999,
respectively................................... 3,500,000 59,403,297 75,180,969 --
Stockholders' deficit:
Common stock, $0.01 par value; 28,000,000,
30,000,000 and 30,000,000 shares authorized,
8,000,000, 8,087,592 and 8,092,258 shares
issued and outstanding at December 31, 1997,
1998 and September 30, 1999, respectively.... 80,000 80,876 80,923 198,307
Additional capital............................... 87,216 299,280 10,508,577 85,572,162
Deferred stock compensation...................... (87,216) (162,102) (2,236,069) (2,236,069)
Accumulated deficit.............................. (1,167,485) (23,837,893) (61,648,953) (61,648,953)
----------- ------------ ------------ ------------
Total stockholders' deficit.............. (1,087,485) (23,619,839) (53,295,522) 21,885,447
----------- ------------ ------------ ------------
Total liabilities and stockholders'
deficit................................ $ 4,039,946 $50,090,508 $ 74,101,758 $ 74,101,758
=========== ============ ============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE> 79
NET2000 COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDING
YEAR ENDING DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ---------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications...................... $ 17,830 $ 88,111 $ 6,465,903 $ 2,991,373 $ 18,669,796
Agency commissions and other............ 1,921,607 3,456,118 2,952,999 2,926,585 --
---------- ----------- ------------ ------------ ------------
Total revenues............................ 1,939,437 3,544,229 9,418,902 5,917,958 18,669,796
Operating costs and expenses:
Operating costs......................... 514,040 906,999 7,888,478 3,855,117 15,497,597
Selling, general and administrative..... 1,313,600 3,832,971 15,138,015 10,031,621 26,519,680
Depreciation and amortization........... 26,758 122,437 686,670 337,257 2,124,973
---------- ----------- ------------ ------------ ------------
Income (loss) from operations............. 85,039 (1,318,178) (14,294,261) (8,306,037) (25,472,454)
Other income (expenses):
Gain on sale of consulting division..... -- 875,000 -- -- --
Settlement of supplier dispute.......... -- -- -- -- 3,500,000
Miscellaneous (expense) income.......... (5,905) 7,838 3,104 -- 77,189
Interest income......................... -- 18,517 679,450 327,529 913,689
Interest expense........................ (11,464) (84,666) (155,405) (83,401) (1,051,812)
---------- ----------- ------------ ------------ ------------
Income (loss) before provision for income
taxes................................... 67,670 (501,489) (13,767,112) (8,061,909) (22,033,388)
Provision for income taxes................ -- -- -- -- --
---------- ----------- ------------ ------------ ------------
Net income (loss)......................... $ 67,670 $ (501,489) $(13,767,112) $ (8,061,909) $(22,033,388)
========== =========== ============ ============ ============
Preferred stock accretion................. -- -- (8,903,296) (5,570,251) (15,777,672)
---------- ----------- ------------ ------------ ------------
Net income (loss) available to common
stockholders............................ $ 67,670 $ (501,489) $(22,670,408) $(13,632,160) $(37,811,060)
========== =========== ============ ============ ============
Pro forma net (loss) income available to
common shareholders..................... -- $ (501,489) $(13,767,112) $ (8,061,909) $(22,033,388)
========== =========== ============ ============ ============
Basic and diluted earnings per share...... $ 0.01 $ (0.06) $ (2.81) $ (1.69) $ (4.68)
========== =========== ============ ============ ============
Pro forma basic and diluted earnings per
share................................... -- $ (0.06) $ (0.87) $ (0.54) $ (1.11)
========== =========== ============ ============ ============
Shares used in calculation of loss per
share:
Basic and diluted......................... 8,000,000 8,000,000 8,063,834 8,055,828 8,088,074
Pro forma basic and diluted............... 8,683,132 15,909,396 14,848,225 19,826,511
</TABLE>
See accompanying notes.
F-3
<PAGE> 80
NET2000 COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK DEFERRED RETAINED STOCKHOLDERS'
------------ ADDITIONAL STOCK EARNINGS EQUITY/
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) (DEFICIT)
------ ------ ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995... 8,000,000 $80,000 $ -- $ -- $ 111,334 $ 191,334
Net income................... -- -- -- -- 67,670 67,670
--------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1996... 8,000,000 80,000 -- -- 179,004 259,004
Net loss..................... -- -- -- -- (501,489) (501,489)
S Corp. distribution......... -- -- -- -- (845,000) (845,000)
Issuance of compensatory
stock options.............. -- -- 87,216 (87,216) -- --
--------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1997... 8,000,000 80,000 87,216 (87,216) (1,167,485) (1,087,485)
Net loss..................... -- -- -- -- (13,767,112) (13,767,112)
Exercise of stock options.... 87,592 876 74,124 -- -- 75,000
Issuance of compensatory
stock Options.............. -- -- 137,940 (137,940) -- --
Amortization of deferred
stock Compensation......... -- -- -- 63,054 -- 63,054
Accretion of Preferred
Stock...................... (8,903,296) (8,903,296)
--------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1998... 8,087,592 80,876 299,280 (162,102) (23,837,893) (23,619,839)
Net loss..................... -- -- -- -- (22,033,388) (22,033,388)
Exercise of stock options.... 4,666 47 770 -- -- 817
Issuance of compensatory
stock Options.............. -- -- 2,305,860 (2,305,860) -- --
Amortization of deferred
stock compensation......... -- -- -- 231,893 -- 231,893
Issuance of Warrants......... -- -- 7,902,667 -- -- 7,902,667
Accretion of Preferred
Stock...................... -- -- -- -- (15,777,672) (15,777,672)
--------- ------- ----------- ----------- ------------ ------------
Balance at September 30, 1999.. 8,092,258 $80,923 $10,508,577 $(2,236,069) $(61,648,953) $(53,295,522)
========= ======= =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 81
NET2000 COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ 67,670 $ (501,489) $(13,767,112) $(8,061,909) $(22,033,388)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization............ 26,758 122,437 686,670 337,257 2,327,425
Allowance for doubtful accounts.......... -- 10,000 218,776 277,782 1,431,283
Deferred stock compensation.............. -- -- 63,054 16,353 231,893
Changes in operating assets and
liabilities:
Accounts receivable.................... (173,040) (636,255) (2,790,822) (1,108,073) (3,289,238)
Other current assets................... 4,116 (32,783) 6,893 939 (687,718)
Other noncurrent assets................ 12,967 (70,316) (426,473) (394,698) (2,751,290)
Accounts payable....................... (6,937) 312,870 1,036,086 777,398 (930,066)
Accrued expenses and other current
liabilities.......................... 69,873 319,236 3,255,798 1,452,148 10,250,417
--------- ----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities............................... 1,407 (476,300) (11,717,130) (6,702,803) (15,450,682)
INVESTING ACTIVITIES
Acquisition of property and equipment...... (33,861) (87,746) (2,031,058) (561,239) (26,111,496)
Restricted cash............................ -- -- (948,707) (948,707) (738,568)
--------- ----------- ------------ ----------- ------------
Net cash used in investing activities...... (33,861) (87,746) (2,979,765) (1,509,946) (26,850,064)
FINANCING ACTIVITIES
Proceeds from line of credit............... 75,000 560,176 75,000 75,000 --
Repayments on line of credit............... (135,000) (120,000) (515,176) (515,176) --
Proceeds from notes payable to
shareholders'............................ 418,500 952,143 -- -- --
Repayments of notes payable from
shareholders'............................ (338,500) (1,052,143) -- -- --
Proceeds from issuance of common stock..... -- -- -- -- --
Proceeds from notes payable to related
party.................................... -- -- -- -- 24,255,949
Proceeds from exercise of stock options.... -- -- 75,000 75,000 817
Proceeds from sale of redeemable
convertible preferred stock.............. -- 3,500,000 47,000,001 17,000,001 --
S corporation distributions to
shareholders'............................ -- (845,000) -- -- --
Repayment of capital leases................ (17,654) (86,018) (846,703) (187,960) (2,075,244)
--------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities............................... 2,346 2,909,158 45,788,122 16,446,865 22,181,522
Net (decrease) increase in cash............ (30,108) 2,345,112 31,091,227 8,234,116 (20,119,224)
Cash at the beginning of period............ 32,799 2,691 2,347,803 2,347,803 33,439,030
--------- ----------- ------------ ----------- ------------
Cash at the end of period.................. $ 2,691 $ 2,347,803 $ 33,439,030 $10,581,919 $ 13,319,806
========= =========== ============ =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 82
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Net2000 Group, Inc. was formed on June 18, 1993 under the laws of the State
of Virginia and on October 23, 1997, was reincorporated in the state of
Delaware. On November 1, 1998, Net2000 Group, Inc. entered into a
recapitalization transaction whereby it exchanged all of its stock with Net2000
Communications, Inc. As a result of the exchange, Net2000 Group Inc. became a
wholly owned subsidiary of Net2000 Communications, Inc. and accordingly, the
financial statements of Net2000 Communications, Inc. include the financial
position and results of operations of Net2000 Group, Inc. for all periods prior
to the transaction as the successor to Net2000 Group, Inc. Subsequent to the
transaction, the ownership interest of Net2000 Communications, Inc. is identical
to that of Net2000 Group, Inc. prior to the exchange of stock. References to
"the Company" represent Net2000 Group, Inc. for periods prior to the exchange
and Net2000 Communications, Inc. for all subsequent periods.
Subsequent to the transaction, seven wholly-owned subsidiaries were created
to address specific organizational functions, including Net2000 Communications
Holdings, Inc., Net2000 Investments, Inc., Net2000 Communications Group, Inc.,
Net2000 Communications Capital Equipment, Inc., Net2000 Communications Real
Estate, Inc., and Net2000 Communications of Virginia, LLC. In addition, Net2000
Group, Inc. changed its name to Net2000 Communications Services, Inc.
During 1998, the Company changed its primary business activity from the
selling of network services of Bell Atlantic on a commission basis to the resale
of local, long-distance, and data services. In 1999, the Company began
constructing and operating a packet- and circuit- switched network.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 1997, 1998, and September 30, 1999 consolidated financial statements
include the accounts of the Company and all wholly owned subsidiaries. All
material intercompany transactions and balances have been eliminated in
consolidation.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated statements of operations and cash flow for the
nine months ended September 30, 1998 include, in the opinion of management, all
adjustments (consisting of normal and recurring adjustments) necessary to
present fairly the Company's results of operations and cash flow. All
information included in these notes to consolidated financial statements related
to the nine months ended September 30, 1998 is unaudited.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE> 83
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents. On December 31, 1997, 1998 and September 30,
1999, the Company had investments of $2,335,626, $32,870,179 and $12,243,167
respectively, in securities with maturities of less than three months which are
included in cash and cash equivalents.
STOCK COMPENSATION
The Company accounts for its stock-based compensation in accordance with
APB No. 25, "Accounting for Stock Issued to Employees" ("APB 25") using the
intrinsic value method. The Company has made pro forma disclosures required by
SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") using the
fair value method.
REVENUE RECOGNITION
The Company recognizes telecommunications revenues over the period in which
the services are provided. Monthly recurring charges include fees paid by
customers for lines in service and additional features on those lines. Usage
charges are billed in arrears and are fully earned as usage is accrued on the
provider's network. Commission revenues on agency sales are recognized when the
product has been installed or accepted for installation. Consulting revenue is
recognized when earned.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the recorded value of its financial assets and
liabilities, consisting primarily of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and debt, to approximate the fair
value of the respective assets and liabilities at December 31, 1997, 1998 and
September 30, 1999.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
COMPREHENSIVE INCOME
For the years ended December 31, 1996, 1997, 1998 and nine months ended
September 30, 1999 the Company's net income reflects comprehensive income,
accordingly, no additional disclosure is presented.
F-7
<PAGE> 84
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
VALUATION ACCOUNTS
A summary of the Company's allowance for bad debts is the is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1997........................... $ 10,000
Additions charged to expense......................... 219,000
Accounts receivable written-off...................... --
----------
Balance at December 31, 1998........................... 229,000
Additions charged to expense......................... 440,000
Additions from settlement (see Note 11).............. 1,500,000
Accounts receivable written-off...................... (509,000)
----------
Balance at September 30, 1999.......................... $1,660,000
==========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("SFAS 121"). SFAS 121 requires impairment losses to be recognized for
long-lived assets when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying amount. The
impairment loss of these assets is measured by comparing the carrying amount of
the asset to its fair value, with any excess of carrying value over fair value
written off. Fair value is based on market prices where available, an estimate
of market value, or determined by various valuation techniques including
discounted cash flow.
3. NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share is calculated by dividing the
net loss by the weighted average number of common shares outstanding. Pro forma
net loss per share is computed using the weighted average number of shares used
for basic and diluted per share
F-8
<PAGE> 85
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts and the weighted average redeemable convertible preferred stock
outstanding as if such shares were converted to common stock at the time of
issuance.
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDING MONTHS ENDING
DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ---------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net (loss) income.... $ 67,670 $ (501,489) $(13,767,112) $ (8,061,909) $(22,033,388)
========== ========== ============ ============ ============
Preferred stock
accretion.......... -- -- (8,903,296) (5,570,251) (15,777,672)
---------- ---------- ------------ ------------ ------------
Net income (loss)
available to common
stockholders....... $ 67,670 $ (501,489) $(22,670,408) $(13,632,160) $(37,811,060)
========== ========== ============ ============ ============
Pro forma net (loss)
income available to
common
shareholders....... -- $ (501,489) $(13,767,112) $ (8,061,909) $(22,033,388)
========== ========== ============ ============ ============
Weighted average of
common shares,
denominator for
basic earnings per
share.............. 8,000,000 8,000,000 8,063,834 8,055,828 8,088,074
Effect of dilutive
securities:
Stock options...... -- -- -- -- --
Warrants........... -- -- -- -- --
Convertible stock.. -- -- -- -- --
---------- ---------- ------------ ------------ ------------
Denominator for
diluted earnings
per share.......... 8,000,000 8,000,000 8,063,834 8,055,828 8,088,074
========== ========== ============ ============ ============
Pro forma adjustment
for redeemable
preferred stock.... -- 863,132 7,845,562 6,792,397 11,738,437
---------- ---------- ------------ ------------ ------------
Pro forma denominator
for basic and
diluted earnings
per share.......... -- 8,683,132 15,909,396 14,848,225 19,826,511
========== ========== ============ ============ ============
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at the
lower of cost or market. Depreciation is calculated using the straight-line
method over the estimated useful life ranging between three and eight years.
Leasehold improvements are amortized over the lesser of
F-9
<PAGE> 86
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the related lease term or the useful life. Interest capitalized and included in
the cost of switch equipment totaled $308,311 at September 30, 1999.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Software................................. $ 1,651 $ 1,039,789 $10,048,888
Computer equipment....................... 458,971 5,241,808 6,649,495
Office furniture and equipment........... 127,161 301,213 4,911,830
Leasehold improvements................... 72,314 487,292 4,090,633
Vehicles................................. -- -- 293,101
Switch equipment......................... -- -- 11,021,522
Construction in process.................. -- 5,290,872 15,565,429
--------- ----------- -----------
660,097 12,360,974 52,580,898
Less accumulated depreciation and
amortization........................... (150,581) (832,456) (2,957,437)
--------- ----------- -----------
$ 509,516 $11,528,518 $49,623,461
========= =========== ===========
</TABLE>
5. DEBT
LINE OF CREDIT
At December 31, 1997, the Company had a line of credit arrangement with a
bank that allowed for aggregate borrowings up to $750,000. The line of credit
was secured by substantially all of the assets of the Company. At December 31,
1997, $440,176 was outstanding under this arrangement. The line of credit
accrued interest at the bank prime rate plus .5% per annum (9% as of December
31, 1997). The Company repaid all amounts outstanding and terminated the line on
February 10, 1998.
SECURED CREDIT FACILITIES
On November 2, 1998, Net2000 Communications Group, Inc., a subsidiary of
the Company (see Note 1, Organization) entered into credit facilities with
Northern Telecom, Inc. ("Nortel"), the Series C Preferred shareholder (see Note
7), in the aggregate principal amount of $140 million. The agreement consisted
of a Term Loan Facility in an aggregate principal amount of $120 million and a
Revolving Loan Facility with availability of $20 million (together, the "Credit
Agreement").
On July 30, 1999, the Company amended the Credit Agreement to restructure
the existing $140 million senior secured facility to provide for additional
working capital availability. The revised agreement provides for a Senior Term
Loan Facility in the aggregate principal amount of $75 million, and a Senior
Discount Note with a face amount of $75 million. The Senior Term Loan Facility
may only be used to purchase Nortel goods and services. The Senior Discount Note
may be used for general corporate purposes. The Senior Term Loan Facility is
secured by a first priority perfected security interest in or first priority
lien on all present and future assets of the Company. The Senior Discount Note
is unsecured. Interest on the Senior Term Loan Facility will accrue at a Prime
Rate Loan Rate plus 3.5% or Eurodollar Loan Rate plus 4.5% as defined in the
terms of the amended Credit Agreement (10.47% at September 30, 1999). The Senior
Discount Note will bear interest at the Treasury rate plus 8% per annum (13.50%
at September 30, 1999). Repayment of accrued interest on the Prime Rate Loan
Rate is on each quarterly due date.
F-10
<PAGE> 87
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Repayment of accrued interest on a Eurodollar loan is on the last day of the
interest period, and in the case of interest periods greater than three months,
at three month intervals after the first day of such interest period. Nortel is
required to provide access to the credit facilities through November 2, 2001
(commitment termination date). Beginning the quarter after the commitment
termination date, the Company is required to begin repayment of the Senior Term
Loan in twenty quarterly installments. The Senior Discount Note will accrue
interest semi-annually in arrears until the fifth anniversary of the issuance
date, after which interest will be due semi-annually in arrears, with the
principal due on July 30, 2009. The Senior Term Loan Facility has certain
mandatory prepayment options as defined in the agreement. The Senior Discount
Note has certain prepayment penalties, call limitations and mandatory redemption
features as defined in the agreement. If borrowings have not exceeded
approximately $44 million prior to either the sale of the Note to a third party
or July 31, 2000, the loan will automatically increase to that level, and any
additional borrowings will be prohibited. The amended Credit Agreement contains
covenants which require the Company to meet certain financial measures in
addition to other non financial covenants.
In connection with the Credit Agreement, the Company issued to Nortel
detachable warrants to acquire 895,994 shares of common stock at $.01 per share.
The fair value of the warrants, $7.9 million, is treated as a discount on the
Company's debt and amortized as additional interest expense over the lives of
the respective debt instruments.
At December 31, 1998 and September 30, 1999, the Company had purchased $4.8
million and $16.5 million, respectively, of Nortel goods and services which have
been classified as a noncurrent liability as these purchases were subsequently
financed under the credit facility. At September 30, 1999, the Company had $24.3
million and $0 outstanding under the Senior Term Loan Facility and Senior
Discount Note, respectively.
Maturities of notes payable outstanding as of September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ 3,638,392
2003........................................................ 3,638,392
2004........................................................ 4,851,190
Thereafter.................................................. 12,127,975
-----------
Total notes payable......................................... $24,255,949
===========
</TABLE>
The Company paid interest of $11,464, $52,410, $173,058, and $886,607
related to the notes payable and capital leases in the years ended December 31,
1996, 1997 and 1998, and for the nine months ended September 30, 1999,
respectively.
LETTERS OF CREDIT
The Company maintains irrevocable letters of credit with three separate
vendors, which are disclosed as restricted cash on the balance sheet. The first
letter of credit, in the amount of $900,000, has a two year term expiring on
September 30, 2000 and serves as an advanced security deposit in connection with
the financing of certain billing system equipment under capital lease. This
letter of credit was amended on October 6, 1999 for an additional amount of
$984,289, which represents an advanced security deposit in connection with the
financing of financial and operational support system hardware, software and
services under capital lease.
F-11
<PAGE> 88
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The additional amount has a three year term expiring on October 31, 2002. The
term of the original $900,000 amount was extended to February 28, 2002. The
second letter of credit for $48,125 had a one year term which expired on
September 30, 1999, and represented a deposit in support of the Company's local
service resale activities. The third letter of credit for $730,969 has a seven
year term expiring on June 10, 2006, and represents a deposit in support of the
Company's obligations under an office space lease agreement. The letters of
credit are fully collateralized by certificates of deposits maintained with a
bank, with maturities ranging from 90 days to one year, and with stated interest
rates ranging from 3.19% to 5.35%. Subsequent to September 30, 1999, the Company
secured lease space for a switch site with a letter of credit in the amount of
$598,304 and a ten year term expiring on November 2, 2009.
CAPITAL LEASES
The Company currently leases office furniture and equipment under
non-cancelable capital leases. The Company had $506,682, $5,366,972, and
$7,832,914, of assets held under capital leases at December 31, 1997, 1998 and
September 30, 1999, respectively. Amortization and depreciation related to
capital leased equipment is included in depreciation and amortization expense.
The future minimum lease payments under non-cancelable capital leases at
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
Three months ended December 31, 1999........................ $ 931,683
2000........................................................ 2,872,983
2001........................................................ 1,196,531
2002........................................................ 357,137
2003........................................................ 15,850
-----------
Total minimum lease payments................................ $ 5,374,184
Less amount representing interest........................... (570,470)
-----------
Present value of minimum lease payments..................... 4,803,714
Less current portion of capital lease obligation............ (3,073,818)
-----------
Long term portion of capital lease obligation............... $ 1,729,896
===========
</TABLE>
6. TAXES
The Company accounts for taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under SFAS 109,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted rates expected to be in effect during the year in which the differences
reverse.
For periods prior to October 31, 1997, the Company and its stockholders
were taxed as an S Corporation under the Internal Revenue Code. Under the
provisions of the tax code, the Company's stockholders include their pro rata
share of the Company's income in their personal income tax returns. Accordingly,
the Company was not subject to Federal or state income taxes during that period.
On October 31, 1997, the Company sold Redeemable Convertible Series A Preferred
Stock, which disqualified the S corporation election. From November 1, 1997
forward, the Company has been taxed as a C corporation.
F-12
<PAGE> 89
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1999, the Company had net operating losses of
approximately $42.5 million. The timing and manner in which the operating loss
carryforward may be utilized in any year by the Company will be limited to the
Company's ability to generate future earnings. Current net operating loss
carryforwards will begin expiring substantially in 2018. As the Company has not
generated earnings and no assurance can be made of future earnings needed to
utilize these net operating losses, a valuation allowance in the amount of the
net deferred tax asset has been recorded.
At December 31, 1997, 1998 and September 30, 1999, deferred taxes consist
of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1997 1988 1999
---- ---- ----
<S> <C> <C> <C>
Tax Liability
Cash to accrual adjustment............. $(114,068) $ (85,461) $ (64,096)
Depreciation........................... -- (488,267) (2,656,545)
Capital lease.......................... -- (93,753) (566,126)
Tax Assets
Net operating loss carryforward........ 233,907 5,613,532 16,145,097
Capital leases......................... -- -- --
Allowance for bad debts................ 14,266 86,843 326,478
Deferred revenue....................... -- 178,843 184,735
Stock options.......................... -- 49,348 137,415
Other.................................. -- 6,350 18,395
--------- ----------- ------------
134,105 5,267,435 13,525,353
Valuation allowance.................... (134,105) (5,267,435) (13,525,353)
--------- ----------- ------------
Net deferred tax asset................... $ -- $ -- $ --
========= =========== ============
</TABLE>
The Company paid no income taxes for the years ended December 31, 1996,
1997, and 1998 or for the nine months ended September 30, 1999.
F-13
<PAGE> 90
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the items which cause the recorded income taxes to differ from
the statutory Federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Tax expense (benefit)
at statutory Federal
rate................. $(170,506) $(4,680,818) $(7,491,334)
Effect of:
State income tax,
net............. (30,084) (826,026) (1,322,000)
Stock option
compensation.... -- 24,591 90,438
Other.............. 66,485 348,920 464,978
Increase in
valuation
allowance....... 134,105 5,133,333 8,257,918
--------- ----------- -----------
Income tax expense... $ -- $ -- $ --
========= =========== ===========
</TABLE>
7. EQUITY
EQUITY TRANSACTIONS
On October 23, 1997, the Company reincorporated in Delaware pursuant to a
statutory merger of the Virginia corporation into a newly formed Delaware
corporation. On the merger date, each share of the prior Company's $1 par value
common stock was exchanged for 500 shares of $0.01 par value common stock of the
new Company. This transaction was accounted for as a stock split and the
accompanying financial statements have been restated to reflect this transaction
for all periods presented.
On October 31, 1997, the Company sold 4,087,592 shares of Redeemable
Convertible Series A Preferred Stock ("Series A Preferred Stock or Share") for
$0.856 per share. On May 19, 1998 the Company sold 5,510,535 shares of
Redeemable Convertible Series B Preferred Stock ("Series B Preferred Stock or
Share") for $3.085 per share. Both Series A and B Preferred Shares are
convertible into shares of common stock at a rate of one to one. Both Preferred
issues have mandatory conversion in the event of an initial public offering. The
Series A and B Preferred Stock accrue a dividend of $0.069 and $0.309 per annum,
respectively, payable if and when declared, and are subject to certain
adjustments and limitations as defined in the purchase agreement. Should a
qualifying event (initial public offering or acquisition) be consummated prior
to the third anniversary of the Series A and B original issue dates, no
dividends, whether or not accrued, will be payable. At December 31, 1997, 1998
and for the nine months ended September 30, 1999, dividends in arrears were
$46,667, $1,374,868 and $2,863,467, respectively. Voting rights of both
Preferred issues are on an as if converted basis. The Series A and B Preferred
Shares have redemption rights at their respective fair values subject to certain
limitations, and certain antidilutive and future registration rights as defined
in the purchase agreement and other agreements. The Series B Preferred Stock
ranks senior and prior to the Series A Preferred Stock as to dividends and upon
a liquidation event as defined.
On May 19, 1998, the Board of Directors and stockholders of the Company
approved a 4 for 1 stock split of the Company's $0.01 par value voting common
stock. All references in the
F-14
<PAGE> 91
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying financial statements to the number of shares of common stock have
been restated to reflect the split.
On November 1, 1998 and pursuant to the recapitalization of the Company
discussed in Note 1-Organization, Net2000 Group, Inc. exchanged common shares
with the stockholders of the new parent company, Net2000 Communications, Inc.,
in a one-for-one transfer. In addition, the number of authorized shares of
common stock was increased from 28 million to 30 million.
On November 2, 1998, the Company sold 2,140,310 shares of Redeemable
Convertible Series C Preferred Stock ("Series C Preferred Stock or Share") for
$14.017 per share. Certain terms and conditions of the Series A and B agreements
were amended and restated as a result of the Series C Preferred Stock issuance
and are reflected herein. Each Series C Preferred Share is convertible into
shares of common stock at a rate of one to one. The Series C Preferred Stock has
a mandatory conversion in the event of an initial public offering which has
gross proceeds of at least $50 million and at an IPO price of at least $8.00 per
share of common stock. The Series C Preferred Stock accrues a dividend of $1.121
per annum, payable if and when declared, and subject to certain adjustments and
limitations as defined in the purchase agreement. At December 31, 1998 and for
the nine months ended September 30, 1999, dividends in arrears were $399,881 and
$2,199,345, respectively. Voting rights of the Series C Preferred Shares are on
an as if converted basis. The Series C Preferred Shares have redemption rights
at their fair values beginning on the later of one year after the maturity of
any high yield debt issued by the Company prior to December 31, 1999 or November
2, 2004; or in the case of an acquisition event, the 30 day period commencing
upon the receipt of notice of the acquisition event. The Series C Preferred
Shares have certain antidilutive and future registration rights as defined in
the agreement. The Series C Preferred Stock ranks senior and prior to the Series
B Stock as to dividends and upon a liquidation event as defined in the Company's
certificate of incorporation, as amended.
STOCK OPTION PLAN
During 1997, the Company adopted a stock option plan (the "Option Plan")
which allows the Company to grant up to 1,343,064 Common Stock options to
employees, board members and others who contribute materially to the success of
the Company. Individual grants generally become exercisable ratably over a
period of four years from the grant date. The contractual term of the options is
10 years from the date of grant. In November 1998, the number of stock options
reserved under the Option Plan was increased to 2,703,549. In September 1999,
the number of stock options reserved under the Option Plan was increased to
3,498,711.
The Company determines the fair value of its common stock used in its
accounting for stock option grants based on both arms length equity transactions
and independent valuations obtained during the period from the plan's inception
to September 30, 1999.
In December 1997, the Company issued 1,026,076 options to certain employees
at an exercise price of $0.175 which was below the fair market value at the time
of the option grant. During 1998, the Company issued 1,351,351 options to
certain employees at a weighted average exercise price of $0.777. The exercise
price for a portion of these option grants was below the fair market value of
the common stock at the grant date. For the nine months ended September 30,
1999, the Company issued 1,227,000 options to certain employees at an exercise
price of $4.25 and $7.00, which was below the fair market value at the time of
the option grant. Accordingly, the Company recorded deferred stock compensation
of $87,216, $137,940 and $2,305,860 in 1997, 1998, and for the nine months ended
September 30, 1999, respectively.
F-15
<PAGE> 92
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998 and the nine months ended September 30, 1999, amortization
expense for deferred stock compensation was $63,054 and $231,893, respectively.
Additional information with respect to the Option Plan is summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------------------------- SEPTEMBER 30,
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period............................ -- $ -- 1,026,076 $0.175 2,047,289 $0.522
Options granted................... 1,026,076 0.175 1,351,351 0.777 1,227,000 5.620
Options exercised................. -- -- (87,592) 0.856 (4,666) 0.175
Options canceled or expired....... -- -- (242,546) 0.358 (233,142) 1.065
--------- --------- --------- ------
Outstanding at end of period...... 1,026,076 $0.175 2,047,289 $0.522 3,036,481 $2.540
========= ========= ========= ======
Options exercisable at end of
period.......................... 50,365 $0.175 670,874 $0.402 1,003,409 $0.840
========= ========= ========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ----------------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Less than $1.00..................... 1,798,108 8.27 $0.46 915,036 $ 0.44
$1.00 to $4.00...................... 25,373 8.25 1.97 25,373 1.97
$4.01 to $7.00...................... 1,213,000 9.79 5.64 63,000 6.21
--------- ---------
3,036,481 8.90 $2.50 1,003,409 $0.840
========= =========
</TABLE>
Had compensation expense related to the stock option plans been determined
based on the fair value at the option grant dates consistent with the provisions
of SFAS No. 123, the Company's pro forma net loss and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss available to common
shareholders -- pro forma...................... $(504,453) $(22,805,690) $(13,708,435) $(38,120,925)
Pro forma net loss per share................... $ (0.06) $ (2.83) $ (1.70) $ (4.71)
</TABLE>
The effect of applying SFAS 123 on the years ended December 31, 1997 and
1998, and the nine months ended September 30, 1998 and 1999 pro forma net loss
as stated above is not necessarily representative of the effects on reported net
loss for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options granted in future
years.
F-16
<PAGE> 93
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for all grants: volatility of 25%; dividend
yield of 0%; expected life of five years; and risk-free interest rate of 6.5%.
The weighted average fair values of the options granted in 1997 with a stock
price equal to the exercise price is $0.26. The weighted average fair values of
the options granted in 1998 with a stock price equal to the exercise price, with
a stock price less than the exercise price and with a stock price greater than
the exercise price are $4.25, $0.64 and $0.74 per share, respectively. The
weighted average fair values of the options granted in 1999 with a stock price
equal to the exercise price and with a stock price greater than the exercise
price are $4.25 and $8.13 per share, respectively.
SHAREHOLDER DISTRIBUTIONS
During 1997, the Company's board of directors approved and paid an S
Corporation distribution to shareholders in the amount of $845,000.
ACCRETION TO REDEMPTION VALUE OF CLASS A, CLASS B, AND C PREFERRED STOCK
For the year ended December 31, 1998 and the nine months ended September
30, 1999, the Company has accreted its preferred stock to their redemption value
based on the fair market value of the Company using the effective interest
method. The Company recorded accretion totaling $8,903,296 and $15,777,672 for
the year ended December 31, 1998 and the nine month period ended September 30,
1999, respectively.
8. COMMITMENTS
OPERATING LEASES
The Company currently leases office space and equipment under
non-cancelable operating leases. Rent expense for the years ended December 31,
1996, 1997, 1998 and for the nine months ending September 30, 1999 was $84,811,
$384,919, $894,273, and $1,545,066, respectively.
On May 26, 1999, the Company entered into a facilities lease agreement for
new headquarters office space and switch space. The leased premises consists of
126,276 of rentable square feet. The lease term date for the office space and
switch space leased premises begins on the earlier of 15 and 30 days,
respectively, after substantial completion of construction on the space or the
date the Company has commenced beneficial occupancy of the space; currently
anticipated to in mid-November. The lease term for the office space expires on
December 31, 2006. The lease term for the switch space expires on the tenth
anniversary of the switch space rent commencement date. Base annual rent for all
leased premises is $2,910,764 for years one through five, and $3,422,281 for
years six through ten, subject to additional rents for the Company's
proportional share of real property taxes and common expenses as defined in the
lease agreement.
F-17
<PAGE> 94
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under non-cancelable operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
Three months ended December 31, 1999................. $ 864,797
2000................................................. 5,277,452
2001................................................. 4,771,358
2002................................................. 4,397,488
2003................................................. 4,307,444
2004................................................. 3,957,589
Thereafter........................................... 13,389,675
-----------
Total...................................... $36,965,803
===========
</TABLE>
The Company has executed employment agreements with certain key executives
under which the Company is required to pay base salaries totaling $251,000 and
$1,048,000 during the remaining three months of 1999 and for the year 2000,
respectively.
9. SALE OF CONSULTING DIVISION
On October 27, 1997, the Company sold its consulting business to a
third-party purchaser in exchange for $875,000 in cash and a 20% equity interest
in the company into which the consulting business was merged. The Company
recorded its investment in this company at a nominal value and accounts for it
using the cost method. The Company and the purchaser entered into an agreement
whereby either party can require the sale of the remaining 20% of the business
to the other entity at any date after December 31, 1998. On July 29, 1999, the
purchaser exercised its option to acquire the remaining 20% of the business for
$64,448.
10. RELATED PARTY TRANSACTIONS
The Company maintains key-man life insurance policies for each of six
officers with aggregate coverage of $34,000,000. The Company paid $13,672,
$35,268 and $36,714 of premiums related to these policies during the year ended
December 31, 1997, 1998 and for the nine months ended September 30, 1999,
respectively.
11. SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company derived a significant portion of its sales from two major
customers during 1997 and 1998, and one major customer during 1996. For the
years ended December 31, 1996, 1997 and 1998 and the nine months ended September
30, 1999, the Company recorded sales of approximately $1,400,000, $2,795,000,
$2,861,000, and $0 respectively, from these customers. For the years ended
December 31, 1996, 1997 and 1998 the Company had accounts receivable of $307,000
$894,310 and $0, respectively, resulting from sales to these major customers.
On July 30, 1999, the Company and a major supplier of local
telecommunications resale services settled a dispute over claims that certain
acts and omissions by the supplier had an adverse impact on the Company's
ability to resell and earn revenue from the resale of local telecommunication
services. Net settlement proceeds to the Company totaled $5 million, of which
$1.5 million was utilized to offset impaired accounts receivable due to the
dispute and 3.5 million was recorded as a gain. In addition, the Company will be
entitled to compensation for future lost usage calculated in accordance with the
terms of the agreement, subject to audit by the supplier,
F-18
<PAGE> 95
NET2000 COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and for a period commencing subsequent to the settlement date and for as long as
the Company and supplier are engaged in the resale of local telecommunication
services.
12. DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution plan (401(k) plan) covering
all employees who meet certain eligibility requirements. Participants may make
contributions to the plan up to 15% of their compensation (as defined) up to the
maximum established by law. The Company may make a matching contribution of an
amount to be determined by the Board of Directors, but subject to a maximum of
6% of compensation contributed by each participant. Company contributions vest
ratably over four years. Company contributions to the plan as of December 31,
1998 and for the nine months ended September 30, 1999 were $74,943 and $127,953,
respectively.
13. PRO FORMA ADJUSTMENTS (UNAUDITED)
The pro forma balance sheet as of September 30, 1999 reflects the
conversion of all classes of the Company's preferred stock into common stock as
of that date. The pro forma net income (loss) per share reflects the conversion
of all classes of the Company's preferred stock as of the respective date of
issuance.
14. SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
Revenues........................... $ 697,691 $ 714,178 $ 956,780 $ 1,175,580
Operating (loss) income............ (18,057) (243,826) (207,462) (848,833)
Net (loss) income.................. (27,226) (256,650) (217,980) 367
1998
Revenues........................... $ 1,652,033 $2,217,693 $ 2,048,232 $ 3,500,944
Operating (loss) income............ (994,529) (2,479,382) (4,832,126) (5,988,224)
Net (loss) income.................. (985,860) (2,398,776) (4,677,273) (5,705,203)
1999
Revenues........................... $ 5,056,729 $6,031,126 $ 7,581,941
Operating (loss) income............ (6,451,190) (8,647,418) (10,373,846)
Net (loss) income.................. (6,169,939) (8,544,731) (7,318,718)
</TABLE>
F-19
<PAGE> 96
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Consolidated Financial And
Other Data........................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 21
Business............................ 30
Government Regulation............... 46
Management.......................... 53
Certain Transactions................ 61
Principal Stockholders.............. 64
Description of our Capital Stock.... 66
Shares Eligible for Future Sale..... 70
Underwriting........................ 72
Validity of the Shares.............. 73
Experts............................. 73
Additional Information.............. 73
Index to Financial Statements.......
</TABLE>
----------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Shares
NET2000
COMMUNICATIONS, INC.
Common Stock
----------------------
[LOGO]
----------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
J.P. MORGAN & CO.
LEGG MASON WOOD WALKER
INCORPORATED
Representatives of the Underwriters
------------------------------------------------------
------------------------------------------------------
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by us in
connection with the sale and distribution of the securities offered hereby,
other than underwriting discounts and commissions. All of the amounts shown are
estimated except the Securities and Exchange Commission registration fee, the
National Association Securities Dealers, Inc. filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $47,955
National Association of Securities Dealers, Inc. filing
fee....................................................... 17,750
Nasdaq National Market listing fee.......................... *
Transfer agent's and registrar's fees....................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses........................... *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware general corporation law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. Our
bylaws include provisions to require us to indemnify our directors and officers
to the fullest extent permitted by Section 145, including circumstances in which
indemnification is otherwise discretionary. Section 145 also empowers us to
purchase and maintain insurance that protects our officers, directors, employees
and agents against any liabilities incurred in connection with their service in
such positions.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification of our directors and
officers by the Underwriters, for certain liabilities arising under the
Securities Act.
15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, we have issued unregistered securities in the
transactions described below. These securities were offered and sold by us in
reliance upon the exemptions provided for in Section 4(2) of the Securities Act,
relating to sales not involving any public offering, Rule 506 of the Securities
Act relating to sales to accredited investors and Rule 701 of the Securities Act
relating to a compensatory benefit plan. The sales were made without the use of
an underwriter and the certificates representing the securities sold contain a
restrictive legend that prohibits transfer without registration or an applicable
exemption.
(1) In October 1997, we issued 4,087,592 shares of series A preferred
stock to a group of accredited investors at a purchase price of $0.856 per
share for an aggregate purchase price of $3,500,000.
(2) In October 1997, we issued an option to one of our executive
officers for an aggregate of 87,592 shares of common stock at an exercise
price of $0.856 per share.
II-1
<PAGE> 98
(3) In October 1997, we issued an option to one of our executive
officers for an aggregate of 25,373 shares of common stock at an exercise
price of $1.971 per share.
(4) In May 1998, we issued 5,510,535 shares of series B preferred
stock to a group of accredited investors at a purchase price of $3.085 per
share for an aggregate purchase price of $17,000,000.
(5) In November 1998, we issued 2,140,310 shares of series C preferred
stock to one accredited investor at a purchase price of $14.017 per share
for an aggregate purchase price of $30,000,000.
(6) In July 1999, we issued a warrant to purchase 895,944 shares of
common stock to an accredited investor.
(7) Between October 1997 and November 1999, we issued options
exercisable for an aggregate of 1,376,268 shares of common stock at an
exercise price of $0.175 per share.
(8) Between October 1997 and November 1999, we issued options
exercisable for an aggregate of 187,296 shares of common stock at an
exercise price of $0.4625 per share.
(9) Between October 1997 and November 1999, we issued options
exercisable for an aggregate of 667,148 shares of common stock at an
exercise price of $0.95 per share.
(10) Between October 1997 and November 1999, we issued options
exercisable for an aggregate of 649,750 shares of common stock at an
exercise price of $4.25 per share.
(11) Between October 1997 and November 1999, we issued options
exercisable for an aggregate of 608,500 shares of common stock at an
exercise price of $7.00 per share.
(12) In November 1999, we issued an option to our president for an
aggregate of 275,000 shares of common stock at an exercise price of $4.00
per share.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Net2000 dated
November 4, 1998
3.1.1 Certificate of Amendment to Restated Certificate of
Incorporation of Net2000 dated December 2, 1999
3.1.2* Form of Amended and Restated Certificate of Incorporation of
Net2000
3.1.3 Bylaws of Net2000
3.1.4* Form of Amended and Restated Bylaws of Net2000
4.1 Specimen stock certificate for shares of common stock of
Net2000
5.1* Opinion of Piper Marbury Rudnick & Wolfe LLP, regarding
legality of securities being registered
10.1 Second Amended and Restated Investor Rights Agreement dated
November 4, 1998, by and among Net2000 and certain
stockholders named therein
10.2 Employment Agreement dated July 31, 1998, by and between
Net2000 and Clayton A. Thomas, Jr.
10.3 Employment Agreement dated July 31, 1998, by and between
Net2000 and Mark A. Mendes
10.4 Employment Agreement dated July 31, 1998, by and between
Net2000 and Donald E. Clarke
10.5 Employment Agreement dated July 31, 1998, by and between
Net2000 and Bruce Bednarski
</TABLE>
II-2
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.6 Employment Agreement dated July 31, 1998, by and between
Net2000 and Peter Callowhill
10.7* Employment Agreement dated November , 1999, by and between
Net2000 and Clyde Heintzelman
10.8 1997 Equity Incentive Plan
10.9 1999 Stock Incentive Plan
10.10 1999 Employee Stock Purchase Plan
10.11 Incentive Stock Option Agreement dated October 27, 1997, by
and between Net2000 and Mark A. Mendes
10.11.1 Preferred Stock Incentive Stock Option Agreement dated
October 27, 1997, by and between Net2000 and Mark A. Mendes
10.11.2 Amendment No. 1 to Preferred Stock Incentive Stock Option
Agreement dated April 1, 1998 (related to Exhibit 10.11.1)
10.11.3 Incentive Stock Option Agreement dated May 19, 1998, by and
between Net2000 and Mark A. Mendes
10.12 Incentive Stock Option Agreement dated December 15, 1997 by
and between Net2000 and Donald E. Clarke
10.12.1 Incentive Stock Option Agreement dated May 19, 1998 by and
between Net2000 and Donald E. Clarke
10.12.2* Incentive Stock Option Agreement dated November 10, 1999, by
and between Net2000 and Donald E. Clarke
10.13* Stock Option Agreement dated November , 1999, by and
between Net2000 and Clyde Heintzelman
10.14 Amended and Restated Credit Agreement dated July 30, 1999,
by and among Net2000 Communications Group, Inc., Nortel
Networks Inc. and certain lenders named therein
10.15 Form of Amended and Restated Guaranty Agreement dated July
30, 1999, signed by each of our subsidiaries and Nortel
Networks Inc.
10.16 Form of Amended and Restated Pledge and Security Agreement
dated July 30, 1999, signed by each of our subsidiaries and
Nortel Networks Inc.
10.17 Note Purchase Agreement dated July 30, 1999, by and between
Net2000 and Nortel Networks Inc.
10.18 Warrant Agreement dated July 30, 1999, by and between
Net2000 and Nortel Networks Inc.
10.19 Form of Warrant Certificate dated July 30, 1999, by and
between Net2000 and Nortel Networks Inc.
10.20 Senior Discount Notes Due 2009 issued by Net2000 on July 30,
1999 to the holder identified therein
10.21 Exchange and Registration Rights Agreement dated July 30,
1999, by and between Net2000 and Nortel Networks Inc.
10.22 Lease dated December 24, 1998, by and between Net2000
Communications Real Estate, Inc. and Wellsford/Whitehall
Holdings, L.L.C.
10.23 Lease dated February 19, 1999, by and between Net2000
Communications Real Estate, Inc. and Murdock Atrium Limited
Partnership
10.24 Sublease Agreement dated June 21, 1999, by and between
Net2000 Communications Real Estate, Inc. and Virginia
Electric and Power Company
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.25 Office Lease dated May 26, 1999, by and between Net2000
Communications Real Estate, Inc. and KDC-Dulles Tech, LLC
21 Subsidiaries of Net2000
23.1 Consent of Ernst & Young, LLP
23.2* Consent of Piper Marbury Rudnick & Wolfe LLP (included as
part of Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware
General corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted form the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Herndon, Virginia, on the
2nd day of December, 1999.
NET2000 Communications, Inc.
By: /s/ CLAYTON A. THOMAS, JR.
------------------------------------
Clayton A. Thomas, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated. Each person whose signature appears
below in so signing also makes, constitutes and appointed Clayton A. Thomas,
Jr., Donald E. Clarke and Nancy A. Spangler, and each of them acting alone, his
true and lawful attorney-in-fact, with full power of substitution, for him in
any and all capacities, to execute and cause to be filed with the Securities and
Exchange Commission any and all amendments and post-effective amendments to this
Registration Statement, or any registration statement for this offering that is
to be effective upon filing pursuant to rule 462(b) under the Securities Act of
1933, with exhibits thereto and other documents in connection therewith, and
hereby ratifies and confirms all that said attorney-in-fact or his or her
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ CLAYTON A. THOMAS, JR. Chairman of the Board and December 2, 1999
- ----------------------------------------------------- Chief Executive Officer
Clayton A. Thomas, Jr. (Principal Executive
Officer)
/s/ CLYDE HEINTZELMAN President and Director December 2, 1999
- -----------------------------------------------------
Clyde Heintzelman
/s/ DONALD E. CLARKE Executive Vice President, December 2, 1999
- ----------------------------------------------------- Chief Financial Officer
Donald E. Clarke and Treasurer (Principal
Accounting and Financial
Officer)
/s/ PETER B. CALLOWHILL Director December 1, 1999
- -----------------------------------------------------
Peter B. Callowhill
/s/ ERIC GEIS Director December 2, 1999
- -----------------------------------------------------
Eric Geis
/s/ REID MILES Director December 1, 1999
- -----------------------------------------------------
Reid Miles
/s/ MITCHELL REESE Director December 2, 1999
- -----------------------------------------------------
Mitchell Reese
</TABLE>
II-5
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Net2000 dated
November 4, 1998
3.1.1 Certificate of Amendment to Restated Certificate of
Incorporation of Net2000 dated December 2, 1999
3.1.2* Form of Amended and Restated Certificate of Incorporation of
Net2000
3.1.3 Bylaws of Net2000
3.1.4* Form of Amended and Restated Bylaws of Net2000
4.1 Specimen stock certificate for shares of common stock of
Net2000
5.1* Opinion of Piper Marbury Rudnick & Wolfe LLP, regarding
legality of securities being registered
10.1 Second Amended and Restated Investor Rights Agreement dated
November 4, 1998, by and among Net2000 and certain
stockholders named therein
10.2 Employment Agreement dated July 31, 1998, by and between
Net2000 and Clayton A. Thomas, Jr.
10.3 Employment Agreement dated July 31, 1998, by and between
Net2000 and Mark A. Mendes
10.4 Employment Agreement dated July 31, 1998, by and between
Net2000 and Donald E. Clarke
10.5 Employment Agreement dated July 31, 1998, by and between
Net2000 and Bruce Bednarski
10.6 Employment Agreement dated July 31, 1998, by and between
Net2000 and Peter Callowhill
10.7* Employment Agreement dated November , 1999, by and between
Net2000 and Clyde Heintzelman
10.8 1997 Equity Incentive Plan
10.9 1999 Stock Incentive Plan
10.10 1999 Employee Stock Purchase Plan
10.11 Incentive Stock Option Agreement dated October 27, 1997, by
and between Net2000 and Mark A. Mendes
10.11.1 Preferred Stock Incentive Stock Option Agreement dated
October 27, 1997, by and between Net2000 and Mark A. Mendes
10.11.2 Amendment No. 1 to Preferred Stock Incentive Stock Option
Agreement dated April 1, 1998 (related to Exhibit 10.11.1)
10.11.3 Incentive Stock Option Agreement dated May 19, 1998, by and
between Net2000 and Mark A. Mendes
10.12 Incentive Stock Option Agreement dated December 15, 1997 by
and between Net2000 and Donald E. Clarke
10.12.1 Incentive Stock Option Agreement dated May 19, 1998 by and
between Net2000 and Donald E. Clarke
10.12.2* Incentive Stock Option Agreement dated November 10, 1999, by
and between Net2000 and Donald E. Clarke
10.13* Stock Option Agreement dated November , 1999, by and
between Net2000 and Clyde Heintzelman
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.14 Amended and Restated Credit Agreement dated July 30, 1999,
by and among Net2000 Communications Group, Inc., Nortel
Networks Inc. and certain lenders named therein
10.15 Form of Amended and Restated Guaranty Agreement dated July
30, 1999, signed by each of our subsidiaries and Nortel
Networks Inc.
10.16 Form of Amended and Restated Pledge and Security Agreement
dated July 30, 1999, signed by each of our subsidiaries and
Nortel Networks Inc.
10.17 Note Purchase Agreement dated July 30, 1999, by and between
Net2000 and Nortel Networks Inc.
10.18 Warrant Agreement dated July 30, 1999, by and between
Net2000 and Nortel Networks Inc.
10.19 Form of Warrant Certificate dated July 30, 1999, by and
between Net2000 and Nortel Networks Inc.
10.20 Senior Discount Notes Due 2009 issued by Net2000 on July 30,
1999 to the holder identified therein
10.21 Exchange and Registration Rights Agreement dated July 30,
1999, by and between Net2000 and Nortel Networks Inc.
10.22 Lease dated December 24, 1998, by and between Net2000
Communications Real Estate, Inc. and Wellsford/Whitehall
Holdings, L.L.C.
10.23 Lease dated February 19, 1999, by and between Net2000
Communications Real Estate, Inc. and Murdock Atrium Limited
Partnership
10.24 Sublease Agreement dated June 21, 1999, by and between
Net2000 Communications Real Estate, Inc. and Virginia
Electric and Power Company
10.25 Office Lease dated May 26, 1999, by and between Net2000
Communications Real Estate, Inc. and KDC-Dulles Tech, LLC
21 Subsidiaries of Net2000
23.1 Consent of Ernst & Young, LLP
23.2* Consent of Piper Marbury Rudnick & Wolfe LLP (included as
part of Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF NET2000 COMMUNICATIONS, INC.
Net2000 Communications, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
The date of incorporation of the Corporation is October 8, 1998.
The Board of Directors of the Corporation by unanimous written consent as
provided by Section 141(f) of the General Corporation Law of the State of
Delaware, adopted a resolution, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amended and restated
Certificate of Incorporation of the Corporation and declaring said amendment and
restatement to be advisable. The stockholders of the Corporation duly approved
said proposed amendment and restatement by written consent in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware, and written notice of such consent has been given to all stockholders
who have not consented in writing to said amendment and restatement. The
resolution setting forth the amendment is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation be and
hereby is amended and restated as follows:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is:
Net2000 Communications, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent in the State of Delaware at such address is The Corporation Trust Company.
THIRD: The nature of the business of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware and to possess and exercise all of the
powers and privileges granted under such law and the other laws of the State of
Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 42,000,000 in the designated
classes as follows:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value per share 30,000,000
<PAGE> 2
Preferred Stock, $.01 par value per share 12,000,000
A. Common Stock
(1) The voting, dividend and liquidation rights of holders of shares
of Common Stock are subject to, and qualified by, the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of
Directors.
(2) Subject to the voting rights of holders of shares of the Preferred
Stock, the holders of the Common Stock are entitled to one vote for each share
held at all meetings of stockholders (and written actions in lieu of meetings).
There shall be no cumulative voting and at any meeting held for the purpose of
electing directors, the presence in person or by proxy of the holders or a
majority of the shares of Common Stock then outstanding shall constitute a
quorum of the Common Stock for the purpose of electing directors by holders of
Common Stock.
(3) Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as, if and when determined by the Board of Directors
and subject to any preferential dividend rights of any then outstanding
Preferred Stock.
(4) Upon voluntary or involuntary liquidation, sale, merger,
consolidation, dissolution or winding up of the Corporation, holders of shares
of Common Stock will be entitled to receive all assets of the Corporation
available for distribution to its stockholders, subject to any preferential
rights of any then outstanding Preferred Stock.
(5) The Common Stock is nonredeemable.
B. Preferred Stock
Four million eighty-seven thousand five hundred and ninety-two (4,087,592)
shares of preferred stock shall be designated as "Series A Convertible Preferred
Stock" (the "Series A Preferred Stock"), par value $.01 value. Five million five
hundred ten thousand five hundred thirty-five (5,510,535) shares of preferred
stock shall be designated as "Series B Convertible Preferred Stock" (the "Series
B Preferred Stock"), par value $.01. Two million one hundred forty thousand
three hundred ten (2,140,310) shares of preferred stock shall be designated as
"Series C Convertible Preferred Stock" (the "Series C Preferred Stock"), par
value $.01. As more fully described below, the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock shall rank, as to
dividends and upon a Liquidation Event (as defined in Article FOURTH(B)(2)
hereof), senior and prior to the Common Stock and all other classes or series of
shares issued by the Corporation (the "Junior Stock"). As more fully described
below, the Series B Preferred Stock shall rank, as to dividends and upon a
Liquidation Event, senior to the Series A Preferred Stock. As more fully
described below, the Series C Preferred Stock shall rank, as to dividends and
upon a Liquidation Event, senior to the Series A Preferred Stock and the Series
B
- 2 -
<PAGE> 3
Preferred Stock. The Series A Preferred Stock, the Series B Preferred Stock and
the Series C Preferred Stock shall be referred to herein collectively as the
"Preferred Stock."
The Preferred Stock shall have the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations:
1. DIVIDENDS.
(a) The holders of shares of the Series C Preferred Stock shall be
entitled to:
(i) annual dividends at the rate per annum of $1.121 per share of
the Series C Preferred Stock as adjusted for stock splits, stock dividends,
recapitalizations, reclassifications and similar events which affect the number
of outstanding shares of the Series C Preferred Stock (any such event, an
"Adjustment"); such dividends will be cumulative and accrue if not declared by
the Board of Directors;
(ii) if a dividend or other distribution is declared or distributed
on the Common Stock of the Corporation, dividends or distributions in an amount
at least equal to the amount that would have been paid on the Common Stock into
which the Series C Preferred Stock is then convertible if all such Common Stock
had been issued upon conversion and had been outstanding on the record date for
such dividend or distribution on Common Stock (or, if no record is taken, the
date as of which the record holders entitled to such dividend or distribution
are determined) and therefor entitled to such dividends or distributions;
provided that any such dividends payable under this clause (ii) shall offset any
dividends accruing thereafter pursuant to clause (i); and
(iii) such other dividends or distributions when and as declared by
the Board of Directors of the Corporation, acting in its sole discretion.
(b) The holders of shares of Series B Preferred Stock shall be entitled to
receive, out of funds legally available therefor, when and if declared by the
Board of Directors:
(i) annual dividends at the rate per annum of $ 0.309 per share of
the Series B Preferred Stock (subject to Adjustment); such dividends will accrue
if not declared by the Board of Directors; provided however, that if a
Qualifying Event (as defined in Section 1(e)) has been consummated prior to the
third anniversary of the Series B Original Issue Date (as defined below), no
such dividends, whether accrued or unaccrued, will be payable, and upon the
occurrence of the Qualifying Event, dividends pursuant to this Section 1(b)(i)
will cease to accrue;
(ii) if a dividend or other distribution is declared or distributed
on the Common Stock of the Corporation, dividends or distributions in an amount
at least equal to the amount that would have been paid on the Common Stock into
which the Series B Preferred
- 3 -
<PAGE> 4
Stock is then convertible if all such Common Stock had been issued upon
conversion and had been outstanding on the record date for such dividend or
distribution on Common Stock (or, if no record is taken, the date as of which
the record holders entitled to such dividend or distribution are determined) and
therefor entitled to such dividends or distributions; provided that any such
dividends payable under this clause (ii) shall offset any dividends accruing
thereafter pursuant to clause (i); and
(iii) such other dividends or distributions when and as declared by
the Board of Directors of the Corporation, acting in its sole discretion.
(c) The holders of shares of Series A Preferred Stock shall be entitled
to receive, out of funds legally available therefor, when and if declared by the
Board of Directors:
(i) annual dividends at the rate per annum of $.069 per share of
the Series A Preferred Stock, subject to Adjustment; such dividends will accrue
if not declared by the Board of Directors; provided however, that if a
Qualifying Event (as defined in Section 1(e)) has been consummated prior to the
third anniversary of the Series A Original Issue Date (as defined below), no
such dividends, whether accrued or unaccrued, will be payable, and upon the
occurrence of the Qualifying Event, dividends pursuant to this Section 1(c)(i)
will cease to accrue;
(ii) if a dividend or other distribution is declared or distributed
on the Common Stock of the Corporation, dividends or distributions in an amount
at least equal to the amount that would have been paid on the Common Stock into
which the Series A Preferred Stock is then convertible if all such Common Stock
had been issued upon conversion and had been outstanding on the record date for
such dividend or distribution on Common Stock (or, if no record is taken, the
date as of which the record holders entitled to such dividend or distribution
are determined) and therefor entitled to such dividends or distributions;
provided that any such dividends payable under this clause (ii) shall offset any
dividends accruing thereafter pursuant to clause (i); and
(iii) such other dividends or distributions when and as declared by
the Board of Directors of the Corporation, acting in its sole discretion.
(d) The holders of the Series C Preferred Stock shall be entitled to be
paid, in full, the dividends and distributions declared or accrued (regardless
of whether payable) or payable in accordance with clauses (a)(i) and (a)(ii)
above, prior to the payment of any dividends or distributions in respect of
Common Stock of the Corporation, the Series A Preferred Stock, Series B
Preferred Stock, including any dividends or distributions payable in accordance
with clause (c) above, or in respect of any other series of Preferred Stock of
the Corporation whose right to payment of dividends or distributions is junior
to the Series C Preferred Stock, unless the holders of a majority of the shares
of Series C Preferred Stock agree otherwise in writing. The holders of the
Series B Preferred Stock shall be entitled to be paid, in full, the dividends
and
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<PAGE> 5
distributions declared or accrued (regardless of whether payable) or payable in
accordance with clauses (b)(i) and (b)(ii) above, prior to the payment of any
dividends or distributions in respect of Common Stock of the Corporation, the
Series A Preferred Stock, including any dividends or distributions payable in
accordance with clause (c) above, or in respect of any other series of Preferred
Stock of the Corporation whose right to payment of dividends or distributions is
junior to the Series B Preferred Stock, unless the holders of a majority of the
shares of Series B Preferred Stock agree otherwise in writing. The holders of
the Series A Preferred Stock shall be entitled to be paid, in full, the
dividends and distributions declared or accrued (regardless of whether payable)
or payable in accordance with clauses (c)(i) and (c)(ii) above, prior to the
payment of any dividends or distributions in respect of Common Stock of the
Corporation, or in respect of any other series of Preferred Stock of the
Corporation whose right to payment of dividends or distributions is junior to
the Series A Preferred Stock, unless the holders of a majority of the shares of
Series A Preferred Stock agree otherwise in writing.
(e) A "Qualifying Event" shall mean (a) a Qualified Public Offering (as
defined in Section 5(a) hereof) or (b) an Acquisition Event (as defined in
Section 2(d) hereof).
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation (a "Liquidation Event"), the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings (the
"Corporate Assets") shall be distributed as follows:
(i) First, subject to Section 2(b) and before any distribution of
assets shall be made to the holders of Common Stock, Series A Preferred Stock or
Series B Preferred Stock, to the holders of Series C Preferred Stock an amount
sufficient to pay the holders of shares of Series C Preferred Stock then
outstanding an amount equal to $14.017 per share (subject to Adjustment) plus
all accrued and unpaid dividends thereon to be shared on a pro rata basis;
(ii) Second, subject to Section 2(b) and after distribution of assets
shall be made to the holders of Series C Preferred Stock and before any
distribution of assets shall be made to the holders of Common Stock or Series A
Preferred Stock, to the holders of Series B Preferred Stock an amount sufficient
to pay the holders of shares of Series B Preferred Stock then outstanding an
amount equal to $ 3.085 per share (subject to Adjustment) plus all accrued and
unpaid dividends thereon, and all accrued and unpaid dividends on the Series B
Preferred Stock of Net2000 Group, Inc., assumed by the Corporation (the "Prior B
Dividends"), to be shared on a pro rata basis;
(iii) Third, subject to Section 2(b) and after distribution of assets
shall be made to the holders of Series C Preferred Stock and holders of Series B
Preferred Stock and before any distribution of assets shall be made to the
holders of Common Stock, to the holders of Series A Preferred Stock an amount
sufficient to pay the holders of shares of Series A Preferred Stock then
outstanding an amount equal to $0.856 per share (subject to Adjustment), plus
all accrued
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<PAGE> 6
and unpaid dividends thereon and all accrued and unpaid dividends on the Series
A Preferred Stock of Net2000 Group, Inc., assumed by the Corporation (the
"Prior A Dividends"), to be shared on a pro rata basis; and
(iv) Fourth, to the holders of Common Stock, the holders of Series A
Preferred Stock, the holders of Series B Preferred Stock and the holders of
Series C Preferred Stock, on a pro rata basis, with the amount distributable
computed on the basis of the number of shares of Common Stock which would be
held by such holders if immediately prior to the Liquidation Event all of the
shares of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock had been converted into shares of Common Stock; provided,
however, that in the event that the holders of a series of Preferred Stock
receives a payment pursuant to Section 2(a)(i), 2(a)(ii) or 2(a)(iii) above (the
holders of the Preferred Stock retaining the right to waive payments under
Section 2(a)(i), 2(a)(ii) or 2(a)(iii) above, as the case may be, in which event
the terms of this provisio shall not apply to the shares of Preferred Stock as
to which such waiver has been made), the total amount to be paid per share for
that series of Preferred Stock under this clause (iv) shall not exceed $7.009
per share in the case of the Series C Preferred Stock (subject to Adjustment),
$1.543 per share in the case of the Series B Preferred Stock (subject to
Adjustment) or $1.713 per share in the case of Series A Preferred Stock (subject
to Adjustment); provided, however, in the event that the holders of the Series C
Preferred Stock receive no distribution under Section 2(a)(i) as a result of the
operation of Section 2(b), in no event shall the distribution with respect to
the holders of the Series C Preferred Stock under this Section 2(a)(iv) be less
than the Series C Distribution Minimum (as defined below) and provided, further,
that in the event that the holders of the Series B Preferred Stock receive no
distribution under Section 2(a)(ii) as a result of the operation of Section
2(b), in no event shall the distribution with respect to the holders of the
Series B Preferred Stock under this Section 2(a)(iv) be less than the Series B
Distribution Minimum (as defined below) and provided, further, that in the event
that the holders of the Series A Preferred Stock receive no distribution under
Section 2(a)(iii) as a result of the operation of Section 2(b), in no event
shall the distribution with respect to the holders of the Series A Preferred
Stock under this Section 2(a)(iv) be less than the Series A Distribution Minimum
(as defined below).
For purposes of this Section 2(a), the term "Series A Distribution Minimum"
shall mean the amount which would be distributed to the holders of the Series A
Preferred Stock under this Section 2(a) if the amount to be distributed under
this Section 2(a) equaled the highest amount which would not cause the first
sentence of Section 2(b) to become effective. For purposes of this Section 2(a),
the term "Series B Distribution Minimum" shall mean the amount which would be
distributed to the holders of the Series B Preferred Stock under this Section
2(a) if the amount to be distributed under this Section 2(a) equaled the highest
amount which would not cause the second sentence of Section 2(b) to become
effective. For purposes of this Section 2(a), the term "Series C Distribution
Minimum" shall mean the amount which would be distributed to the holders of the
Series C Preferred Stock under this Section 2(a) if the amount to be distributed
under this Section 2(a) equaled the highest amount which would not cause the
third sentence of Section 2(b) to become effective.
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<PAGE> 7
(b) Notwithstanding Section 2(a)(iii), in the event of any Liquidation
Event in which the Corporate Assets, after the distribution, if any, to the
holders of the Series C Preferred Stock required pursuant to Section 2(a)(i) and
holders of the Series B Preferred Stock required pursuant to Section 2(a)(ii),
exceed an amount which is sufficient to pay to the holders of Common Stock,
Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock,
on an as-if-converted and fully-diluted basis, an amount per share greater than
all accrued and unpaid dividends per share on the outstanding shares of Series A
Preferred Stock (including without limitation the Prior A Dividends) plus $2.569
(subject to Adjustment) without taking into account any rights of the Series A
Preferred to preferential payment, then no Corporate Assets shall be distributed
pursuant to Section 2(a)(iii) and therefore the Corporate Assets shall be
distributed pursuant to Section 2(a)(i), Section 2(a)(ii) and 2(a)(iv), subject
to the last two sentences of this Section 2(b). Notwithstanding Section 2(a)(ii)
and the first sentence of this subsection (b), in the event of any Liquidation
Event in which the Corporate Assets, after the distribution, if any, to the
holders of the Series C Preferred Stock required pursuant to Section 2(a)(i),
exceed an amount which is sufficient to pay to the holders of Common Stock,
Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock,
on an as-if-converted and fully-diluted basis, an amount per share greater than
all accrued and unpaid dividends per share on the outstanding shares of Series B
Preferred Stock (including without limitation the Prior B Dividends) plus $
4.628 (subject to Adjustment) without taking into account any rights of the
Series B Preferred Stock or the Series A Preferred Stock to preferential
payment, then no Corporate Assets shall be distributed pursuant to Section
2(a)(ii) or 2(a)(iii) and therefore the Corporate Assets shall be distributed in
accordance with Sections 2(a)(i) and 2(a)(iv) hereof, subject to the last
sentence of this Section 2(b). Notwithstanding Section 2(a)(i) and the first two
sentences of this subsection (b), in the event of any Liquidation Event in which
the Corporate Assets exceed an amount which is sufficient to pay to the holders
of Common Stock, Series C Preferred Stock, Series B Preferred Stock and Series A
Preferred Stock, on an as-if-converted and fully-diluted basis, an amount per
share greater than all accrued and unpaid dividends per share on the outstanding
shares of Series C Preferred Stock plus $21.026 (subject to Adjustment) without
taking into account any rights of the Series C Preferred Stock, Series B
Preferred Stock or the Series A Preferred Stock to preferential payment, then no
Corporate Assets shall be distributed pursuant to Section 2(a)(i), Section
2(a)(ii) or Section 2(a)(iii) and therefore the Corporate Assets shall be
distributed in accordance with Section 2(a)(iv) hereof.
(c) Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the liquidation payments and the place
where said liquidation payment shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex not less than 20 days prior to the payment date stated
therein, to the holders of record of Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records of the
Corporation.
(d) Unless the holders of a majority of the then outstanding shares of
Series C Preferred Stock elect otherwise, (i) the merger, reorganization or
consolidation of the
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<PAGE> 8
Corporation into or with another corporation, (ii) a similar transaction or
series of related transactions, in which more than 50% of the voting power of
the Corporation is disposed of or in which the stockholders of the Corporation
immediately prior to such transaction own less than 50% of the Corporation's
voting power immediately after such transaction or (iii) the sale of all or
substantially all the assets of the Corporation (any such event an "Acquisition
Event"), shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of Section 2(a)(i).
(e) Unless the holders of a majority of the then outstanding shares of
Series B Preferred Stock elect otherwise, any Acquisition Event shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of Section 2(a)(ii).
(f) Unless the holders of at least two-thirds (2/3) of the then
outstanding shares of Series A Preferred Stock elect otherwise, any Acquisition
Event shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of Section 2(a)(iii).
(g) The Corporation shall provide written notice of a transaction or
series of transactions which could result in the occurrence of an Acquisition
Event to all holders of Preferred Stock promptly upon obtaining knowledge
thereof.
3. VOTING.
(a) Except as provided in Sections 3(b) and (c) below and elsewhere in
this Restated Certificate of Incorporation, each holder of outstanding shares of
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which the shares of Preferred Stock held by
such holder are convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of the stockholders of the Corporation (and written
actions of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Sections 3(b) and
(c) below or by the provisions establishing any other series of Preferred Stock,
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and of any other outstanding series of Preferred Stock shall
vote together with the holders of Common Stock as a single class.
(b) The holders of a majority of the shares of the Series B Preferred
Stock, voting together as a separate class, shall be entitled to (i) elect one
director to the Corporation's Board of Directors (the "Series B Preferred
Director"), (ii) to remove the Series B Preferred Director, and (iii) to fill
any vacancy occurring on the Board of Directors as a result of the death,
resignation or removal of the Series B Preferred Director.
(c) The holders of a majority of the shares of the Series A Preferred
Stock, voting together as a separate class, shall be entitled to (i) elect one
director to the Corporation's Board of Directors (the "Series A Preferred
Director"), (ii) to remove the Series A Preferred Director, and
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<PAGE> 9
(iii) to fill any vacancy occurring on the Board of Directors as a result of the
death, resignation or removal of the Series A Preferred Director.
(d) Any and all director positions in excess of the one director elected
by the holders of the Series B Preferred Stock pursuant to Section 3(b) and the
one director elected by the holders of the Series A Preferred Stock pursuant to
Section 3(c) shall be elected by the holders of the Common Stock and the
Preferred Stock voting as a single class, provided, however, that the holders of
the Series C Preferred Stock shall not have any right to vote or execute
consents with respect to their shares of Series C Preferred Stock for the
election of directors unless and until the earlier to occur of (i) the filing of
all notices and reports as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act (the "HSR Act") and the expiration or early termination of the
applicable waiting period under the HSR Act, or (ii) the delivery to the
Corporation by the holders of the Series C Preferred Stock of a certificate
stating that no filing under the HSR Act is required in order for the holders of
the Series C Preferred Stock to have the right to vote their shares of Series C
Preferred Stock in the election of directors; provided further, following the
earlier to occur of (i) or (ii), such right of the holders of the Series C
Preferred Stock to vote and execute consents with respect to their shares of
Series C Preferred Stock for the election of directors shall automatically
exist. The Corporation shall not expand the number of Directors without the
written consent or affirmative vote of the holders of a majority of the then
outstanding shares of each of Series A Preferred Stock and Series B Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be), each voting separately as a class.
(e) The Corporation shall not, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series C Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) together as a class:
(i) authorize, create or issue any shares of stock, or securities
exchangeable for, convertible into or evidencing the right to purchase any
shares of stock, having rights, preferences or privileges (including without
limitation, redemption rights or rights of anti-dilution protection) superior to
or on a parity with that of the Series C Preferred Stock, including, without
limitation, authorization or issuance of additional shares of Series C Preferred
Stock;
(ii) amend, alter, or repeal the Corporation's Bylaws (including,
without limitation, Article 2 thereof) or this Certificate of Incorporation so
as to materially affect the preferences, special rights or other powers of the
Series C Preferred Stock;
(iii) declare or pay any dividend on the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or the Common Stock unless
such dividend is paid in the form of shares of the Common Stock; or
(iv) repurchase or redeem any shares of the Common Stock or of the
Series A Preferred Stock or Series B Preferred Stock (other than in accordance
with the terms of Section 6
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<PAGE> 10
below), including, without limitation, repurchases made from Clayton A. Thomas,
Jr., Bruce W. Bednarski, Mark Mendes, Peter B. Callowhill and Corlyn A. Marsan,
but other than repurchases made from other employees or consultants in
connection with their termination of employment or consulting services, as the
case may be, or in accordance with the terms of the Corporation's Right of First
Refusal as set forth in the Second Amended and Restated Investor Rights
Agreement between the Corporation, the holders of the Preferred Stock and
certain holders of Common Stock, dated November 2, 1998.
(f) The Corporation shall not, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) together as a class:
(i) prior to May 18, 2001, engage in an Acquisition Event, unless
the value of the Corporation based on such transaction is equal to or exceeds
$130,000,000 and the proceeds received by the Corporation are in cash or
securities publicly traded on a recognized United States securities exchange;
(ii) authorize, create or issue any shares of stock, or securities
exchangeable for, convertible into or evidencing the right to purchase any
shares of stock, having rights, preferences or privileges (including without
limitation, redemption rights or rights of anti-dilution protection) superior to
or on a parity with that of the Series B Preferred Stock, including, without
limitation, authorization or issuance of additional shares of Series B Preferred
Stock;
(iii) amend, alter, or repeal the Corporation's Bylaws (including,
without limitation, Article 2 thereof) or this Certificate of Incorporation so
as to materially affect the preferences, special rights or other powers of the
Series B Preferred Stock;
(iv) declare or pay any dividend on the Series A Preferred Stock,
Series B Preferred Stock or the Common Stock unless such dividend is paid
in the form of shares of the Common Stock; or
(v) repurchase or redeem any shares of the Common Stock or of the
Series A Preferred Stock (other than in accordance with the terms of Section
6 below), including, without limitation, repurchases made from Clayton A.
Thomas, Jr., Bruce W. Bednarski, Mark Mendes, Peter B. Callowhill and Corlyn A.
Marsan, but other than repurchases made from other employees or consultants in
connection with their termination of employment or consulting services, as the
case may be, or in accordance with the terms of the Corporation's Right of First
Refusal as set forth in the Second Amended and Restated Investor Rights
Agreement between the Corporation, the holders of the Preferred Stock and
certain holders of Common Stock, dated November 2, 1998.
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<PAGE> 11
(g) The Corporation shall not, without the written consent or
affirmative vote of the holders of a majority the then outstanding shares of
Series A Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) together as a class:
(i) prior to December 31, 2000, engage in an Acquisition Event,
unless the value of the Corporation based on such transaction is equal to or
exceeds $30,000,000 and the proceeds received by the Corporation are in cash or
securities publicly traded on a recognized United States securities exchange;
(ii) authorize, create or issue any shares of stock, or securities
exchangeable for, convertible into or evidencing the right to purchase any
shares of stock, having rights, preferences or privileges (including without
limitation, redemption rights or rights of anti-dilution protection) superior to
or on a parity with that of the Series A Preferred Stock, including, without
limitation, authorization or issuance of additional shares of Series A Preferred
Stock;
(iii) amend, alter, or repeal the Corporation's Bylaws (including,
without limitation, Article 2 thereof) or this Certificate of Incorporation so
as to materially affect the preferences, special rights or other powers of the
Series A Preferred Stock;
(iv) declare or pay any dividend on the Series A Preferred Stock,
Series B Preferred Stock or the Common Stock unless such dividend is paid in the
form of shares of the Common Stock; or
(v) repurchase or redeem any shares of the Common Stock or of the
Series A Preferred Stock (other than in accordance with the terms of Section
6 below), including, without limitation, repurchases made from Clayton A.
Thomas, Jr., Bruce W. Bednarski, Peter B. Callowhill and Corlyn A. Marsan, but
other than repurchases made from other employees or consultants in connection
with their termination of employment or consulting services, as the case may be,
or in accordance with the terms of the Corporation's Right of First Refusal as
set forth in the Amended and Restated Investor Rights Agreement between the
Corporation, the holders of the Preferred Stock and certain holders of Common
Stock, dated May 18, 1998.
(h) The Corporation shall not, without the consent or affirmative vote
of a majority of the Board of Directors, given in writing or by vote at a
meeting:
(i) incur senior and subordinated indebtedness that in the
aggregate exceeds the greater of (x) four times the Corporation's earnings
before interest, taxes, depreciation and amortization and (y) $30,000,000; or
(ii) make capital expenditures that exceed $15,000,000 per annum.
4. OPTIONAL CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
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<PAGE> 12
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the applicable Original Purchase Price (as defined
below) by the Conversion Price (as defined below) in effect at the time of
conversion. The Original Purchase Price of the Series A Preferred Stock shall be
$ 0.856. The Original Purchase Price of the Series B Preferred Stock shall be
$3.085. The Original Purchase Price of the Series C Preferred Stock shall be
$14.017. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of the Preferred Stock without the payment of
additional consideration by the holder thereof (the "Conversion Price") shall
initially be $ 0.856 for the Series A Preferred Stock, $3.085 for the Series B
Preferred Stock and $14.017 for the Series C Preferred Stock. Each initial
Conversion Price, and the rate at which shares of Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a notice of redemption of any shares of Preferred Stock
pursuant to Section 6 hereof, the Conversion Rights of the shares designated for
redemption shall terminate at the close of business on the fifth full day
preceding the date fixed for redemption, unless the redemption price is not paid
when due, in which case the Conversion Rights for such shares shall continue
until such price is paid in full. In the event of a liquidation of the
Corporation, the Conversion Rights shall terminate at the close of business on
the first full day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective applicable Conversion
Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Preferred Stock to convert shares of
Preferred Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Preferred Stock at the office of
the transfer agent for the Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own
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<PAGE> 13
transfer agent) shall be the conversion date ("Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder of Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the Preferred Stock
shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Preferred Stock. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the applicable
Conversion Price shall be made for any accrued and unpaid dividends on Preferred
Stock surrendered for conversion provided that all accrued and unpaid dividends
shall remain payable pursuant to the terms of Section 1 above.
(iv) All shares of Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any accrued and
unpaid dividends on the shares of Preferred Stock exchanged. Any shares of
Preferred Stock so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection 4(d), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options granted to employees or consultants of the
Corporation pursuant to an option plan or other arrangements adopted by the
Board of Directors to acquire up to a maximum of 2,703,549 shares of Common
Stock as outstanding on the date hereof (subject to appropriate adjustment for
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares).
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<PAGE> 14
(B) "Original Issue Date" shall mean the date on which a share
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, as applicable, was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Series C Original Issue Date, other than
shares of Common Stock issued or issuable:
(I) upon conversion of shares of Preferred Stock
outstanding on the Series C Original Issue Date;
(II) as a dividend or distribution on Preferred Stock;
(III) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (I) and (II) or this
clause (III); or
(IV) upon the exercise of the options excluded from the
definition of "Option" in Subsection 4(d)(i)(A).
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which Preferred Stock is convertible shall
be made, by adjustment in the applicable Conversion Price thereof: (a) unless
the consideration per share (determined pursuant to Subsection 4(d)(vi)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional Shares, or (b) if
prior to such issuance, the Corporation receives written notice from the holders
of at least two-thirds (2/3) of the then outstanding shares of each of the
Series A Preferred Stock, the Series B Preferred Stock and Series C Preferred
Stock, each voting separately as a class, agreeing that no such adjustment shall
be made as the result of the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(A) Options and Convertible Securities. If the Corporation at
any time or from time to time after the applicable Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon
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<PAGE> 15
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 4(d)(vi) hereof) of such Additional Shares of
Common Stock would be less than the applicable Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(I) no further adjustment in the applicable Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(II) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
applicable Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(III) no readjustment pursuant to clause (II) above shall
have the effect of increasing the applicable Conversion Price to an amount which
exceeds the lower of (i) the applicable Conversion Price on the original
adjustment date, or (ii) the applicable Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
(IV) upon the expiration or termination of any unexercised
Option, the applicable Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the applicable Conversion Price.
(B) Stock Dividends and Subdivisions. In the event that the
Corporation at any time or from time to time after the applicable Original Issue
Date shall declare or pay any dividend on the Common Stock payable in Common
Stock, or effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then Additional Shares of Common Stock shall be deemed to have been issued:
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<PAGE> 16
(I) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders or any
class of securities entitled to receive such dividend, or
(II) in the case of any subdivision, at the close of
business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend
shall not have been fully paid on the date fixed therefor, the adjustment
previously made in the applicable Conversion Price which became effective on
such record date shall be canceled as of the close of business on such record
date, and thereafter the applicable Conversion Price shall be adjusted pursuant
to this Subsection 4(d)(iii) as of the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price of Series A Preferred Stock or
Series B Preferred Stock Upon Issuance of Additional Shares of Common Stock.
In the event the Corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Subsection 4(d)(iii)), without consideration or for a consideration per share
less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Conversion Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, for the purpose of
this Subsection 4(d)(iv), all shares of Common Stock issuable upon conversion of
shares of Preferred Stock or other Convertible Securities and upon exercise of
options or warrants outstanding immediately prior to such issue shall be deemed
to be outstanding, and immediately after any Additional Shares of Common Stock
are deemed issued pursuant to Subsection 4(d)(iii) (whether or not excluded from
the definition of "Additional Shares of Common Stock" by virtue of clauses (II),
(III) and (IV) of Subsection 4(d)(i)(D)), such Additional Shares of Common Stock
shall be deemed to be outstanding; provided further, that in the event the
Corporation, without receiving any consideration, declares a dividend on Common
Stock payable in Common Stock or effects a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock, the Conversion
Price in effect immediately prior to such stock dividend or subdivision shall,
on the date that Additional Shares of Common Stock are deemed issued pursuant to
Subsection 4(d)(iii)(B), be decreased proportionately, and provided further,
that the applicable Conversion Price shall not be so reduced at such time if the
amount of such reduction would be an amount less than $.05, but any such amount
shall be carried forward and reduction with respect thereto made at the time of
and together with any subsequent reduction which,
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<PAGE> 17
together with such amount and any other amount or amounts so carried forward,
shall aggregate $.05 or more.
(v) Adjustment of Conversion Price of Series C Preferred Stock Upon
Issuance of Additional Shares of Common Stock. In the event the Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 4(d)(iii)), without
consideration or for a consideration per share less than the Conversion Price
for the Series C Preferred Stock in effect on the date of and immediately prior
to such issue, then and in such event, such Conversion Price for the Series C
Preferred Stock shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of shares of
Common Stock which the aggregate consideration received by the Corporation for
the total number of Additional Shares of Common Stock so issued would purchase
at such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued; provided that, for
the purpose of this Subsection 4(d)(v), all shares of Common Stock issuable upon
conversion of shares of Preferred Stock or other Convertible Securities and upon
exercise of options or warrants outstanding immediately prior to such issue
shall be deemed to be outstanding, and immediately after any Additional Shares
of Common Stock are deemed issued pursuant to Subsection 4(d)(iii) (whether or
not excluded from the definition of "Additional Shares of Common Stock" by
virtue of clauses (II), (III) and (IV) of Subsection 4(d)(i)(D)), such
Additional Shares of Common Stock shall be deemed to be outstanding; provided
further, that in the event the Corporation, without receiving any consideration,
declares a dividend on Common Stock payable in Common Stock or effects a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, the Conversion Price in effect immediately prior to such
stock dividend or subdivision shall, on the date that Additional Shares of
Common Stock are deemed issued pursuant to Subsection 4(d)(iii)(B), be decreased
proportionately, and provided further, that the applicable Conversion Price
shall not be so reduced at such time if the amount of such reduction would be an
amount less than $.05, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.05 or more.
(vi) Determination of Consideration. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
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<PAGE> 18
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, determined
as of the close of business on the date of computation based on the closing
price for such property on the principal market on which such property trades
or, if there is no established market for such property, as determined in good
faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 4(d)(iii)(A), relating to Options and
Convertible Securities, shall be determined by dividing
(I) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(II) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(C) Stock Dividends and Stock Subdivisions. Any Additional
Shares of Common Stock deemed to have been issued pursuant to Subsection
4(d)(iii)(B), relating to stock dividends and stock subdivisions, shall be
deemed to have been issued for no consideration.
(vii) Adjustment for Combinations or Consolidation of Common Stock.
In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common
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<PAGE> 19
Stock, the applicable Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be increased proportionately.
(viii) Adjustment for Merger or Reorganization, etc.
In case of any Acquisition Event (other than an Acquisition
Event which is treated as a liquidation pursuant to Subsection 2(d), 2(e) or
2(f)), each share of Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Preferred Stock would have been entitled upon such
Acquisition Event; and, in such case, appropriate adjustment (as determined in
good faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of Preferred Stock, to the end that the provisions set
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the applicable Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Preferred
Stock.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of
Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of a Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Conversion Price then in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which then would be
received upon the conversion of the applicable Preferred Stock.
(g) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
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<PAGE> 20
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution thereon), or of any Acquisition
Event; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of Preferred Stock, and shall cause to be mailed
to the holders of Preferred Stock at their last addresses as shown on the
records of the Corporation or such transfer agent, at least ten days prior to
the record date specified in (A) below or twenty days before the date specified
in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
5. MANDATORY CONVERSION.
(a) Series C Preferred Stock. All, and not less than all, of the shares
of Series C Preferred Stock then outstanding shall be automatically converted,
without any action on the part of the holder thereof, into shares of Common
Stock, at the then effective applicable Conversion Price, at the closing of a
public offering of its Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, resulting in at least
$50,000,000 of gross proceeds to the Corporation from the sale of such Common
Stock, and at a price of at least $8.00 per share of Common Stock (subject to
Adjustment) (such offering, a "Qualified Public Offering").
(b) Series B Preferred Stock.
(i) All, and not less than all, of the shares of Series B
Preferred Stock then outstanding shall be automatically converted, without any
action on the part of the holder thereof,
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<PAGE> 21
into shares of Common Stock, at the then effective applicable Conversion Price,
at the closing of a Qualified Public Offering.
(ii) In addition to the mandatory conversion provisions of
Section 5(b)(i) hereof, all and not less than all, of the holders of shares of
Series B Preferred Stock then outstanding will be required to convert their
shares of Series B Preferred Stock into shares of Common Stock, at the then
effective applicable Conversion Price, at any time upon written notice received
from the holders of at least two-thirds (2/3) of the then outstanding shares of
Series B Preferred Stock consenting to the automatic conversion of all of the
Series B Preferred Stock into shares of Common Stock pursuant to this Section
5(b)(ii).
(c) Series A Preferred Stock.
(i) All, and not less than all, of the shares of Series A
Preferred Stock then outstanding shall be automatically converted, without any
action on the part of the holder thereof, into shares of Common Stock, at the
then effective applicable Conversion Price, at the closing of a Qualified Public
Offering.
(ii) In addition to the mandatory conversion provisions of
Section 5(c)(i) hereof, all and not less than all, of the holders of shares of
Series A Preferred Stock then outstanding will be required to convert their
shares of Series A Preferred Stock into shares of Common Stock, at the then
effective applicable Conversion Price, at any time upon written notice received
from the holders of at least two-thirds (2/3) of the then outstanding shares of
Series A Preferred Stock consenting to the automatic conversion of all of the
Series A Preferred Stock into shares of Common Stock pursuant to this Section
5(c)(ii).
(d) In the case of any automatic conversion pursuant to this Section 5,
the outstanding shares of Preferred Stock to be automatically converted shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, that the Corporation shall not
be obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable such conversion unless certificates evidencing such shares of
Preferred Stock are delivered either to the Corporation or any transfer agent of
the Corporation.
(e) All certificates evidencing shares of Preferred Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to be
surrendered, be deemed to have been retired and canceled and the shares of
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
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<PAGE> 22
6. REDEMPTION.
(a) Series C Redemption.
(i) If the Company has not consummated a Qualified Public
Offering, then at any time during the Series C Redemption Period (as defined
below) each holder of Series C Preferred Stock shall have the right to require
the Corporation to redeem shares of Series C Preferred Stock as described in
this Section 6 at a per share price equal to the Series C Redemption Price (as
defined below) by delivering written notice to the Corporation (a "Series C
Redemption Election"). The "Series C Redemption Period" shall mean (a) the two
year period commencing on the later of (i) one year after the maturity of any
high yield debt issued by the Corporation prior to December 31, 1999 or (ii)
November 2, 2004, or (b) in the case of an Acquisition Event, the 30 day period
commencing upon the receipt of notice of the Acquisition Event; provided,
however, that such holders of Series C Preferred Stock may make such Series C
Redemption Election contingent upon the consummation of such Acquisition Event.
(ii) Upon the delivery of a Series C Redemption Election, the
Corporation shall notify promptly all holders of shares of Series C Preferred
Stock in writing (the "Series C Redemption Notice") of the delivery of the
Redemption Election, and a disinterested appraisal firm which is a member of a
recognized professional association reasonably acceptable to the Corporation and
the holders of a majority of the Series C Preferred Stock shall determine Market
Value as set forth below. If the parties are unable to agree on an appraisal
firm within 10 days after the expiration of the delivery of the Series C
Redemption Notice, a firm shall be selected by lot from the top-tier investment
banking firms, after the Corporation and the holders of the Series C Preferred
Stock have each eliminated one such firm (the "Appraisal Firm"). The Appraisal
Firm shall then make a determination of the Market Value, and, using such
determination of Market Value, shall calculate the Series C Redemption Price.
The selection and determination of the Appraisal Firm shall be final and binding
upon all parties. The expenses of the Appraisal Firm shall be borne equally by
the holders of the Series C Preferred Stock, as a group and on a pro rata basis
in accordance with the shares of Series C Preferred Stock to be redeemed, and
the Corporation.
(iii) The holders of shares of Series C Preferred Stock may elect
to sell to the Corporation all or a portion of their shares of Series C
Preferred Stock by delivering written notice to the Corporation within 15 days
after final determination of the Series C Redemption Price. Subject to the
provisions hereof, within 40 days after final determination of the Series C
Redemption Price, the Corporation shall purchase, and all such electing holders
of Series C Preferred Stock shall sell, the portion of such shares which the
holders thereof have elected to sell to the Corporation at a time and place
mutually agreeable to the Corporation and the holders of the Series C Preferred
Stock (the "Series C Redemption Closing"). The Corporation shall notify all
holders of Series C Preferred Stock of the date and place of the Series C
Redemption Closing at least seven days prior to the Series C Redemption Closing.
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<PAGE> 23
(iv) At the Series C Redemption Closing, the holders of Series C
Preferred Stock shall deliver to the Corporation certificates representing the
shares of Series C Preferred Stock which they have elected to sell to the
Corporation, and the Corporation shall deliver to each such holder the Series C
Redemption Price for each share of Series C Preferred Stock to be sold to the
Corporation by cashier's or certified check or by wire transfer to immediately
available funds to an account designated by such holder.
(v) The "Series C Redemption Price" of a share of Series C
Preferred Stock means (a) the amount equal to the amount which would be received
per share of Series C Preferred Stock if the assets of the Corporation were sold
for cash equal to the Market Value, and the Corporation were liquidated
immediately thereafter pursuant to Section 2, or (b) in the case of a redemption
pursuant to Section 6(a)(i)(b), the Original Issue Price for the Series C
Preferred Stock plus a compounded annual rate of return of 12.5% (excluding
accrued dividends thereon) thereon since the Original Issue Date for such Series
C Preferred Stock, plus any accrued but unpaid dividends thereon. "Market Value"
means the fair market value of the Corporation as a going concern determined on
the basis of the sale of 100% of the Corporation as between a strategic buyer
and a willing seller and taking into account all relevant factors determinative
of value.
(b) Series B Redemption.
(i) If the Company has not consummated a Qualified Public
Offering, then at any time during the Series B Redemption Period (as defined
below) the holders of Series B Preferred Stock shall have the right to require
the Corporation to redeem shares of Series B Preferred Stock as described in
this Section 6 at the Series B Redemption Price (as defined below) by delivering
written notice to the Corporation (a "Series B Redemption Election"). The
"Series B Redemption Period" shall mean (i) if there are any shares of Series C
Preferred Stock outstanding, the 30-day period commencing on the date
immediately following the later of (x) the Series C Redemption Closing if any
holders of Series C Preferred Stock shall have delivered a Series C Redemption
Election to the Corporation or (y) the end of the Series C Redemption Period if
no holders of Series C Preferred Stock shall have delivered a Series C
Redemption Election to the Corporation or (ii) if there are no shares of Series
C Preferred Stock outstanding, the later of (x) the 30 day period commencing on
the date that is the one year anniversary of the maturity date of any high yield
debt issued by the Corporation prior to December 31, 1999 or (y) March 31, 2003.
(ii) Upon the delivery of a Series B Redemption Election, the
Corporation shall notify promptly all holders of shares of Series B Preferred
Stock in writing (the "Series B Redemption Notice") of the delivery of the
Redemption Election, and a disinterested appraisal firm which is a member of a
recognized professional association reasonably acceptable to the Corporation and
the holders of a majority of the Series B Preferred Stock shall determine Market
Value as set forth below. If the parties are unable to agree on an appraisal
firm within 10 days after the expiration of the delivery of the Series B
Redemption Notice, a firm shall be selected by
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<PAGE> 24
lot from the top-tier investment banking firms, after the Corporation and the
holders of the Series B Preferred Stock have each eliminated one such firm (the
"Appraisal Firm"). The Appraisal Firm shall then make a determination of the
Market Value, and, using such determination of Market Value, shall calculate the
Series B Redemption Price. The selection and determination of the Appraisal Firm
shall be final and binding upon all parties. The expenses of the Appraisal Firm
shall be borne equally by the holders of the Series B Preferred Stock, as a
group and on a pro rata basis in accordance with the shares of Series B
Preferred Stock to be redeemed, and the Corporation.
(iii) The holders of shares of Series B Preferred Stock may elect
to sell to the Corporation all or a portion of their shares of Series B
Preferred Stock by delivering written notice to the Corporation within 15 days
after final determination of the Series B Redemption Price. Subject to the
provisions hereof, within 40 days after final determination of the Series B
Redemption Price, the Corporation shall purchase, and all such electing holders
of Series B Preferred Stock shall sell, the portion of such shares which the
holders thereof have elected to sell to the Corporation at a time and place
mutually agreeable to the Corporation and the holders of the Series B Preferred
Stock (the "Series B Redemption Closing"). The Corporation shall notify all
holders of Series B Preferred Stock of the date and place of the Series B
Redemption Closing at least seven days prior to the Series B Redemption Closing.
(iv) At the Series B Redemption Closing, the holders of Series B
Preferred Stock shall deliver to the Corporation certificates representing the
shares of Series B Preferred Stock which they have elected to sell to the
Corporation, and the Corporation shall deliver to each such holder the Series B
Redemption Price for each share of Series B Preferred Stock to be sold to the
Corporation by cashier's or certified check or by wire transfer to immediately
available funds to an account designated by such holder.
(v) The "Series B Redemption Price" of a share of Series B
Preferred Stock means the amount equal to the amount which would be received per
share of Series B Preferred Stock if the assets of the Corporation were sold for
cash equal to the Market Value, and the Corporation were liquidated immediately
thereafter pursuant to Section 2.
(c) Series A Redemption.
(i) If the Company has not consummated a Qualified Public
Offering, then at any time following either (x) the Series B Redemption Closing
if any holders of Series B Preferred Stock shall have delivered a Series B
Redemption Election to the Corporation or (y) the end of the Series B Redemption
Period if no holders of Series B Preferred Stock shall have delivered a Series B
Redemption Election to the Corporation, the holders of Series A Preferred Stock
shall have the right to require the Corporation to redeem shares of Series A
Preferred Stock as described in this Section 6 at the Series A Redemption Price
(as defined below) by delivering written notice to the Corporation (a "Series A
Redemption Election").
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<PAGE> 25
(ii) Upon the delivery of a Series A Redemption Election, the
Corporation shall notify promptly all holders of shares of Series A Preferred
Stock in writing (the "Series A Redemption Notice") of the delivery of the
Series A Redemption Election, and a disinterested Appraisal Firm which is a
member of a recognized professional association reasonably acceptable to the
Corporation and the holders of a majority of the Series A Preferred Stock shall
determine Market Value as set forth below. If the parties are unable to agree on
an Appraisal Firm within 10 days after the expiration of the delivery of the
Series A Redemption Notice, a firm shall be selected by lot from the top-tier
investment banking firms, after the Corporation and the holders of the Series A
Preferred Stock have each eliminated one such firm. The Appraisal Firm shall
then make a determination of the Market Value, and, using such determination of
Market Value, shall calculate the Series A Redemption Price. The selection and
determination of the Appraisal Firm shall be final and binding upon all parties.
The expenses of the Appraisal Firm shall be borne equally by the holders of the
Series A Preferred Stock, as a group and on a pro rata basis in accordance with
the shares of Series A Preferred Stock to be redeemed, and the Corporation.
(iii) Within 10 days after the final determination of the Series
A Redemption Price pursuant to subparagraph (b) above, the holders of shares of
Series A Preferred Stock may elect to sell to the Corporation all or a portion
of their shares of Series A Preferred Stock by delivering written notice to the
Corporation. Subject to the provisions hereof, within 40 days after the final
determination of the Series A Redemption Price, the Corporation shall purchase,
and all such electing holders of Series A Preferred Stock shall sell, the
portion of such shares which the holders thereof have elected to sell to the
Corporation at a time and place mutually agreeable to the Corporation and the
holders of the Series A Preferred Stock (the "Series A Redemption Closing"). The
Corporation shall notify all holders of Series A Preferred Stock of the date and
place of the Series A Redemption Closing at least seven days prior to the Series
A Redemption Closing.
(iv) At the Series A Redemption Closing, the holders of Series A
Preferred Stock shall deliver to the Corporation certificates representing the
shares of Series A Preferred Stock which they have elected to sell to the
Corporation, and the Corporation shall deliver to each such holder the Series A
Redemption Price for each share of Series A Preferred Stock to be sold to the
Corporation by cashier's or certified check, or by wire transfer of immediately
available funds to an account designated by such holder.
(v) The "Series A Redemption Price" of a share of Series A
Preferred Stock means the amount equal to the amount which would be received per
share of Series A Preferred Stock if the assets of the Corporation were sold for
cash equal to the Market Value, and the Corporation were liquidated immediately
thereafter pursuant to Section 2.
(d) Notwithstanding anything to the contrary contained in this Section 6,
if the Corporation is unable to redeem in full all shares tendered for
redemption because the Corporation has insufficient legal capital available to
effect such redemptions, the Corporation
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<PAGE> 26
shall allocate its available legal capital as follows: (i) first, to payment of
the aggregate Series C Redemption Price to holders of Series C Preferred Stock
that have requested that the Corporation redeem their shares of Series C
Preferred Stock in accordance with Section 6(a) above; (ii) second, to payment
of the aggregate Series B Redemption Price to holders of Series B Preferred
Stock that have requested that the Corporation redeem their shares of Series B
Preferred Stock in accordance with Section 6(b) above; and (iii) third, to
payment of the aggregate Series A Redemption Price to holders of Series A
Preferred Stock that have requested that the Corporation redeem their shares of
Series A Preferred Stock in accordance with Section 6(c) above. Any portion
payable to holders of Preferred Stock pursuant to this Section 6 that is not
paid in cash or cash equivalents at the respective Redemption Closing shall be
paid for by the issuance at such Redemption Closing of promissory notes in form
and substance reasonably satisfactory to the holders of the Preferred Stock
receiving such notes (the "Redemption Notes"). At any time that Redemption Notes
are outstanding, the Corporation may incur bank debt or third-party
institutional non-equity financing in connection with the operation of its
business which is senior to the Redemption Notes so long as such debt does not
prohibit the timely payment of amounts due on the Redemption Notes unless such
senior debt is in default at such time. Notwithstanding the foregoing, the
Redemption Notes shall remain senior to any obligations owed to Clayton A.
Thomas, Jr., Bruce W. Bednarski, Peter B. Callowhill, Corlyn A. Marsan, or other
holders of Common Stock.
The Redemption Notes will bear interest per annum at the greater of (i) Prime
plus 100 basis points, or (ii) 8.0%. "Prime" means a floating rate per annum
equal to the prime interest rate per annum published from time to time in the
"Money Rates" section of the Wall Street Journal (and the highest such rate if
more than one is so published). Accrued interest on the Redemption Notes will be
payable monthly. The principal amount of the Redemption Notes will be payable in
thirty-six (36) equal monthly installments beginning within 30 days of the
applicable Redemption Closing as set forth above. The Redemption Notes will be
prepayable at the Corporation's option at any time without penalty or premium.
FIFTH: Except as otherwise provided in this Certificate of
Incorporation or a certificate of designation relating to the rights of the
holders of any class or series of Preferred Stock, voting separately by class or
series, to elect additional directors under specified circumstances, the number
of directors of the Corporation shall be as fixed from time to time by or
pursuant to the By-laws of the Corporation (the "By-Laws"). No director of the
Corporation need be a Stockholder.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
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<PAGE> 27
(a) To make, alter or repeal By-Laws of the Corporation, subject to
Article FOURTH, Section 3(e), (f) and (g).
(b) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(c) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
(d) To designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. The By-Laws may provide,
that, in the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the By-Laws of the Corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or By-Laws expressly so provide, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
(e) When and as authorized by the stockholders in accordance with
statute, to sell, lease, exchange or otherwise dispose of all or substantially
all of the property and assets of the Corporation, including its good will and
its corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property
including shares of stock in, and/or other securities of, any other corporation
or corporations, as its Board of Directors shall deem expedient and for the best
interests of the Corporation.
(f) To fix, determine and vary from time to time the amount to be
maintained as surplus and the amount or amounts to be set apart as working
capital.
- 27 -
<PAGE> 28
(g) To authorize the payment of compensation to the directors for
services to the Corporation, including fees for attendance at meetings of
the Board of Directors, of the Executive Committee, and of other
committees, and to determine the amount of such compensation and fees.
(h) To authorize the issuance from time to time of shares of its stock
of any class whether now or hereafter authorized, or securities convertible
into shares of its stock of any class or classes, whether now or hereafter
authorized, for such consideration as may be deemed advisable by the Board
of Directors and, except as otherwise set forth in this Certificate of
Incorporation, without any action by the stockholders.
EIGHTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provisions contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation. Elections of
directors need not be by written ballot unless the By-Laws of the Corporation
shall so provide.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval of this article to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
TENTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, indemnify each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
corporation, or is or was serving, or has agreed to serve, at the request of the
corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees),
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<PAGE> 29
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such action, suit or proceeding and
any appeal therefrom.
Indemnification may include payment by the corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this TENTH Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the corporation.
The indemnification rights provided in this TENTH Article (i) shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The corporation may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to other employees or agents of the corporation or other persons serving
the corporation and such rights may be equivalent to, or greater or less than,
those set forth in this TENTH Article.
ELEVENTH: The Corporation reserves the right, following the receipt of
the necessary approvals of its stockholders, to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and the Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
[Signature on Next Page]
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<PAGE> 30
IN WITNESS WHEREOF, Net2000 Communications, Inc. has caused this Restated
Certificate of Incorporation to be executed in its name and on its behalf by its
President on November 4, 1998.
NET2000 COMMUNICATIONS, INC.
BY: /s/ Clayton A. Thomas, Jr.
---------------------------------------
Clayton A. Thomas, Jr., President
<PAGE> 1
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF NET2000 COMMUNICATIONS, INC.
NET2000 COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: In a meeting duly called on November 10, 1999, the Board of
Directors of the Corporation adopted resolutions pursuant to Section 242 of the
General Corporation Law of the State of Delaware, setting forth amendments to
the Restated Certificate of Incorporation of the Corporation (the "Certificate")
and declaring said amendments to be advisable. The stockholders of the
Corporation duly approved the proposed amendments in accordance with Section 242
of the General Corporation Law of the State of Delaware by written consent in
lieu of a meeting, dated December 2, 1999, pursuant to and in accordance with
Section 228 of the General Corporation Law of the State of Delaware. The
resolutions setting forth the amendments are as follows:
RESOLVED: That the first paragraph of Article FOURTH of the Restated
Certificate of Incorporation be and hereby is deleted in its entirety and
replaced as follows:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 271,738,437 in the designated
classes as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common Stock, $.01 par value per share 200,000,000
Preferred Stock, $.01 par value per share 11,738,437
Undesignated Capital Stock, $.01 par value per share 60,000,000"
</TABLE>
RESOLVED: The following paragraph be inserted as a new last paragraph
under Article FOURTH of the Restated Certificate of Incorporation:
"C. Undesignated Capital Stock.
The Board of Directors expressly is authorized, subject to
limitations prescribed by the Delaware General Corporation Law the provisions
of the Restated Certificate of Incorporation of the Corporation and the terms
of any outstanding Preferred Stock, to provide, by resolution and by filing a
certificate pursuant to the Delaware General Corporation Law, for the issuance
from time to time of the shares of Undesignated Capital Stock in one or more
series, to establish from time to time
<PAGE> 2
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including, but without limiting the generality of the foregoing, the following:
(1) the number of shares constituting that series and the distinctive
designation of that series;
(2) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(3) whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(5) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption rates;
(6) whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(8) any other relative powers, preferences, and rights of that
series, and qualifications, limitations or restrictions on that series."
RESOLVED: That Article FIFTH of the Restated Certificate of
Incorporation be and hereby is deleted in its entirety and replaced as follows:
"FIFTH. Board of Directors. In furtherance of and not in limitation
of powers conferred by statute, it is further provided:
A. Election of directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide. Except as otherwise provided in the
Restated Certificate of Incorporation or a certificate of designation relating
to the rights of the holders of any class or
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<PAGE> 3
series of Preferred Stock, voting separately by class or series, to elect
additional directors under specified circumstances, the number of directors of
the Corporation shall be as fixed from time to time by or pursuant to the
By-Laws of the Corporation. No director of the Corporation need be a stockholder
of the Corporation.
B. The Board of Directors shall be classified with respect to the
time for which they severally hold office into three separate classes, Class I,
Class II and Class III, which shall be as nearly equal in number as possible,
and shall be adjusted from time to time in the manner specified in the By-Laws
of the Corporation to maintain such proportionality. Each initial director in
Class I shall hold office for a term expiring at the 2000 annual meeting of
stockholders. Each initial director in Class II shall hold office initially for
a term expiring at the 2001 annual meeting of stockholders. Each initial
director in Class III shall hold office for a term expiring at the 2002 annual
meeting of stockholders. Notwithstanding the foregoing provisions of this
Article FIFTH, each director shall serve until such director's successor is duly
elected and qualified or until such director's earlier death, resignation or
removal. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified or until any such director's earlier death, resignation or
removal.
C. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation."
SECOND: This amendment to the Restated Certificate of Incorporation shall
be effective as of the date set forth below.
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<PAGE> 4
IN WITNESS WHEREOF, Net2000 Communications, Inc. has caused this
Certificate to be signed by Clayton A. Thomas, Jr., its Chief Executive Officer
this 2nd day of December, 1999.
NET2000 COMMUNICATIONS, INC.
By: /s/ Clayton A. Thomas, Jr.
------------------------------------
Clayton A. Thomas, Jr.
Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.1.3
BY-LAWS
OF
NET2000 COMMUNICATIONS, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 Place of Meeting. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held at such date, time and
place as may be fixed by the Board of Directors or the President. If this date
shall fall upon a legal holiday at the place of the meeting, then such meeting
shall be held on the next succeeding business day at the same hour. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President, the Board of Directors or the holders of a majority
of the outstanding shares of the Common Stock. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation. The notice of any meeting of stockholders may be
delivered via facsimile transmission, telegram or telex. If such notice is
delivered via facsimile transmission, telegram or telex, notice shall be deemed
given at the time such transmission is sent.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
<PAGE> 2
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, at a place within the city where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if an
unanimous consent in writing, setting forth the action so taken, is signed by
all of the holders of outstanding stock.
- 2 -
<PAGE> 3
ARTICLE 2 - DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation, as amended from time to time, or these By-Laws. In
the event of a vacancy in the Board of Directors, the remaining directors,
except as otherwise provided by law, may exercise the powers of the full Board
until the vacancy is filled.
2.2 Number. The number of directors which shall constitute the whole
Board of Directors shall not be less than one. The number of directors may be
increased or decreased at any time and from time to time either by the
stockholders or by a majority of the directors then in office, pursuant to these
By-Laws and the Certificate of Incorporation.
2.3 Tenure, Election and Qualification. The directors shall be elected
at the annual meeting of stockholders by such stockholders as have the right to
vote on such election. At each annual meeting of stockholders, directors elected
to succeed those whose terms are expiring shall be elected for a term of office
expiring at the annual meeting of stockholders held in the third year following
their election and until their respective successors are elected and qualified,
or until such director's earlier death, resignation or removal. Directors need
not be stockholders of the corporation.
2.4 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by affirmative vote of the holders of a
majority of the shares of the Corporation's capital stock entitled to vote
thereon or by a majority of the directors then in office.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt, unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall
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<PAGE> 4
be determined from time to time by the Board of Directors; provided that any
director who is absent when such a determination is made shall be given notice
of the determination. A regular meeting of the Board of Directors may be held
without notice immediately after and at the same place as the annual meeting of
stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by any single member of the Board of Directors or by the
President of the Company.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a facsimile, telegram
or telex, or delivering written notice by hand, to his last known business or
home address at least 48 hours in advance of the meeting, or (iii) by delivering
written notice to his last known business or home address at least 72 hours in
advance of the meeting by a nationally recognized overnight service (receipt
requested). A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
- 4 -
<PAGE> 5
2.14 Removal. Any one or more or all of the directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services as the Board of Directors may from time to time determine and
Directors shall be reimbursed for expenses (including travel expenses) incurred
to attend meetings. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
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<PAGE> 6
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer appointed by Board of Directors may be removed at any
time, with or without cause, by vote of a majority of the entire number of
directors then in office.
Except as the Board of Directors may otherwise determine, no
officer who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. Unless the Board of Directors otherwise determines, the
President shall be the Chief Executive Officer of the corporation. The President
shall, subject to the direction of the Board of Directors, have general charge
and supervision of the business of the corporation. Unless otherwise provided by
the Board of Directors, he shall preside at all meetings of the stockholders
and, if he is a director, at all meetings of the Board of Directors.
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<PAGE> 7
The President shall perform such other duties and shall have such other powers
as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President designated as the Chief Operating Officer of the
Corporation shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title of
Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess
such powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the
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<PAGE> 8
event of the absence, inability, or refusal to act of the Treasurer, the
Assistant Treasurer, (or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board of Directors) shall perform the
duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
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<PAGE> 9
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than ten days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
5.1 Indemnification in Actions, Suits or Proceedings Other Than Those
by or in the Right of the Corporation. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner which such person reasonably believed to be in or not
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<PAGE> 10
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
conduct was unlawful.
(b) The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such conduct was unlawful.
5.2 Indemnification in Actions, Suits or Proceedings by or in the Right
of the Corporation. (a) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director of officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interest of the Corporation. No
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(b) The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or
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<PAGE> 11
proceeding by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person is or was an employee or agent of
the Corporation, or is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation. No such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
5.3 Authorization of Indemnification. Any indemnification under this
Article 5 shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such person or persons
have met the applicable standard of conduct set forth in Sections 5.1 and 5.2
hereof. Such determination shall be made (i) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders.
5.4 Advancement of Expenses. The Corporation shall, if so requested by
an officer or director, advance expenses (including attorneys' fees) incurred by
a director or officer in advance of the final disposition of such action, suit
or proceeding upon the receipt of an undertaking by or on behalf of the director
of officer to repay such amount if it shall ultimately be determined that such
director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees)
incurred by an employee or agent in advance of the final disposition of such
action, suit or proceeding upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
ARTICLE 6 - GENERAL PROVISIONS
6.1 Fiscal Year. The fiscal year of the Corporation shall be the twelve
months ending on December 31 of each calendar year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in
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<PAGE> 12
writing signed by the person entitled to such notice or such person's duly
authorized attorney, or by telegraph, cable or any other available method,
whether before, at or after the time stated in such waiver, or the appearance of
such person or persons at such meeting in person or by proxy, shall be deemed
equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
6.7 Transactions with Interested Parties. All contracts or transactions
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, another
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be approved by a majority of the
outside directors of the Corporation before the Corporation shall be permitted
to perform its obligations under such contracts or transactions.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
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<PAGE> 13
ARTICLE 7 - AMENDMENTS
7.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted at any regular meeting of stockholders,
or at any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting by an affirmative vote of the holders of a
majority of the shares of the Corporation's Common Stock and the holders of a
majority of the shares of the Corporation's Preferred Stock, irrespective of
class or series, with the Common Stock and the Preferred Stock voting as
separate class.
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<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER [Net2000 LOGO] SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
NET2000 COMMUNICATIONS, INC.
CUSIP __________
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
NET2000 COMMUNICATIONS, INC.
(hereinafter called the Corporation), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
NET2000 COMMUNICATIONS, INC.
DELAWARE
[1999 SEAL]
/s/ Clayton A. Thomas, Jr. /s/ DONALD E. CLARKE
-------------------------- ----------------------------
Chief Executive Officer and Chief Financial Officer and
Chairman of the Board of Directors Treasurer
COUNTERSIGNED AND REGISTERED:
(NEW YORK, NEW YORK)
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
NET2000 COMMUNICATIONS, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<PAGE> 2
TEN COM- as tenants in common UNIF GIFT MIN ACT-
_________________Custodian______________
TEN ENT- as tenants by the entireties
(Cust) (Minor)
JT TEN- as joint tenants with
right of survivorship and
under Uniform Gifts to Minors Act
not as tenants in common
- ----------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, _________________________________hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated,________________________ X________________________________________________
X________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATSOEVER.
SIGNATURE GUARANTEED:________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
(the "Agreement") dated as of November 4, 1998 between NET2000 COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), and the persons and entities
listed on the "Schedule of Investors" attached hereto as Exhibit A (the
"Investors").
1. BACKGROUND.
The Company (as successor by assignment to Net2000 Group, Inc.), BWSF,
MAV, SG, Carlyle, PNC, Wood Street and the Common Stock Holders (each as
defined below) are parties to a First Amended and Restated Investor Rights
Agreement dated as of May 19, 1998 (the "Prior Agreement"). The Company and NT
(as defined below) are parties to a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of November 2, 1998. In order to induce NT to
enter into the Stock Purchase Agreement, the parties to this Agreement hereby
amend and restate the Prior Agreement as set forth in this Agreement.
2. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
Annual Budget: As defined in Section 4.18.
Authorized Transfer: (a) If a stockholder of the Company (a
"Stockholder") is an individual, a pledge of Securities, a gift of
Securities or a transfer of Securities without consideration by such
Stockholder, to or for the benefit of any members of the Immediate
Family of such Stockholder or to any personal trust in which such
Stockholder or any of such members retains the entire beneficial
interest, and (b) if a Stockholder is a limited or general
partnership, corporation or limited liability company, a pledge of
Securities or a distribution or transfer of Securities by such
Stockholder to its limited or general partners, affiliates,
stockholders or members or managing directors of its members, as
applicable, without consideration or at cost (individually, each
transferee described in (a) and (b) above, an "Authorized
Transferee"), in each case provided that, prior to such pledge, gift,
distribution or transfer, such Authorized Transferee agrees in writing
to be bound by this Agreement.
Authorized Transferee: As defined in the definition of Authorized
Transfer.
Board of Directors: The board of directors of the Company.
<PAGE> 2
BWSF: Blue Water Strategic Fund I, L.L.C., a Delaware limited
liability company.
Carlyle: Collectively, Carlyle U.S. Venture Partners, L.P., a Delaware
limited partnership, Carlyle Venture Coinvestment, L.L.C., a Delaware
limited liability company, Carlyle Venture Partners, L.P., a Cayman
Islands partnership, and C/S Venture Investors, L.P., a Cayman Islands
partnership.
Claims: All demands, claims, actions, or causes of action,
assessments, losses, damages (including without limitation, diminution
of value), liabilities, costs and expenses, including without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements.
Commission: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
Common Stock: The authorized common stock, $0.01 par value, of the
Company.
Common Stock Holder: "Common Stock Holder" shall have the meaning
specified in Section 10 of this Agreement.
Company: As defined in the introductory paragraph of this Agreement.
Confidential Information: Any confidential, proprietary or secret
information which such Investor may obtain from the Company, and which
is prominently marked "confidential," "proprietary" or "secret,"
including to financial statements, reports and other materials
submitted by the Company prior to the date hereof or as required
hereunder, or pursuant to visitation or inspection rights granted
hereunder.
Co-Sale Notice: As defined in Section 10.
Demand Registration: As defined in Section 5.1(a)(ii).
Exchange Act: The Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such similar
federal statute.
First Refusal Notice: As defined in Section 9.
Holders: As defined in Section 8.1.
Immediate Family: A parent, spouse, and natural or lawfully adopted
children.
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<PAGE> 3
Information: As defined in Section 5.3(x).
Intellectual Property: All franchises, patents, patent applications,
trademarks, service marks, trade names, trade styles, brands, private
labels, copyrights, know-how, computer software, industrial designs
and drawings and general intangibles of a like nature, trade secrets,
licenses, and rights and filings with respect to the foregoing, and
all reissues, extensions and renewals thereof.
Inspectors: As defined in Section 5.3(x).
Investor Counsel: As defined in Section 5.3(ii).
Investor Indemnified Persons: Each Investor and its affiliates (as
defined in Rule 405 under the Securities Act), employees,
representatives, agents, members, partners, officers and directors.
Investors: As defined in the introductory paragraph of this
Agreement.
Laws: All foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, determinations,
writs, injunctions, awards (including, without limitation, awards of
any arbitrator), judgments and decrees applicable to the specified
persons or entities and to the businesses and assets thereof
(including, without limitation, laws relating to securities
registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and
conditions, and wages and hours; building standards, land use and
zoning; safety, health and fire prevention; and environmental
protection).
Limited Securities: The securities of the Company required to bear
the legend set forth in Section 7.2.
Long-Form Registration: As defined in Section 5.1(a) of this
Agreement.
MAV: Mid-Atlantic Venture Fund III, L.P., a Pennsylvania limited
partnership.
NASD: The National Association of Securities Dealers, Inc., or any
similar successor organization.
NT: Northern Telecom Inc., a Delaware corporation
Nasdaq: The National Market System of the Nasdaq Stock Market .
New Securities: As defined in Section 8.2.
Observer: As defined in Section 3.1(b) of this Agreement.
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<PAGE> 4
Other Shares: At any time those shares of Common Stock which do not
constitute Primary Shares or Registrable Securities.
Participation Notice: As defined in Section 10.
Person: A corporation, a limited liability company, an association, a
partnership, an organization, a business, an individual, an estate, a
governmental or political subdivision thereof or a governmental
agency.
Piggyback Registration: As defined in Section 5.2(a).
PNC: PNC Capital Corp., a Delaware corporation.
Preferred Director: Collectively, the Series A Preferred Director and
the Series B Preferred Director.
Preferred Stock: Collectively, the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock.
Primary Shares: At any time the authorized but unissued shares of
Common Stock.
Pro Rata Share: As defined in Section 8.1.
Qualified Public Offering: As defined in Section 8.5 of this
Agreement.
Records: As defined in Section 5.3(x).
Register, Registered, and Registration: The terms "register",
"registered" and "registration" refer to a registration statement in
compliance with the Securities Act, and the declaration or ordering of
the effectiveness of such registration statement.
Registrable Securities: Collectively, the Series A Registrable
Securities, the Series B Registrable Securities and the Series C
Registrable Securities.
Registration Expenses: As defined in Section 5.7.
Restricted Securities: Collectively, the Series A Restricted
Securities, the Series B Restricted Securities and the Series C
Restricted Securities.
Restated Certificate of Incorporation: The Restated Certificate of
Incorporation of the Company attached to the Stock Purchase Agreement
as Exhibit D.
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<PAGE> 5
Rule 144: Rule 144 under the Securities Act, as such rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
SBA: The United States Small Business Administration and any
successor agency performing the functions thereof.
SBIA: The Small Business Investment Act of 1958 and the regulations
thereunder.
SBIC: A Small Business Investment Company licensed by the SBA under
the SBIA.
Schedule of Exceptions: The schedule of exceptions attached to the
Stock Purchase Agreement as Exhibit B.
Securities: As defined in Section 10.
Securities Act: The Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Act shall include a
reference to the comparable section, if any, of any such similar
federal statute.
Series A Investors: BWSF, MAV and SG.
Series A Preferred Director: As defined in Section 3.1.
Series A Preferred Stock: The authorized Series A convertible
redeemable preferred stock, having a par value of $0.01 per share, of
the Company.
Series A Registrable Securities: At any time, with respect to any
Series A Investor, the shares of Common Stock held (or to be held upon
conversion of any Series A Restricted Securities) by such Series A
Investor, its successors or assigns, that constitute Series A
Restricted Securities.
Series A Restricted Securities: At any time, with respect to any
Series A Investor, the shares of Series A Preferred Stock held by such
Series A Investor on the date hereof, any shares of Common Stock
issued or issuable upon conversion thereof, and any shares or other
securities received in respect thereof, which are held by such Series
A Investor, its successors or assigns, and which have not previously
been sold to the public pursuant to a registration statement under the
Securities Act or pursuant to Rule 144.
Series B Investors: BWSF MAV, SG, Carlyle, PNC and Wood Street.
Series B Preferred Director: As defined in Section 3.1.
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Series B Preferred Stock: The authorized Series B convertible
redeemable preferred stock, having a par value of $0.01 per share, of
the Company.
Series B Registrable Securities: At any time, with respect to any
Series B Investor, the shares of Common Stock held (or to be held upon
conversion of any Series B Restricted Securities) by such Series B
Investor, its successors or assigns, that constitute Series B
Restricted Securities.
Series B Restricted Securities: At any time, with respect to any
Series B Investor, the shares of Series B Preferred Stock held by such
Series B Investor on the date hereof, any shares of Common Stock
issued or issuable upon conversion thereof, and any shares or other
securities received in respect thereof, which are held by such Series
B Investor, its successors or assigns, and which have not previously
been sold to the public pursuant to a registration statement under the
Securities Act or pursuant to Rule 144.
Series C Investors: NT.
Series C Preferred Stock: The authorized Series C convertible
redeemable preferred stock, having a par value of $0.01 per share, of
the Company.
Series C Registrable Securities: At any time, with respect to any
Series C Investor, the shares of Common Stock held (or to be held upon
conversion of any Series C Restricted Securities) by such Series C
Investor, its successors or assigns, that constitute Series C
Restricted Securities.
Series C Restricted Securities: At any time, with respect to any
Series C Investor, the shares of Series C Preferred Stock held by such
Series C Investor on the date hereof, any shares of Common Stock
issued or issuable upon conversion thereof, and any shares or other
securities received in respect thereof, which are held by such Series
C Investor, its successors or assigns, and which have not previously
been sold to the public pursuant to a registration statement under the
Securities Act or pursuant to Rule 144.
SG: Societe Generale Capital Corporation, a Delaware corporation.
Short-Form Registration: As defined in Section 5.1(a).
Subscription Price: The amount payable to the Company in consideration
of the initial issuance of the Registrable Securities or the
securities from which the Registrable Securities were issued, whether
by way of conversion, stock dividend, stock-split or in connection
with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
Subsidiaries: The subsidiaries of the Company listed in Exhibit C
attached hereto, and as amended from time to time.
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<PAGE> 7
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold pursuant to a firm commitment
underwriting.
Underwriters: As defined in Section 5.4.
Wood Street: Wood Street Partners, a Pennsylvania general
partnership.
3. BOARD REPRESENTATION.
3.1. REPRESENTATION ON THE BOARD OF DIRECTORS.
(a) The Company shall cause the Board of Directors of
the Company to consist of seven (7) members, one (1) of whom shall be nominated
by Carlyle, for so long as Carlyle is a holder of any of the Series B Preferred
Stock, or if Carlyle does not hold any Series B Preferred Stock, then by the
holders of the Series B Preferred Stock voting separately as a class by
majority vote (the "Series B Preferred Director"); one (1) of whom shall be
nominated by the management of the Company, subject to the approval of the
holders of the Series B Preferred Stock (such approval shall not be
unreasonably withheld, conditioned or delayed); and one (1) of whom shall be
nominated by BWSF for so long as BWSF is a holder of any of the Series A
Preferred Stock, of if BWSF does not hold any Series A Preferred Stock, then by
the holders of the Series A Preferred Stock voting separately as a class by
majority vote (the "Series A Preferred Director"). At least four (4) of the
members of the Board of Directors (including the Preferred Directors) shall not
be members of the management of the Company. In the event of the death,
resignation, or removal of any Preferred Director, then such Preferred
Director's successor shall be nominated in the manner set forth above.
(b) The Company agrees that each of NT, MAV, SG, PNC and
Carlyle, for so long as each of them is a holder of any of the Preferred Stock
may, from time to time, appoint a representative to attend meetings of the
Board of Directors of the Company or any committee thereof as an observer (the
"Observer," together "Observers"). The Observers are not entitled to vote.
Neither the holders of the Preferred Stock nor any such Observer, however,
shall have any duties, responsibilities or liability by virtue of attendance at
such meetings or the failure to attend the same. The Company shall notify each
Observer of all Board of Directors meetings at the same time as the Company
notifies directors of such meetings and Observers shall be entitled to all
written materials directors are entitled to receive.
(c) The Company shall reimburse each Preferred Director
and each Observer for all reasonable expenses incurred in connection with their
attendance at meetings of the Board of Directors, including without limitation
travel and living
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<PAGE> 8
expenses. Each Preferred Director additionally shall be entitled to receive
such compensation as shall be paid to the directors of the Company (other than
officers of the Company) for their attendance at meetings of the Board of
Directors.
(d) The Company shall cause the Board of Directors or
other governing body of each Subsidiary, and each committee of the Board of
Directors or other governing body of each Subsidiary, to have the same
membership as the Board of Directors of the Company, or the corresponding
committee of the Board of Directors of the Company, as the case may be. The
Company shall cause the provisions of the certificate of incorporation or other
organizational documents of each Subsidiary to contain provisions regarding the
membership and powers of the Board of Directors or other governing body of such
Subsidiary, and each committee thereof, which are the same, to the maximum
extent possible, as the corresponding provisions in the certificate of
incorporation of the Company.
4. ADDITIONAL UNDERTAKINGS AND COVENANTS.
So long as any Investor holds Preferred Stock or so long as the
Investors own as a class at least twenty percent (20%) of any class of the
outstanding Preferred Stock of the Company, and unless holders of two-thirds
(2/3) of each class of the Preferred Stock or Registrable Securities (as
applicable) otherwise agree in writing, the Investors and the Company hereby
covenant and agree with each other as follows:
4.1. CONSENTS AND APPROVALS.
(a) The Investors and the Company shall take all
measures reasonably necessary or advisable to secure such consents,
authorizations and approvals of governmental authorities and of private persons
or entities with respect to the transactions contemplated by this Agreement,
and to the performance of all other obligations of such parties hereunder, as
may be required by any applicable Laws of the United States or any country,
state or other jurisdiction or by any agreement of any kind whatsoever to which
the Investors, the Company or any Subsidiary are a party or by which the
Investors, the Company or any Subsidiary are bound.
(b) The Investors and the Company shall cooperate in the
filing of all forms, notifications, reports and information, if any, required
or reasonably deemed advisable pursuant to applicable Laws or orders of any
governmental authority in connection with the transactions contemplated by this
Agreement, including, but not limited to any filings made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Any filing under the HSR Act required to be made by the Company under
Section 4.1(a) shall be
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<PAGE> 9
made within five business days of any filing made by the Investor, provided
that such Investor has given the Company notice prior to such filing.
(c) The Company shall promptly furnish on request of the
Investors such information as may be reasonably necessary to determine whether
the Company is complying with the provisions of this Agreement.
4.2. MAINTENANCE OF CORPORATE STATUS.
The Company shall maintain, and shall cause its Subsidiaries to
maintain, their corporate existence in good standing in all states and
countries where they are incorporated or are required to be qualified to
conduct business as a foreign corporation.
4.3. ACCOUNTS AND RECORDS.
The Company shall establish and maintain, and shall cause its
Subsidiaries to establish and maintain, true, correct and complete financial
accounts and records in conformity with generally accepted accounting
principles.
4.4. LITIGATION.
The Company shall promptly notify the Investors in writing of all
litigation and all proceedings before any governmental or regulatory body to
which it or any of its Subsidiaries is a party as a result of which (i) damages
are sought against the Company or any of its Subsidiaries at law of $100,000 or
more or (ii) an equitable remedy is sought against the Company or any of its
Subsidiaries, the impact of which would materially adversely affect the
business, operations, assets, prospects or condition (financial or otherwise)
of the Company or any of its Subsidiaries.
4.5. COMPLIANCE WITH LAW; NO INFRINGEMENT.
The Company shall comply, and shall cause its Subsidiaries to comply,
with the provisions of all applicable Laws, except where the failure to comply
will not have a material adverse effect on the Company or any of its
Subsidiaries, and shall not engage in any activities which infringe upon the
Intellectual Property rights of any other person, corporation, partnership or
other entity.
4.6. DISCLOSURE OF INFORMATION BY THE INVESTORS.
The Company consents to disclosure by the Investors of any information
with respect to the Company and any of its Subsidiaries which is not
Confidential Information or a trade secret of the Company or any of its
Subsidiaries, including financial information, to the members, partners,
advisory board members,
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<PAGE> 10
stockholders or advisers of the Investors, and to any permitted transferee of
the shares of the Preferred Stock or of the Common Stock to be issued upon
conversion of the Preferred Stock; provided that the Investors use commercially
reasonable efforts to avoid disclosure of financial or other information (other
than in a summary format) to anyone other than such persons, including but not
limited to competitors or customers of the Company.
4.7. MAINTENANCE OF PROPERTIES.
(a) The Company shall maintain, and shall cause its
Subsidiaries to maintain, all real and tangible personal property used in the
business of the Company in good condition excepting ordinary wear and tear, and
shall make all such repairs, renewals, replacements, additions, and
improvements to such properties as are necessary or appropriate.
(b) The Company shall maintain, and shall cause its
Subsidiaries to maintain, all Intellectual Property owned or held by the
Company or its Subsidiaries or thereafter owned or held by the Company or its
Subsidiaries in full force and effect in the United States of America and in
such other countries in which the Company or its Subsidiaries shall engage in
business, including but not limited to: (i) the execution by future employees,
officers, and independent contractors of the Company or its Subsidiaries of
confidentiality and nondisclosure agreements or acknowledgments, and
Intellectual Property assignment agreements; (ii) the prosecution of
applications to register or perfect rights or claims in and to any such
Intellectual Property; (iii) the registration of license agreements; (iv) the
timely filing of affidavits of use, renewals or other maintenance filings; and
(v) the timely payment of filing and maintenance fees. The Company, without the
prior written approval of the Preferred Directors, shall not, and shall cause
its Subsidiaries not to: (i) abandon or let lapse or pass to the public domain
any of the Intellectual Property owned or held by the Company or any Subsidiary
or hereafter owned or held by the Company or any Subsidiary; (ii) encumber the
Intellectual Property rights owned by it except in the ordinary course of
business; and (iii) fail to maintain the confidentiality and trade secret
status of all Intellectual Property except to the extent that such disclosure
is necessary to obtain copyright or trademark or patents.
4.8. INSURANCE.
The Company shall maintain, and shall cause its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to its assets, properties and business against such casualties and
contingencies and in such types and amounts as would be deemed reasonably
necessary or advisable by prudent persons engaged in similar businesses. A
schedule of insurance specifying risks covered, the amounts of coverage, the
names of insurers, and the costs of such insurance is contained in Section 5.23
of the Schedule of Exceptions. Upon the
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<PAGE> 11
request of the Investors from time to time, the Company shall promptly
supplement such schedule to reflect any change in insurance coverage.
4.9. CHANGE IN OPERATIONS.
The Company shall not, and shall not permit the Subsidiaries to,
substantially change the type of operations currently contemplated by the
Company and its Subsidiaries or enter into, by internal expansion or by any
form of acquisition, any line of business not directly related to the type of
operations currently contemplated by the Company and its Subsidiaries.
4.10. DEFAULTS AND BREACHES UNDER OTHER CONTRACTS.
With respect to each contract listed in Section 5.17 of the Schedule
of Exceptions, the Company shall not permit to exist any material default or
breach by the Company or any of its Subsidiaries of any contract provision
beyond any period of grace provided for in such contract if such breach or
default may result in an amount in excess of $100,000 becoming due and payable
by the Company prior to its stated maturity; provided, however, that the
existence of any default or breach may be contested in good faith by the
Company by appropriate proceedings.
4.11. INVESTMENTS.
The Company shall not, and shall not permit its Subsidiaries to,
invest in or otherwise divert any of the funds of the Company or any Subsidiary
to any individual, corporation, or business entity, except in the ordinary
course of business and consistent with prudent business practices.
4.12. LIENS AND ENCUMBRANCES.
The Company shall not create, incur, assume, or suffer to exist, and
shall cause its Subsidiaries not to create, incur, assume or suffer to exist,
any encumbrance of any kind on the Company's or its Subsidiaries' assets or
properties now owned or hereafter acquired, other than those encumbrances
incurred in the ordinary course of business or otherwise identified in the
Stock Purchase Agreement.
4.13. GUARANTEES AND LOANS.
The Company shall not, and shall cause its Subsidiaries not to,
guarantee or endorse an obligation of, or make an advance or loan to, any
individual, corporation, or other business entity, or assume any contingent
liability, except for (i) the endorsement of negotiable instruments for deposit
or collection in the ordinary course of business, (ii) the advancement of
travel expenses and relocation costs,
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<PAGE> 12
(iii) intercompany transactions (e.g., loans to Subsidiaries) or (iv) payments
in the ordinary course of business and consistent with prudent business
practices.
4.14. AFFILIATE TRANSACTIONS.
The Company shall not, and shall cause its Subsidiaries not to,
purchase, rent or lease property or assets from, or sell, transfer or dispose
of any assets, including, but not limited to, Intellectual Property, or
properties (regardless of whether in the ordinary course of business or not) to
any affiliate (as that term is defined in Rule 405 under the Securities Act) of
the Company or any current or former officer, director, or employee of the
Company or any Subsidiary, or any affiliate of any of them.
4.15. OTHER INFORMATION.
As often as may be reasonably requested of any authorized officer or
representative of any Investor, the Company shall furnish to any such
authorized officer or representative such information regarding the business,
affairs, prospects and condition (financial or otherwise) (including materials
furnished to the directors of the Company at or in connection with board
meetings) as such officer or representative may reasonably request. Each such
officer or representative shall have the right during normal business hours to
inspect the properties of the Company, to examine the books and records of the
Company, to make copies, notes and abstracts therefrom, and to make an
independent examination of the books and records of the Company. The Investors
agree to use commercially reasonable efforts to cause their respective agents
and officers to keep such information confidential.
4.16. INSURING OF KEY COMPANY PERSONNEL.
The Company shall maintain from insurance companies reasonably
acceptable to the Investors, key man insurance policies on the lives of Clayton
A. Thomas, Jr. and Peter B. Callowhill in the face amount of $2,000,000 each,
with the proceeds of such policies payable to the Company. The Company shall
maintain from insurance companies reasonably acceptable to the Investors, key
man insurance policies on the lives of Bruce W. Bednarski, Donald Clarke, Mark
Mendes and Carolyn A. Marsan in the face amount of $1,000,000 each, with the
proceeds of such policies payable to the Company.
4.17. EXECUTION OF EMPLOYMENT, NON-DISCLOSURE AND CONFIDENTIALITY
AGREEMENTS.
The Company shall secure from all new employees of the Company, an
executed non-disclosure and confidentiality agreement reasonably satisfactory
to the Investors.
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<PAGE> 13
4.18. APPROVAL OF ANNUAL BUDGET AND CERTAIN MATERIAL CONTRACTS.
Within sixty (60) days after this Agreement and by December 1 of each
year beginning December 1, 1998, the management of the Company shall prepare
and formulate for the upcoming fiscal year a proposed annual operating plan for
the Company (the "Annual Budget"), setting forth estimated revenues and
expenses (including taxes and debt service), capital expenditures, reserves,
contingencies, sources and applications of funds, and loans contemplated, if
any. The Annual Budget, when prepared by the management of the Company, shall
be submitted to the Board of Directors for their approval (such approval to be
effectuated by a majority of the Board of Directors). If an Annual Budget has
not been approved prior to the commencement of a given fiscal year, during the
period of any such delay, the management of the Company shall operate the
Company guided by the prior year's Annual Budget with adjustments based on the
changes in the United States Bureau of Labor Statistics, Consumer Price Index
For All Urban Consumers, Washington, D.C.-Md.-Va. (1982-84). Once an Annual
Budget is approved by the Board of Directors, the management of the Company
shall not and the Company shall cause the Subsidiaries to not, without the
prior approval of the Board of Directors (i) make or approve capital
expenditures in excess of $100,000 above the amount budgeted therefor in the
Annual Budget, (ii) incur or assume any liabilities in excess of $100,000 above
the amount budgeted therefor in the Annual Budget; or (iii) enter into (a) a
material contract which is not in the ordinary course of business or (b) a
contract obligating the Company to expend in excess of $1,000,000.
4.19. SBA FORMS.
Upon the request of SG, the Company shall complete, execute
(where applicable) and deliver to SG, SBA Forms 480, 642 and 1031.
5. REGISTRATION UNDER SECURITIES ACT, ETC.
5.1. REGISTRATION ON REQUEST.
(a) REQUEST.
(i) SERIES A PREFERRED STOCK
Upon the written request of the holders of a majority of the
Series A Registrable Securities requesting that the Company effect the
registration under the Securities Act of all or part of such holders' Series A
Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations") or on Form S-3 or any successor form thereto
("Short-Form Registrations"), if available, the Company shall promptly give
written notice of such
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<PAGE> 14
requested registration to all registered holders of Registrable Securities, and
thereupon the Company shall promptly use its best efforts to effect the
registration under the Securities Act of
(A) the Series A Registrable Securities which the Company has
been so requested to register by such holders, and
(B) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request given
to the Company within 30 days after the receipt of such written notice
by the Company,
all to the extent requisite to permit the disposition of the Registrable
Securities so to be registered.
(ii) SERIES B PREFERRED STOCK
Upon the written request of the holders of a majority of the
Series B Registrable Securities requesting that the Company effect the
registration under the Securities Act of all or part of such holders' Series B
Registrable Securities on Form S-1 or a Long-Form Registration or on Form S-3
or a Short-Form Registration, if available, the Company shall promptly give
written notice of such requested registration to all registered holders of
Registrable Securities, and thereupon the Company shall promptly use its best
efforts to effect the registration under the Securities Act of
(A) the Series B Registrable Securities which the Company has
been so requested to register by such holders, and
(B) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request given
to the Company within 30 days after the receipt of such written notice
by the Company,
all to the extent requisite to permit the disposition of the Registrable
Securities so to be registered.
(iii) SERIES C PREFERRED STOCK
Upon the written request of the holders of a majority of the
Series C Registrable Securities requesting that the Company effect the
registration under the Securities Act of all or part of such holders' Series C
Registrable Securities on Form S-1 or a Long-Form Registration or on Form S-3
or a Short-Form Registration, if available, the Company shall promptly give
written notice of such requested registration to all registered holders of
Registrable Securities, and
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<PAGE> 15
thereupon the Company shall promptly use its best efforts to effect the
registration under the Securities Act of
(A) the Series C Registrable Securities which the Company has
been so requested to register by such holders, and
(B) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request given
to the Company within 30 days after the receipt of such written notice
by the Company,
all to the extent requisite to permit the disposition of the Registrable
Securities so to be registered. All registrations requested pursuant to Section
5.1(a)(i), (ii) or (iii) are referred to herein as "Demand Registrations".
(b) LONG-FORM REGISTRATIONS.
(i) SERIES A PREFERRED STOCK
The holders of Series A Registrable Securities will be
entitled to request one (1) Long-Form Registration in which the Company will
pay all Registration Expenses provided that the holders of Series A Registrable
Securities have not previously requested four (4) Short-Form Registrations
under Section 5.1(c)(i). All Long-Form Registrations shall be underwritten
registrations. A requested Short-Form Registration on Form S-3 or any successor
form in compliance with Section 5.1(c)c)(i) shall not count as a registration
statement demanded pursuant to this Section 5.1(b)(i), but shall otherwise be
treated as a registration initiated pursuant to and shall, except as otherwise
expressly provided in Section 5.1(c)(i), be subject to this Section 5.1.
(ii) SERIES B PREFERRED STOCK
The holders of Series B Registrable Securities will be
entitled to request one (1) Long-Form Registration in which the Company will pay
all Registration Expenses provided that the holders of Series B Registrable
Securities have not previously requested four (4) Short-Form Registrations under
Section 5.1(c)(ii). All Long-Form Registrations shall be underwritten
registrations. A requested Short-Form Registration on Form S-3 or any successor
form in compliance with Section 5.1(c)(ii) shall not count as a registration
statement demanded pursuant to this Section 5.1(b)(ii), but shall otherwise be
treated as a registration initiated pursuant to and shall, except as otherwise
expressly provided in Section 5.1(c)(ii), be subject to this Section 5.1.
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<PAGE> 16
(iii) SERIES C PREFERRED STOCK
The holders of Series C Registrable Securities will be
entitled to request one (1) Long-Form Registration in which the Company will
pay all Registration Expenses provided that the holders of Series C Registrable
Securities have not previously requested four (4) Short-Form Registrations
under Section 5.1(c)(iii). All Long-Form Registrations shall be underwritten
registrations. A requested Short-Form Registration on Form S-3 or any successor
form in compliance with Section 5.1(c)(iii) shall not count as a registration
statement demanded pursuant to this Section 5.1(b)(iii), but shall otherwise be
treated as a registration initiated pursuant to and shall, except as otherwise
expressly provided in Section 5.1(c)(iii), be subject to this Section 5.1.
(c) SHORT-FORM REGISTRATIONS.
(i) SERIES A PREFERRED STOCK
In addition to the Long-Form Registrations provided pursuant
to Section 5.1(b)(i), the holders of Series A Registrable Securities will be
entitled to request three (3) (or, if the holders of Series A Registrable
Securities have not requested a Long Form Registration, four (4)) Short-Form
Registrations in which the Company will pay all Registration Expenses; provided
that the Company qualifies for the use of such form. Demand Registrations will
be Short-Form Registrations whenever the Company is permitted to use any
applicable short form. The Company will use its best efforts to make Short-Form
Registrations available for the sale of Series A Registrable Securities.
(ii) SERIES B PREFERRED STOCK
In addition to the Long-Form Registrations provided pursuant
to Section 5.1(b)(ii), the holders of Series B Registrable Securities will be
entitled to request three (3) (or, if the holders of Series B Registrable
Securities have not requested a Long Form Registration, four (4)) Short-Form
Registrations in which the Company will pay all Registration Expenses; provided
that the Company qualifies for the use of such form. Demand Registrations will
be Short-Form Registrations whenever the Company is permitted to use any
applicable short form. The Company will use its best efforts to make Short-Form
Registrations available for the sale of Series B Registrable Securities.
(iii) SERIES C PREFERRED STOCK
In addition to the Long-Form Registrations provided pursuant
to Section 5.1(b)(iii), the holders of Series C Registrable Securities will be
entitled to request three (3) (or, if the holders of Series C Registrable
Securities have not requested a Long Form Registration, four (4)) Short-Form
Registrations in which
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<PAGE> 17
the Company will pay all Registration Expenses; provided that the Company
qualifies for the use of such form. Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. The Company will use its best efforts to make Short-Form Registrations
available for the sale of Series C Registrable Securities.
(d) REGISTRATION OF OTHER SECURITIES.
Whenever the Company shall effect a registration pursuant to
this Section 5.1 in connection with an offering by one or more holders of
Registrable Securities, no securities other than Registrable Securities shall
be included among the securities covered by such registration unless (i) in the
case of an underwritten offering, the managing underwriter of such offering
shall have advised such holders of such Registrable Securities in writing that
the inclusion of such other securities would not adversely affect such
offering, or (ii) such holders of such Registrable Securities shall have
consented in writing to the inclusion of such other securities. Any persons
other than holders of Registrable Securities who participate in Demand
Registrations which are not at the Company's expense will pay their share of
the Registration Expenses as provided in Section 5.7.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS.
The Company shall not be obligated to effect any Demand
Registrations (i) within twelve (12) months after the effective date of a
previous Demand Registration or (ii) prior to one hundred eighty (180) days
after the time the Company makes an initial offering of Common Stock to the
public pursuant to an effective registration statement under the Securities
Act. The Company may delay the filing or effectiveness of any Demand
Registration statement for a period of not less than ninety (90) days and not
to exceed one hundred fifty (150) days after the date of a request for
registration pursuant to this Section 5.1 if (i) at the time of such request
the Company is engaged, or has fixed plans to engage within sixty (60) days of
the time of such request, in a firm commitment underwritten public offering of
Primary Shares in which the holders of Restricted Securities may include
Registrable Securities pursuant to Section 5.2 below, or (ii) the Company shall
furnish to the holders requesting registration pursuant to this Section 5.1 a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, and with the
concurrence of the investment banker, if any, that is currently being retained
by the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement (provided that the
Company may not utilize the deferral rights set forth in this Section 5.1(e)
more than once in any twelve (12) month period and in the event the Company
does utilize such right, the holders of the Restricted Securities requesting
such registration will be entitled to withdraw such request and, if such
request is withdrawn, such registration will not count as a
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<PAGE> 18
registration pursuant to this Section 5.1 and the holders of the Restricted
Securities requesting such registration shall have no obligation to reimburse
the Company for the Company's expenses in connection with such rescinded
registration).
(i) RESTRICTIONS ON LONG-FORM REGISTRATIONS.
In addition to the restrictions on Demand
Registrations set forth in Section 5.1(e), the Company shall not be obligated
to effect any Long-Form Registration under the Securities Act except in
accordance with the following provisions:
(A) the Company shall not be obligated to file
(w) more than one (1) Long-Form Registration initiated pursuant to Section
5.1(b)(i) which becomes effective, (x) more than one (1) Long-Form Registration
initiated pursuant to Section 5.1(b)(ii) which becomes effective, (y) more than
one (1) Long-Form Registration initiated pursuant to Section 5.1(b)(iii) which
becomes effective or (z) any registration statement during any period in which
any other registration statement pursuant to which Primary Shares are to be or
were sold has been filed and not withdrawn or has been declared effective
within the prior one hundred eighty (180) days; and
(B) the Company shall not be obligated to
effect any Long-Form Registration if the anticipated aggregate offering
proceeds with respect to the Registrable Securities included in such
registration statement, net of underwriting discounts and commissions, are
expected to be less than twenty million dollars ($20,000,000).
(ii) RESTRICTIONS ON SHORT-FORM REGISTRATIONS.
In addition to the restrictions on Demand
Registrations set forth in Section 5.1(e), the Company shall not be obligated
to effect any Short-Form Registration under the Securities Act if the
anticipated aggregate offering proceeds with respect to the Registrable
Securities included in such registration statement, net of underwriting
discounts and commissions, are expected to be less than five million dollars
($5,000,000).
(f) OTHER REGISTRATION RIGHTS.
Except as provided in this Agreement, the Company will not
grant to any Persons the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into
or exercisable for such securities, without the written consent of the holders
of a majority of the Series A Registrable Securities, Series B Registrable
Securities and Series C Registrable Securities, each voting separately as a
class; provided that the Company may grant rights to other Persons so long as
such rights are subordinate
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<PAGE> 19
to the rights of the holders of Registrable Securities, and the Company has
obtained the prior written consent of the holders a majority of the Registrable
Securities.
(g) EFFECTIVE REGISTRATION STATEMENT; RESCISSION.
A Demand Registration pursuant to this Section 5.1 shall not
be deemed to have been effected (i) unless a registration statement with
respect thereto has become effective, (ii) if after a registration statement
has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court for any reason, or (iii) if the conditions to
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied, other than by
reason of some act or omission by the holders requesting such registration. A
requested Demand Registration under this Section 5.1 may be rescinded by
written notice to the Company by the holders requesting such registration;
provided, however, that such rescinded registration shall not count as a
registration statement initiated pursuant to this Section 5.1 for purposes of
Section 5.1(a) above if, notwithstanding Section 5.7 below, such holders
shall have reimbursed the Company for all out-of-pocket expenses incurred by
the Company in connection with such rescinded registration; provided, further,
however, that if at the time of such rescission, the holders requesting such
registration have learned of a material adverse change in the condition or
business of the Company not known to the holders requesting such registration
at the time of their request for such registration and have rescinded their
request for registration with reasonable promptness after learning of such
material adverse change, then the holders requesting such registration shall
not be required to pay any of such expenses.
(h) PRIORITY IN DEMAND REGISTRATIONS.
With respect to any registration pursuant to this Section
5.1, the Company may include in such registration any Primary Shares or Other
Shares; provided, however, that in the event the registration is for a
registered public offering involving an underwriting, if the underwriter (or
the managing underwriter on behalf of the underwriters) advises the Company
that the inclusion of all Registrable Securities, Primary Shares and Other
Shares proposed to be included in such registration would interfere with the
successful marketing (including pricing) of all such securities, then the
number of Registrable Securities, Primary Shares and Other Shares proposed to
be included in such registration shall be included in the following order:
(i) first, Registrable Securities, pro rata;
(ii) second, the Primary Shares; and
(iii) third, the Other Shares.
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<PAGE> 20
(i) ADDITIONAL DEMAND REGISTRATION.
Notwithstanding any other provision of this Section
5.1, at any time or from time to time, if the Company effects the registration
of less than seventy percent (70%) of all of the Registrable Securities
requested to be registered pursuant to Section 5.1(a), the holders of a
majority of the Series A Registrable Securities, Series B Registrable
Securities and Series C Registrable Securities, as the case may be, shall be
entitled to request an additional registration pursuant to Section 5.1(a);
provided, however, that in no event shall the holders of a majority of the
Series A Registrable Securities, Series B Registrable Securities and Series C
Registrable Securities, as the case may be, be entitled to request more than
one such additional registration pursuant to this Section 5.1(i). Any such
registration shall be requested, effected and in all other respects in
accordance with the terms of Section 5.1(a), and the Company will pay all
Registration Expenses in connection with any such registration. This provision
shall apply successively in the event that any holder of Registrable Securities
shall continue to hold Registrable Securities solely as a result of Section
5.1(h).
5.2. PIGGYBACK REGISTRATION.
(a) RIGHT TO PIGGYBACK.
If the Company at any time proposes to register any
of its securities under the Securities Act (other than registrations solely for
the registration of shares in connection with an employee benefit plan or a
merger or share exchange or consolidation and other than pursuant to Section
5.1, whether or not for sale for its own account, and the registration form to
be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company will at each such time give prompt
written notice to all holders of Registrable Securities of its intention to do
so and of such holders' rights under this Section 5.2. Upon the written request
of any such holder made within thirty (30) days after the receipt of any such
notice (which request shall specify the Registrable Securities intended to be
disposed of by such holder), the Company will use its best efforts to effect
the registration under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the holders thereof on the
same terms and conditions as the securities otherwise being sold in such
registration, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered. No registration effected under this
Section 5.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 5.1 above. The Company will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 5.2. The Company may withdraw or
postpone a Piggyback Registration made pursuant to this Section 5.2 without
obligation to the Investors.
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<PAGE> 21
(b) PRIORITY IN PIGGYBACK REGISTRATIONS.
If (i) a registration pursuant to this Section 5.2
involves an underwritten offering of the securities so being registered,
whether or not for sale for the account of the Company, to be distributed (on a
firm commitment basis) by or through one or more underwriters of recognized
standing under underwriting terms appropriate for such a transaction, (ii) the
Registrable Securities so requested to be registered for sale for the account
of holders of Registrable Securities are not also to be included in such
underwritten offering (because the Company has not been requested so to include
such Registrable Securities pursuant to Section 5.4(b) and (iii) the
managing underwriter of such underwritten offering shall inform the Company in
writing of its belief that the number of securities requested to be included in
such registration exceeds the number which can be sold in (or during the time
of) such offering without adversely affecting the price to be received thereon,
then the Company will include in such registration, to the extent of the number
which the Company is so advised can be sold in (or during the time of) such
offering, first, all securities proposed by the Company to be sold for its own
account or all securities (other than Registrable Securities) proposed by the
Company to be sold for the account of the holders thereof, as the case may be,
second, such Registrable Securities requested to be included in such
registration pro rata on the basis of the number of shares of such Registrable
Securities so proposed to be sold and so requested to be included, and third,
other securities requested to be included in such registration.
(c) OTHER REGISTRATIONS.
If the Company has previously filed a registration
statement with respect to Registrable Securities pursuant to Section 5.1 or
pursuant to this Section 5.2, and if such previous registration has not been
withdrawn or abandoned, the Company will not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-4 or Form S-8 or any successor forms), whether on its own
behalf or at the request of any holder or holders of such securities, until a
period of at least three (3) months has elapsed from the effective date of such
previous registration.
5.3. REGISTRATION PROCEDURES.
If and whenever the Company is required to use its best
efforts to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 5.1 and 5.2, the Company will as
expeditiously as possible:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use its best
efforts to cause such registration statement to become and remain effective for
a period of one hundred
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<PAGE> 22
eighty (180) days or until all of such Registrable Securities have been
disposed of (if earlier), provided that the Company may discontinue any
registration of its securities which are not Registrable Securities at any time
prior to the effective date of the registration statement relating thereto;
(ii) furnish at least five (5) business days before
filing a registration statement that registers such Registrable Securities, a
prospectus relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to one counsel selected by the holders of
a majority of Registrable Securities (the "Investor Counsel"), copies of a
registration statement, the prospectus and any amendments or supplements
thereto, and shall not file any thereof to which such counsel shall have
reasonably objected on the grounds that such registration statement,
prospectus, amendment or supplement does not comply in all material respects
with the requirements of the Securities Act or the rules or regulations
thereunder (it being understood that such five (5) business day period need not
apply to successive drafts of the same document proposed to be filed so long as
such successive drafts are supplied to such counsel in advance of the proposed
filing by a period of time that is customary and reasonable under the
circumstances);
(iii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than six (6) months and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as all of
such securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such registration
statement;
(iv) notify in writing the Investor Counsel promptly of
the receipt by the Company of any notification with respect to (a) any comments
by the Commission with respect to such registration statement or prospectus or
any amendment or supplement thereto or any request by the Commission for the
amending or supplementing thereof or for additional information with respect
thereto, (b) the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or prospectus or any amendment or
supplement thereto or the initiation or threatening of any proceeding for that
purpose, and (c) the suspension of the qualification of such Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purposes;
(v) furnish to each seller of Registrable Securities
covered by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such
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<PAGE> 23
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request;
(vi) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such United States
jurisdictions as each seller thereof shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and to take any other action which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller,
except that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction wherein
it would not but for the requirements of this Section 5.3(vi) be obligated to
be so qualified, to subject itself to taxation in any such jurisdiction or to
consent to general service of process in any such jurisdiction;
(vii) use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities;
(viii) furnish to each seller of Registrable Securities a
signed counterpart, addressed to such seller (and the underwriters, if any) of
(x) an opinion of counsel for the Company dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), reasonably satisfactory in form and substance to
such seller, and
(y) a "comfort" letter, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent certified public accountants
who have certified the Company's financial statements included in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such seller or such holder (or the
underwriters, if any) may reasonably request;
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<PAGE> 24
(ix) notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event of which the Company is aware as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and at the request of any such seller promptly prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(x) make available for inspection by any seller of such
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all pertinent financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information (together with the Records, the "Information")
reasonably requested by any such Inspector in connection with such registration
statement. Any of the Information which the Company determines in good faith to
be confidential, and of which determination the Inspectors are so notified,
shall not be disclosed by the Inspectors unless (a) the disclosure of such
Information is necessary to avoid or correct a misstatement or omission in the
registration statement, (b) the release of such Information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or (c) such
Information has been made generally available to the public. The seller of
Registrable Securities agrees that he, she or it will, upon learning that
disclosure of such Information is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the Information deemed
confidential;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of the Securities Act;
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<PAGE> 25
(xii) provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(xiii) list such Registrable Securities on the national
securities exchange, or Nasdaq, on which any shares of the Common Stock are
listed or quoted or, if the Common Stock is not listed on a national securities
exchange or quoted on Nasdaq, use its best efforts to qualify such Registrable
Securities for inclusion on such national securities exchange or Nasdaq as the
holders of a majority of such Registrable Securities shall request;
(xiv) issue to any underwriter to which any seller of
Registrable Securities may sell shares in such offering certificates evidencing
such Registrable Securities; and
(xv) use its best efforts to take all other steps
necessary to effect the registration of such Registrable Securities
contemplated hereby.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holder of Registrable
Securities registered under such registration statement a reasonable
opportunity to review and comment upon such registration statement, each
prospectus included therein or filed with the Commission, and each amendment
thereof or supplement thereto, all prior to finalization.
Each holder of Registrable Securities agrees by acquisition
of such Registrable Securities that upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 5.3(ix), such
holder will forthwith discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5.3(ix) and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
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<PAGE> 26
5.4. SELECTION OF UNDERWRITERS.
(a) DEMAND REGISTRATIONS.
In connection with any Demand Registration by the
holders of Registrable Securities pursuant to Section 5.1(a), the Company
shall select the investment banker(s) and manager(s) that will administer the
offering (the "Underwriters") which such Underwriter shall be a first or second
tier underwriter and shall be subject to the approval by the holders of a
majority of the Registrable Securities to be included in such Demand
Registration (after consultation with each holder of Registrable Securities)
which shall not be unreasonably withheld. The Company will enter into an
underwriting agreement with such Underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the holders of a
majority of the Registrable Securities to be included in such Demand
Registration, and the Underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of such type, including, without limitation, indemnities to the
effect and to the extent provided in Section 5.6. The Investor Counsel may, at
its option, participate in the negotiation of the underwriting agreement. The
holders of such Registrable Securities shall be a party to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such Underwriters shall also be made to and
for the benefit of the holders of such Registrable Securities and that any or
all of the conditions precedent to the obligations of such Underwriters under
such underwriting agreement be conditions precedent to the obligations of the
holders of such Registrable Securities. Any holder of such Registrable
Securities shall not be required to make any representations or warranties to
or agreements with the Company or the Underwriters other than representations,
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and any other
representation required by Law.
(b) PIGGYBACK REGISTRATIONS.
If the Company at any time proposes to register any
of its securities under the Securities Act as contemplated by Section 5.2 and
such securities are to be distributed by or through one or more underwriters,
the Company will, if requested by any holder of Registrable Securities as
provided in Section 5.2 and subject to the provisions of Section 5.2(b), use
its best efforts to arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the
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<PAGE> 27
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of the holders of such Registrable Securities and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of the
holders of such Registrable Securities, to the extent that such
representations, warranties, other agreements, and conditions precedent bear on
such holders' liability or otherwise impose obligations on such holders. Any
holder of such Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
(c) HOLDBACK AGREEMENTS.
(i) In connection with the initial public offering of
shares of Common Stock of the Company registered pursuant to the Securities Act
the holders of Registrable Securities shall not sell, make any short sale of,
grant any option for the purchase of, or otherwise dispose of any Restricted
Securities (other than those shares of Common Stock included in such
registration) without the prior written consent of the Company for a period
designated by the Company in writing to the holders of Registrable Securities,
which period shall begin not more than fourteen (14) days prior to the
effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than one hundred eighty (180)
days (or such other shorter period as the officers and directors of the Company
and holders of greater than ten percent (10%) of all Registrable Securities
mutually agree) after the effective date of such registration statement.
(ii) The Company agrees (x) not to effect any public sale
or distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the period
beginning (A) fourteen (14) days prior to, and ending (B) one hundred eighty
(180) days after, any underwritten Demand Registration pursuant to Section 5.1
has become effective or such shorter period as the Company and the managing
Underwriter otherwise agree, except as part of such underwritten registration
and except pursuant to registrations on Form S-4, S-8 or any successor or
similar forms thereto, and (y) to use commercially reasonable efforts to cause
the Common Stock Holders, the Investors, their respective permitted transferees
and each holder of at least five percent (5%) (on a fully-diluted basis) of its
equity securities or any securities convertible into or exchangeable or
exercisable for any such securities, in each case purchased from the Company at
any time after the date of this Agreement (other than in a public offering), to
agree not to effect any such public sale or distribution of such securities,
during such period, unless the managing Underwriter otherwise agrees to such
sale or distribution.
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<PAGE> 28
5.5. PREPARATION; REASONABLE INVESTIGATION.
In connection with the preparation and filing of each
registration statement under the Securities Act pursuant to this Agreement, the
Company will give the holders of Registrable Securities to be registered under
such registration statement, their underwriters, if any, and the Investor
Counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holder's and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
5.6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY.
In the event of any registration of any securities
of the Company under the Securities Act, the Company will, and hereby does,
indemnify and hold harmless each holder of Registrable Securities selling such
Registrable Securities, its officers and directors, each underwriter, broker or
any other person acting on behalf of such seller and each other person, if any,
who controls any of the foregoing persons within the meaning of the Securities
Act against any losses, claims, damages or liabilities, joint or several, to
which such seller or any such director or officer or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable
Securities, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, or any violation by the Company of the
Securities Act or state securities or blue sky laws applicable to the Company
and relating to action or inaction required of the Company in connection with
such registration or qualification under such state securities or blue sky
laws; and the Company will reimburse such seller and each such director,
officer, underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or
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<PAGE> 29
proceeding; provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller, specifically stating that it is for
use in the preparation thereof and, provided further, that the Company shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls
such underwriter within the meaning of the Securities Act, in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure
to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such seller or any such director, officer, underwriter or
controlling person and shall survive the transfer of such securities by such
seller.
(b) INDEMNIFICATION BY THE SELLERS.
The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Sections
5.1 or 5.2, that the Company shall have received an undertaking satisfactory to
it from the prospective seller of such securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
5.6(a) the Company's underwriter, the Company, each director of the Company,
each officer of the Company and each other Person, if any, who controls the
Company within the meaning of the Securities Act, with respect to any statement
or alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, provided that
the obligation to indemnify will be several, not joint and several, among such
sellers of Registrable Securities and the liability of each such seller of
Registrable Securities will be in proportion to and limited to the net amount
received by such seller from the sale of Registrable Securities pursuant to
such registration statement. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of the
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Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) NOTICES OF CLAIMS, ETC.
Promptly after receipt by an indemnified party of notice of
the commencement of any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 5.6, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5.6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable for
any settlement made by the indemnified party without its consent (which consent
will not be unreasonably withheld) or for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) OTHER INDEMNIFICATION.
Indemnification similar to that specified in the preceding
subdivisions of this Section 5.6 (with appropriate modifications) shall be
given by the Company and each seller of Registrable Securities with respect to
any required registration or other qualification of securities under any
federal or state law or regulation of any governmental authority other than the
Securities Act.
(e) INDEMNIFICATION PAYMENTS.
The indemnification required by this Section 5.6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
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(f) CONTRIBUTION.
If the indemnification provided for in this Agreement shall
for any reason be unavailable or insufficient to an indemnified party under
Sections 5.6(a), 5.6(b) or 5.6(d) hereof in respect of any loss, claim,
damage or liability, or any action in respect thereof, or referred to therein,
then each indemnifying party shall, in lieu of indemnifying such party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect (i) the relative benefits
received by the Company on the one hand and the holders of the Registrable
Securities included in the offering on the other hand, from the offering of the
Registrable Securities, and (ii) the relative fault of the Company on the one
hand and the holders of the Registrable Securities included in the offering on
the other, with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the holders of the Registrable Securities on the
other with respect to such offering shall be deemed to be in the same
proportion as the sum of the total Subscription Price paid to the Company in
respect of the Registrable Securities plus the total net proceeds from the
offering of the securities (before deducting expenses) received by the Company
bears to the amount by which the total net proceeds from the offering of the
securities (before deducting expenses) received by the holders of the
Registrable Securities with respect to such offering exceeds the Subscription
Price paid to the Company in respect of the Registrable Securities, and in each
case the net proceeds received from such offering shall be determined as set
forth on the table or the cover page of the prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
holders of the Registrable Securities, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holders of the Registrable
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 5.6 were to be determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to in this Section 5.6 shall be deemed to include, for
purposes of this Section 5.6, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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5.7. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance
of or compliance with this Agreement, including without limitation all
registration, filing and NASD fees, all fees and expenses of compliance with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, and fees and disbursements of
counsel for the Company and its independent certified public accountants,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, the reasonable fees and
disbursements, including without limitation, out-of-pocket expenses of any
single counsel and accountants retained by the holder or holders of a majority
of the Registrable Securities being registered and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities (including
fees paid to a "qualified independent underwriter" required by the rules of the
NASD in connection with a distribution, but excluding discounts and commissions
and transfer taxes, if any) and other Persons retained by the Company (all such
expenses being herein called "Registration Expenses"), will be borne by the
Company, and in addition the Company will pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance, and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or other
expenses for the preparation of financial statements or other data normally
prepared by the Company in the ordinary course of its business or which the
Company would have incurred in any event.
(b) In connection with each Demand Registration, the
Company will reimburse the holders of Registrable Securities covered by such
registration for the reasonable fees and disbursements of one counsel chosen by
the holders of a majority of such Registrable Securities.
(c) To the extent Registration Expenses are not required
to be paid by the Company, each holder of securities included in any
registration hereunder will pay those Registration Expenses allocable to the
registration of such holder's securities so included, and any Registration
Expenses not so allocable will be borne by all sellers of securities included
in such registration in proportion to the aggregate selling price of the
securities to be so registered.
5.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.
The Company will not effect or permit to occur any
combination or subdivision of shares which would materially adversely affect
the ability of the holders of Registrable Securities to include such
Registrable Securities in any
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registration of its securities contemplated by this Section 5 or the
marketability of such Registrable Securities under any such registration.
5.9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any registration hereunder which
is underwritten unless such Person (a) agrees to sell such Person's securities
on the basis provided in any underwriting arrangements approved by the Person
or Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
5.10. RULE 144.
If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will file the reports required to be filed by it under the Securities
Act and the Exchange Act (or, if the Company is not required to file such
reports, will, upon the request of any holder of Registrable Securities, make
publicly available other information) and will take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
6. BASIC FINANCIAL INFORMATION OF THE COMPANY.
Notwithstanding any provision of the bylaws of the Company regarding
delivery or non-delivery of financial information to stockholders of the
Company, until the Company becomes a reporting company under the Exchange Act,
the Company will, for so long as the Investors as a class are holders of any
shares of the Preferred Stock or own, as a class, at least ten percent (10%) of
the outstanding Common Stock on a fully diluted basis, (i) allow the Investors
to visit the Company and inspect any of the property of the Company; provided
that such visits are at reasonable times and are following five (5) days
advance notice thereof, and (ii) furnish the following reports to each
Investor:
(a) Within ninety (90) days after the end of each fiscal
year, a consolidated balance sheet of the Company and its Subsidiaries, if any,
as of the end of such fiscal year, and a consolidated statement of income and a
consolidated
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<PAGE> 34
statement of cash flows of the Company and its Subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and audited by independent certified
public accountants of recognized national standing selected by the Company.
(b) Within forty-five (45) days after the end of the
first, second and third quarterly accounting periods in each fiscal year of the
Company, a consolidated balance sheet of the Company and its Subsidiaries, if
any, as of the end of each such quarterly period, and a consolidated statement
of income and a consolidated statement of cash flows for such period and for
the current fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to
such statements and interim and year-end adjustments may not have been made.
Said financial statements shall be signed by an officer of the Company who
shall state that such financial statements are in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and interim and year-end adjustments may not have
been made.
(c) Within thirty (30) days after the end of each month,
a consolidated balance sheet of the Company and its Subsidiaries, if any, as of
the end of each such month, and a consolidated statement of income and a
consolidated statement of cash flows for such month and for the current fiscal
year to date, prepared in accordance under generally accepted accounting
principles, with the exception that no notes need be attached to such
statements and interim and year-end adjustments may not have been made. Said
financial statements shall be signed by an officer of the Company who shall
state that such financial statements are in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to
such statements and interim and year-end adjustments may not have been made.
(d) At least thirty (30) days prior to the commencement
of each fiscal year, a business plan and annual operating budget in detail for
such fiscal year, monthly operating expenses and profit and loss projections,
quarterly cash flow projections and a capital expenditure budget for the fiscal
year.
7. TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT.
7.1. TRANSFERABILITY.
(a) As set forth below in this Section 7.1 and subject
to the terms of Section 7.1(b), an Investor may transfer its Limited
Securities; provided, however, that the Company is given written notice at the
time of such transfer stating the
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<PAGE> 35
names and addresses of the transferee and identifying the Limited Securities to
be transferred, and such transferee expressly agrees in writing with the
Company to be bound by and to comply with all applicable provisions of this
Agreement, whereupon such person or entity shall have the benefit of, and shall
be subject to the restrictions contained in, this Agreement with respect to
such Limited Securities. Notwithstanding the provisions of this Section 7, an
Investor may transfer on any public securities market or in any public offering
pursuant to Section 5, without the consent of the Company and without being
required to comply with the provisions of this Section 7, any of its Common
Stock and following such transfer the Common Stock so transferred shall be free
of the requirements of this Section 7.
(b) Right of First Refusal.
(i) As used in this Section 7.1(b), the terms
"purchase" and "transfer" mean any disposition for value, including without
limitation any sale, assignment, transfer, mortgage, pledge or hypothecation
for value. To be deemed to be a bona fide offer within the meaning of this
Section, an offer must be in writing, signed by the offeror (who must be
financially capable of carrying out the terms of the offer), and in a form
legally enforceable against the offeror, subject to standard and customary
conditions.
(ii) Subject to Section 7.1(b)(i) hereof, if, at
any time or from time to time after the date of this Agreement, a holder of
Series C Preferred Stock (a "Series C Holder") receives a bona fide offer to
purchase all or any part of its Series C Preferred Stock, which offer the
Series C Holder intends to accept, the Series C Holder shall promptly give
notice to the Company and each of the Investors (the "First Refusal Notice").
The notice shall offer the Company the right to purchase the shares of the
Series C Preferred Stock which are the subject of the bona fide offer (the
"Subject Series C Shares"), at the same price and on the same terms as set
forth in the bona fide offer. The notice shall be accompanied by a copy or
description of the bona fide offer and shall set forth the name and business
address of the offeror. If the offeror is a corporation, the notice shall set
forth the name and address of the corporation and the names and addresses of
all persons owning 10% or more of the capital stock of the corporation.
(iii) Subject to Section 7.1(b)(i), the Company
shall then have thirty (30) days from the date of the First Refusal Notice
delivered pursuant to Section 7.1 (b)(ii) in which to elect to purchase all or
a part of the Subject Series C Shares at the same price and on the same terms
as set forth in the bona fide offer.
(iv) If the Company does not elect to purchase
all of the Subject Series C Shares within the 30-day period, the other
Investors (the "Nonoffering Investors") shall then have fifteen (15) days from
the end of the 30-day period in which to elect to purchase all or a part of the
Subject Series C Shares
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<PAGE> 36
which are not purchased by the Company (the "Leftover Series C Shares"). Each
Nonoffering Investor shall have the right to purchase its ratable portion of
the Leftover Series C Shares. If any Nonoffering Investor does not elect to
purchase all of its ratable portion of the Leftover Series C Shares within the
15-day period, then the remaining Nonoffering Investors (pro rata among
themselves, or in such other proportion as they may at such time agree upon)
shall have the right, within the 15-day period, to elect to purchase all or
part of the Leftover Series C Shares not elected to be purchased.
(v) If the Nonoffering Investors and the
Company do not elect to purchase all of the Subject Series C Shares, then the
Series C Holder may then sell, and the bona fide offeror may purchase, all of
the Subject Series C Shares, but only in strict accordance with all of the
provisions of the bona fide offer and only if the purchase is fully consummated
within one hundred twenty (120) days after the giving of the notice required by
Section 7.1(b)(ii) hereof. In no event may a Series C Holder transfer its
Series C Preferred Stock to any competitor of the Company or any entity that
owns, directly or indirectly, in excess of 5% of the equity of a competitor of
the Company.
(vi) Subject to Section 7.1(b)(i), if the
Company or the Nonoffering Investors elect to purchase any Subject Series C
Shares pursuant to this Section, closing on the purchase shall be held at a
mutually agreeable time within sixty (60) days after the election to purchase
is made, at the offices of the Company's attorney or such other place as may be
mutually agreeable.
(vii) Subject Series C Shares transferred either
pursuant to the bona fide offer or the right of refusal created pursuant to
this Section shall remain subject to the terms of this Section 7.1(b).
7.2. RESTRICTIVE LEGEND.
Each certificate representing (i) the shares of Preferred Stock, or
(ii) shares of Common Stock issued upon conversion of the shares of Preferred
Stock and (iii) any securities issued in respect of the shares of Preferred
Stock or such Common Stock, shall (unless otherwise permitted by the provisions
of Section 7.3 below) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS. SUCH SHARES MAY NOT BE OFFERED, PLEDGED, SOLD OR
TRANSFERRED
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IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
AS DETERMINED IN ACCORDANCE WITH THE SECOND AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT DATED AS OF NOVEMBER 4,
1998 RESTRICTING THEIR TRANSFER. COPIES OF THE INVESTOR
RIGHTS AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION AT THE CORPORATION'S
PRINCIPAL PLACE OF BUSINESS. FURTHER, THE DESIGNATIONS,
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH CLASS OF
STOCK OF THE CORPORATION AND THE VARIATIONS IN THE RIGHTS,
PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES OF
STOCK (AND THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE
CORPORATION TO DETERMINE VARIATIONS FOR FUTURE SERIES), ARE
SET FORTH IN THE CORPORATION'S CERTIFICATE OF INCORPORATION,
AS AMENDED, A COPY OF WHICH WILL BE FURNISHED BY THE
CORPORATION TO THE HOLDER OF THIS CERTIFICATE, WITHOUT
CHARGE, UPON THE WRITTEN REQUEST OF SUCH HOLDER.
7.3. NOTICE OF PROPOSED TRANSFERS.
The holder of each certificate representing Limited Securities by
acceptance thereof agrees in writing to comply with the provisions of this
Section 7.3. Prior to any proposed transfer of any Limited Securities, unless
there is in effect a registration statement under the Securities Act covering
the proposed transfer, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer (including
the names of the transferees, if known) in sufficient detail, and shall be
accompanied (except in the following cases, with respect to which the
requirements set forth in the balance of this sentence need not be complied
with if the transferee agrees in writing to be bound by the then applicable
provisions of this Section 7: transactions in compliance with Rule 144 so long
as the Company is furnished with satisfactory evidence of compliance with such
Rule; transactions involving the distribution of Limited Securities in
accordance with the beneficial ownership thereof by any Investor to any
Authorized Transferee, so long as such transaction does not involve the
disposition of such Limited Securities for value; and transactions involving
the transfer of Limited
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Securities by any holder who is an individual to any Authorized Transferee) by
either (i) an unqualified written opinion of legal counsel who shall be
reasonably satisfactory to the Company addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Limited Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such Limited
Securities shall be entitled to transfer such Limited Securities in accordance
with the terms of the notice delivered by the holder to the Company. Each
certificate evidencing the Limited Securities transferred as above provided
shall bear the appropriate restrictive legend set forth in Section 7.2 above,
except that such certificate shall not bear such restrictive legend if in the
reasonable opinion of counsel for the Company such legend is not required in
order to establish compliance with any provisions of the Securities Act.
8. RIGHT OF FIRST REFUSAL FROM THE COMPANY.
8.1. PRO RATA RIGHT.
The Company hereby grants to each Investor, for so long as the
Investors as a class are holders of shares of Preferred Stock convertible into
at least five percent (5%) of the outstanding Common Stock on a fully diluted
basis, or own, as a class, at least five percent (5%) of the outstanding Common
Stock on a fully diluted basis, the right of first refusal to purchase, pro
rata, all New Securities (as defined in Section 8.2 below) which the Company
may, from time to time, propose to sell and/or issue. An Investor's pro rata
share is a ratio (A) the numerator of which is the number of shares of Common
Stock issued or issuable upon conversion of the shares of Preferred Stock held
by such Investor, and (B) the denominator of which is the total number of
shares of Common Stock outstanding immediately prior to the issuance of the New
Securities assuming the conversion or exercise of all then outstanding
convertible securities (including the shares of Preferred Stock), options,
warrants or similar rights to acquire Common Stock and assuming the issuance of
all then unissued permitted employee shares (consistent with Article Fourth of
the Restated Certificate of Incorporation of the Company, as in effect on the
date hereof) (the "Pro Rata Share"). For purposes of this Section 8.1, the
number of shares of Preferred Stock held by such Investor shall be determined
as of the date of the Company's written notice pursuant to Section 8.3 below.
Each Investor shall have a right of over-allotment such that if any other
Investor or any holder of Common Stock having rights of first refusal with
respect to New Securities (together with the Investors, the "Holders") fails to
exercise its rights hereunder to purchase its Pro Rata Share of New Securities,
the other Holders may purchase each non-purchasing Holder's portion on a pro
rata basis within fifteen (15) days
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from the date such non-purchasing Holder fails to exercise its right. This
right of first refusal shall be subject to all of the provisions of this
Section 8.
8.2. DEFINITION OF "NEW SECURITIES".
"New Securities" shall mean any capital stock (including without
limitation the Common Stock and the Preferred Stock) of the Company whether now
authorized or not, and rights, options or warrants to purchase capital stock,
and securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i) the
Common Stock or other securities issuable upon conversion of or with respect to
any shares of Preferred Stock; (ii) the Common Stock or other securities
issued, or issuable, pursuant to the Company Employee Stock Plan, if any
(consistent with Article Fourth of the Restated Certificate of Incorporation),
and the employee specific options listed in Section 5.4 of the Schedule of
Exceptions; (iii) securities covered by a registration statement filed under
the Securities Act and offered to the public pursuant to a firm underwriting;
(iv) securities issued pursuant to the acquisition of another corporation by
the Company by merger or purchase of all or substantially all the assets of
such corporation; (v) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or-not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features, including
warrants, options or other rights to purchase capital stock, and are not
convertible into capital stock of the Company; or (vi) securities issued
pursuant to any stock dividend, stock split, combination or other
reclassification by the Company of any of its capital stock.
8.3. REQUIRED NOTICE.
In the event that the Company proposes to undertake an issuance of New
Securities, it shall give each Investor written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Investor shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase such
Investor's Pro Rata Share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
8.4. COMPANY'S RIGHT TO SELL.
In the event an Investor fails within the thirty (30) day period set
forth above to agree to purchase the full pro-rata share to which such Investor
is pursuant to this Section 8 entitled to purchase and after the expiration of
the fifteen (15) day period for the exercise of the over-allotment provisions
of this Section 8, the
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Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall
be closed, if at all, within ninety (90) days from the date of said agreement)
to sell all such New Securities respecting which such Investor's option to
purchase was not exercised, at a price and upon general terms no more favorable
to the purchasers thereof than specified in the Company's notice delivered to
each Investor pursuant to Section 8.3. In the event the Company has not sold
within said ninety (90) day period, or entered into an agreement to sell, all
such New Securities within said ninety (90) day period (or sold and issued all
such New Securities in accordance with the foregoing within ninety (90) days
from the date of said agreement), the Company shall not thereafter issue or
sell any New Securities without first offering such New Securities to each
Investor in the manner provided above.
8.5. EXPIRATION OF RIGHT.
The right of first refusal granted under this Agreement shall expire
upon the closing of an underwritten public offering of the Company's Common
Stock pursuant to an effective registration statement under the Securities Act,
or under other applicable securities regulations covering the offer and sale of
capital stock of the Company, in which (i) the gross proceeds received by the
Company exceed $20,000,000, and (ii) the Company uses a nationally recognized
underwriter approved by holders of a majority of the shares of the Preferred
Stock voting separately as a class (a "Qualified Public Offering").
9. INVESTORS' RIGHT OF FIRST REFUSAL.
Except for an Underwritten Offering or an Authorized Transfer of any
Securities of the Company, for so long as the Investors as a class are holders
of shares of Preferred Stock convertible into at least five percent (5%) of the
outstanding Common Stock on a fully diluted basis, or own, as a class, at least
five percent (5%) of the outstanding Common Stock on a fully diluted basis, if
any Common Stock Holder intends to transfer any interest in any Securities
representing at least ten percent (10%), singly or combined with all transfers
by such Common Stock Holder made since the date of this Agreement, of the
Common Stock on a fully diluted basis, such Common Stock Holder shall deliver a
written notice (the "First Refusal Notice") to each Investor at least thirty
(30) days prior to the proposed sale, which such notice shall specify the terms
and conditions upon which the proposed sale is intended to be consummated. Each
Investor shall have the option to purchase such Investor's Pro Rata Share of
the Securities proposed to be sold on the same terms and conditions as
specified in the First Refusal Notice in the manner hereinafter set forth. The
Investor shall give written notice (the "Purchase Notice") of such election to
the Common Stock Holder proposing to sell Securities and to the other Investors
within twenty (20) days after delivery of the First Refusal Notice. The
Purchase Notice shall indicate the number of Securities
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proposed to be sold which such Investor is willing to purchase. If any Investor
exercises the option provided for in this Section 9, such Investor shall within
thirty (30) days after exercising such option deliver to the selling Common
Stock Holder a check in the amount of the purchase price for the Securities to
be sold, and the selling Common Stock Holder shall simultaneously deliver the
certificate or other instrument evidencing the Securities being sold. Each
Investor shall have a right of over-allotment such that if any Investor fails
to exercise its rights hereunder to purchase its Pro Rata Share of Securities,
the other Investors may purchase each non-purchasing Investor's portion within
fifteen (15) days from the date such non-purchasing Investor fails to exercise
its right. If the selling Common Stock Holder has not received a Purchase
Notice within twenty (20) days after delivery of the First Refusal Notice, the
option to purchase Securities provided for in this Section 9 shall expire
unexercised, and the selling Common Stock Holder shall thereafter have 60 days
to close the proposed sale specified in the First Refusal Notice; provided that
the option provided for in this Section 9 shall again be applicable following
such sixty day period. Each party to a purchase and sale pursuant to the
exercise of an option pursuant to this Section 9 shall bear such party's own
expenses. The rights of first refusal granted under this Section 9 shall expire
upon a Qualified Public Offering.
10. RIGHT OF CO-SALE.
Except for an Underwritten Offering or Authorized Transfers of any
securities of the Company (the "Securities"), for so long as the Investors as a
class are holders of shares of Preferred Stock convertible into at least five
percent (5%) of the outstanding Common Stock on a fully diluted basis, or own,
as a class, at least five percent (5%) of the outstanding Common Stock on a
fully diluted basis, if any holder of Common Stock identified in Exhibit B
(each a "Common Stock Holder") intends to transfer any interest in any
Securities representing at least ten percent (10%), singly or combined with all
transfers by such Common Stock Holder made since the date of this Agreement, of
the Common Stock on a fully diluted basis, the Common Stock Holder shall
deliver (and the Company shall require any Common Stock Holder not a party to
this Agreement to deliver) a written notice (the "Co-Sale Notice") to each
Investor, at least thirty (30) days prior to the proposed sale, which such
notice shall specify the terms and conditions upon which the proposed sale is
intended to be consummated. Each Investor shall have the option to participate
in such sale in the manner hereinafter set forth. To exercise the option, an
Investor shall give written notice (the "Participation Notice") of such
election to the selling Common Stock Holder within twenty (20) days after
receipt of the Co-Sale Notice. Thereupon, such Investor shall have the right to
sell Securities to the proposed purchaser upon the same terms and conditions
specified in the Co-Sale Notice (which terms and conditions must include the
types and class of Securities then held by the Common Stock Holder), pro rata
with the selling Common Stock Holder based upon his then current respective
holdings of Common Stock, and securities convertible into Common Stock, on a
fully diluted basis. The number of Securities
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<PAGE> 42
to be sold by the Common Stock Holder delivering the Co-Sale Notice shall be
reduced by the number of Securities such Investor elects to so sell. If such
Investor exercises such option, it shall bear its pro rata portion of expenses
incident to such sale. Failure by any Investor to exercise the option within
the twenty (20) day period shall be deemed a declination of any right to
participate in such sale, provided that such sale is completed within ninety
(90) days of expiration of such twenty (20) day period at a price and on terms
and conditions substantially similar to those set forth in the Co-Sale Notice.
Failure to meet the foregoing conditions shall require a new Co-Sale Notice and
right of co-sale with respect to such sale. The co-sale rights granted under
this Section 10 shall expire upon a Qualified Public Offering.
11. COMMON STOCK HOLDERS' RIGHTS.
11.1. GENERAL RESTRICTIONS.
(a) The provisions of this Section 11 shall be subject
to the Investors' cosale rights and rights of first refusal, in accordance with
the terms of Sections 9 and 10 hereof, respectively, if applicable. To the
extent that the provisions of Sections 9 and 10 are applicable, but the
Investors elect not to exercise in whole their rights under such Sections, then
and only then the terms of this Section 11 shall govern any transfer of Common
Stock by the Common Stock Holders.
(b) Subject to Section 11.1(a), no Common Stock Holder
shall, directly or indirectly, sell, assign, transfer, convey, give, pledge,
bequeath or in any manner encumber or dispose of any of his Shares, to anyone,
including, without limitation, any other Common Stock Holder, except:
(1) Upon the prior written consent of the
majority of the other Common Stock Holders;
(2) To any Authorized Transferee; and
(3) In any other case, in accordance with the
provisions of Section 11.2 or 11.3.
(c) Notwithstanding, nor in limitation of any other
provision of this Agreement, any disposition of the Company's Common Stock in
violation of this Section 11 shall be void and shall not be recognized by the
Company for any purpose including, but not limited to, distributions, with
respect to the Company's shares and reporting to federal and state income tax
authorities, which shall continue in the name and under the tax identification
number of the shareholder who purports to have effected such void disposition.
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<PAGE> 43
(d) The provisions of this Section 11 shall expire upon
a Qualified Public Offering.
11.2. RIGHT OF FIRST REFUSAL.
(a) As used in this Section 11, the term "purchase"
means any disposition for value, including without limitation any sale,
assignment, transfer, mortgage, pledge or hypothecation for value. To be deemed
to be a bona fide offer within the meaning of this Section, an offer must be in
writing, signed by the offeror (who must be financially capable of carrying out
the terms of the offer), and in a form legally enforceable against the offeror.
(b) Subject to Section 11.1(a) hereof, if, at any time
or from time to time after the date of this Agreement, a Common Stock Holder
receives a bona fide offer to purchase all or any part of his Common Stock,
which offer the Common Stock Holder intends to accept, the Common Stock Holder
shall promptly give notice to the Company and each of the other Common Stock
Holders. The notice shall offer the Company the right to purchase the Common
Stock which are the subject of the bona fide offer (the "Subject Shares"), at
the same price and on the same terms as set forth in the bona fide offer. The
notice shall be accompanied by a copy of the bona fide offer and shall set
forth the name and business address of the offeror. If the offeror is a
corporation, the notice shall set forth the name and address of the corporation
and, unless the proposed disposition will be to secure a bona fide loan to be
extended by the offeror in the normal course of its lending business, the names
and addresses of all persons owning 10% or more of the capital stock of the
corporation. The giving of this notice shall constitute a warranty and
representation by the offering Common Stock Holder to the Company and the other
Common Stock Holders that the offering Common Stock Holder believes the offer
to be bona fide in all respects.
(c) Subject to Section 11.1(a), the Company shall then
have sixty (60) days from the date of the First Refusal Notice in which to
elect to purchase all or a part of the Subject Shares at the same price and on
the same terms as set forth in the bona fide offer.
(d) If the Company does not elect to purchase all of the
Subject Shares within the 60-day period and the Investors have decided not to
exercise their rights, if any, pursuant to Section 9, the other Common Stock
Holders shall then have fifteen (15) days from the end of the 60-day period in
which to elect to purchase all or a part of the Subject Shares which are not
purchased by the Company or any of the Investors (the "Leftover Shares"). Each
Common Stock Holder shall have the right to purchase his ratable portion of the
Leftover Shares. If any other Common Stock Holder does not elect to purchase
all of his ratable portion of the Leftover Shares within the 15-day period,
then the remaining Common Stock Holders (pro rata among themselves, or in such
other proportion as
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<PAGE> 44
they may at such time agree upon) shall have the right, within the 15-day
period, to elect to purchase all or part of the Leftover Shares not elected to
be purchased.
(e) If the Investors, the Company and the other Common
Stock Holders do not elect, within the specified time periods, to purchase all
of the Subject Shares, then unless a majority of the remaining Common Stock
Holders object in writing to such sale, the Offering Common Stock Holder may
then sell, and the bona fide offeror may purchase, all or part of the Subject
Shares which are not purchased, but only in strict accordance with all of the
provisions of the bona fide offer and only if the purchase is fully consummated
within one hundred twenty (120) days after the giving of the notice required by
Section 11.2(b) hereof. The remaining Common Stock Holders' objections shall
not be unreasonable.
(f) Subject to Section 11.1(a), if the Company or the
other Common Stock Holders elect to purchase any Subject Shares pursuant to
this Section, closing on the purchase shall be held at a mutually agreeable
time within sixty (60) days after the election to purchase is made, at the
offices of the Company's attorney or such other place as may be mutually
agreeable.
(g) Subject Shares transferred either pursuant to the
bona fide offer or the right of refusal created pursuant to this Section shall
remain subject to the terms of this Section 11.
11.3. BUY-OUT PROVISIONS.
(a) Subject to Section 11.1(a) hereof, a Common Stock
Holder (the "Offering Common Stock Holder") shall be deemed to grant an option
(the "Call Option") to purchase all, but not less than all, of the offering
Common Stock Holder's Shares, upon the occurrence of any of the following
events ("Option Events"):
(1) The death of the Offering Common Stock
Holder.
(2) The permanent disability of the Offering
Common Stock Holder. "Disability" means the incapacity, due to mental or
physical illness or accident, which prevents the person in question from
gainfully engaging in and performing his duties for the Company at a level of
performance substantially equal to the level of which he is capable on the date
of this Agreement. "Permanent disability" means a disability which lasts for
more than nine (9) continuous months.
(3) The termination of the Offering Common
Stock Holders' employment with the Company voluntarily or for any reason
permitted under the terms of the Common Stock Holders' employment agreement
with the Company.
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<PAGE> 45
(b) A Call Option shall be deemed to be created
immediately upon the occurrence of an Option Event, and shall expire on the
90th day after the Company has written notice of the Option Event. For purposes
of Section 9 (Investor's First Right of Refusal), a Call Option shall
constitute an intention by the Offering Common Stockholder to transfer his
stock on the terms contained in this Section 11.3. Subject to Section 11.1(a),
a Call Option shall run initially in favor of the Company. If the Company
declines to exercise the Call Option, or fails to exercise the Call Option
within sixty (60) days from receipt of written notice of the Option Event, the
Call Option shall run in favor of the other Common Stock Holders (in proportion
to their respective ownership of Common Stock or as they otherwise agree) for
the remainder of its period of effectiveness. If the Company has declined or
failed to exercise its Call Option and any Common Stock Holder has failed to
exercise his or her Call Option within fifteen days of the date it first
becomes exercisable then the remaining Common Stock Holders (pro rata among
themselves, or in such other proportion as they may at such time agree upon)
shall have the right, within the remaining period of the Call Option to elect
to purchase all or part of the shares subject to the Call Option as to which
the Call Option has not then been exercised.
(c) A Call Option may be exercised solely by written
notice to the Offering Common Stock Holder or his or her personal
representative delivered by the Investors, the Company or the other Common
Stock Holders, as the case may be. A Call Option may be exercised only as to
all of the Offering Common Stock Holder's Common Stock. (Thus, for example, if
the Investors and the Company decline and one of the other Common Stock Holders
refuses to exercise the Call Option and refuses to permit the other Common
Stock Holder to purchase his portion, the Call Option cannot be exercised.)
(d) If a Call Option is exercised, closing on the
purchase of the Offering Common Stock Holder's Common Stock shall be conducted
not later than sixty (60) days after the exercise at the offices of the
Company's attorney. The purchase price of the Common Stock subject to the Call
Option shall be their "Fair Market Value," as defined below, and shall be
payable at such closing in cash or bank check.
(e) The "Fair Market Value" of Common Stock subject to a
Call Option shall be determined by appraisal if not otherwise agreed to by the
parties. The Company shall appoint an appraiser, who shall make his appraisal
within twenty-one (21) days after his appointment. If the Offering Common Stock
Holder disputes the result of the appraisal, he may appoint an appraiser within
ten (10) days after the first appraiser delivers his report, and the second
appraiser shall deliver his report within twenty-one (21) days after his
appointment. The Company may dispute the second appraisers report within ten
days after it has been delivered to the Company in which case the first two
appraisers, within after the Company registers its dispute, shall appoint a
third. If the Company fails to dispute the
- 45 -
<PAGE> 46
second appraisal, it shall be deemed to have accepted it. The third appraiser
shall deliver his report within ten days (10) after his appointment, and his
report shall govern, except that the price shall not be lower than the lower of
the first two (2) appraisals or higher than the higher of the first two (2)
appraisals. The results of the appraisal shall be final, conclusive and binding
on the parties. All appraisers shall be disinterested persons of recognized
competence in appraising values of similar communications businesses. All
appraisals shall be in writing. Each appraiser shall appraise on the basis of
all relevant factors in accordance with generally accepted appraisal techniques
for businesses similar to the business of the Company. The expense of the first
appraisal shall be shared equally by the Company and the Offering Common Stock
Holder if it is not disputed. In the event the first appraisal is disputed the
Company shall bear the cost of the second appraisal and the Offering Common
Stock Holder the cost of the first appraisal. The cost of the third appraisal,
if any, shall be borne by the party whose appraisal is furthermost in value
from the value established by the third appraisal.
(f) Settlement of any purchase under this Section 11.3
shall be held within sixty (60) days of the final determination of Fair Market
Value of the Common Stock subject to the Call Option. Payment for the Common
Stock purchased pursuant to the Call Option shall be paid as follows: cash at
settlement to the extent of twenty-five (25%) percent of the purchase price,
with the balance of the purchase price to be paid by a promissory note(s) of
the party or parties exercising the Option. The principal amount of the note(s)
shall: (i) be equal to the balance of the purchase price and the note(s) shall
be dated as of the date of settlement; (ii) bear interest, payable quarterly,
from the date thereof on the unpaid balance at the prime rate as established by
Citibank, N.A. or its successor on the date of such note to be adjusted
annually on each subsequent anniversary, plus two percent (2%), (but in no
event shall the total interest rate exceed ten percent (10%) per annum); (iii)
be payable in five (5) equal consecutive annual installments with the first
payment due one (1) year after the date of settlement; and (iv) give the maker
the right to prepay the principal thereof in whole or in part at the time
without penalty.
(g) The Company may acquire life insurance or disability
insurance policies to fund all or a portion of the purchase price of the Call
Option arising on a Common Stock Holder's death or permanent disability.
11.4. EFFECT ON TRANSFEREES.
Any person, other than the Investors, who becomes an owner of
any Common Stock pursuant to a disposition permitted by Section 11.2 or 11.3
shall be bound by the provisions of this Agreement with respect to such Shares,
whether or not such person becomes a party to this Agreement.
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<PAGE> 47
11.5. ENDORSEMENTS ON SHARE CERTIFICATES.
Each certificate evidencing any Common Stock of the Common
Stock Holders shall bear conspicuously a legend in substantially the following
form:
The transfer of the shares represented by this certificate is
restricted under the terms of a Second Amended and Restated
Investor Rights Agreement dated as of November 4, 1998, to
which the Company is a party. The Company will mail to the
shareholder of the shares represented by this certificate a
copy of the Investor Rights Agreement without charge within
five days after receipt of written request therefor.
11.6. ARBITRATION.
Except to the extent that the disputants agree in writing to
any other method of resolution of a given dispute and except to the extent the
resolution of any question is final, binding and conclusive upon the Common
Stock Holders under the terms of this Section 11, any dispute arising among the
Common Stock Holders, or any of them, or their successors-in-interest, or the
estate of a deceased Common Stock Holder, concerning the meaning or
interpretation of this Section 11, or the rights, duties or obligations of the
Common Stock Holders, including the successor-in-interest and the estate of a
deceased Common Stock Holder, shall, within reasonable promptness, be submitted
to, and determined by arbitration by the American Arbitration Association in
accordance with its rules then in force and effect, and judgment upon any award
rendered may be entered in any court having jurisdiction thereof, any such
party may, if he so elects, institute proceedings in any court having
jurisdiction for the specific performance by any party of any such award.
12. INDEMNIFICATION; REMEDIES.
12.1. AGREEMENT OF THE COMPANY TO INDEMNIFY.
Subject to the conditions and provisions of this Section 12, the
Company hereby agrees to indemnify, defend and hold harmless the Investor
Indemnified Persons from and against and in any respect of all Claims asserted
against, imposed upon or incurred by the Investor Indemnified Persons (whether
such Claims are by, against or relate to the Company, its Subsidiaries or any
other party, including a governmental entity), directly or indirectly, by reason
of or resulting from any misrepresentation or noncompliance with any conditions
or other agreements, given or made by the Company in this Agreement or in the
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<PAGE> 48
Schedule of Exceptions or in the Exhibits attached hereto or in any document
furnished by or on behalf of the Company pursuant to this Agreement.
12.2. CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of the Company hereunder with respect
to its indemnities pursuant to this Section 12.2, resulting from any Claim
shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written
notice to the Company of any Claim which is asserted against, imposed upon or
incurred by such indemnified party and which may give rise to liability of the
Company pursuant to this Section 12, stating (to the extent known or reasonably
anticipated) the nature and basis of such Claim and the amount thereof.
(b) The indemnified party may engage counsel or
representatives of its own choosing with respect to any such Claim, such
representation (including the compromise or settlement of any Claim) to be
undertaken on behalf of and for the account and risk of the indemnifying party.
In the event the indemnified party elects not to undertake such defense by its
own representatives, the indemnified party shall give prompt written notice of
such election to the indemnifying party, and the indemnifying party will
undertake the defense thereof by counsel or other representatives designated by
it whom the indemnified party determines in writing to be satisfactory for such
purposes. The consent of the indemnified party to the indemnifying party's
choice of counsel or other representative shall not be unreasonably withheld.
12.3. SPECIFIC PERFORMANCE.
In addition to any other remedies which any Investor may have at law
or in equity, the Company hereby acknowledges that the shares of Preferred
Stock and the Company and the Subsidiaries are unique, and that the harm to
each Investor resulting from breaches by the Company of its obligations cannot
be adequately compensated by damages. Accordingly, the Company agrees that each
Investor shall have the right to have all obligations, undertakings,
agreements, covenants and other provisions of this Agreement specifically
performed by the Company, and that each Investor shall have the right to obtain
an order or decree of such specific performance in any of the courts of the
United States of America or of any state or other political subdivision
thereof.
12.4. REMEDIES CUMULATIVE.
The remedies provided herein shall be cumulative and shall not
preclude the assertion by any Investor of any other rights or the seeking of
any other remedies against the Company, or its successors or assigns; provided,
however, that in no
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<PAGE> 49
event shall an Investor be permitted to recover any money damages in an amount
in excess of the greater of (i) such Investor's aggregate purchase price for
Series C Preferred Stock as set forth in the Stock Purchase Agreement, such
Investor's aggregate purchase price for Series B Preferred Stock set forth in
the Stock Purchase Agreement dated as of May 19, 1998, between the Company and
the Series B Investors and, if applicable, such Investor's aggregate purchase
price for Series A Preferred Stock as set forth in the Stock Purchase Agreement
among certain Investors and the Company dated as of October 31, 1997, plus
reasonable attorney fees and costs, if any and (ii) the fair market value of
the Preferred Stock purchased by such Investor plus reasonable attorney fees
and costs, if any.
13. LIMITATION OF LIABILITY.
IN NO EVENT, WHETHER IN CONTRACT OR IN TORT (INCLUDING BREACH OF
WARRANTY, NEGLIGENCE AND STRICT LIABILITY IN TORT), SHALL ANY INVESTOR BE
LIABLE FOR INDIRECT OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES
EVEN IF SUCH INVESTOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN
ADVANCE. IN NO EVENT SHALL ANY INVESTOR BE LIABLE FOR ANY ACTUAL DAMAGES,
WHATSOEVER, IN EXCESS OF SUCH INVESTOR'S AGGREGATE PURCHASE PRICE FOR SERIES C
PREFERRED STOCK AS SET FORTH IN THE STOCK PURCHASE AGREEMENT, IF APPLICABLE,
SUCH INVESTOR'S AGGREGATE PURCHASE PRICE FOR SERIES B PREFERRED STOCK AS SET
FORTH IN THE STOCK PURCHASE AGREEMENT DATED AS OF MAY 19, 1998, BETWEEN THE
COMPANY AND THE SERIES B INVESTORS AND, IF APPLICABLE, SUCH INVESTOR'S
AGGREGATE PURCHASE PRICE FOR SERIES A PREFERRED STOCK AS SET FORTH IN THE STOCK
PURCHASE AGREEMENT AMONG CERTAIN INVESTORS AND THE COMPANY DATED AS OF OCTOBER
31, 1997.
14. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior arrangements or
understandings with respect hereto. The terms and provisions of this Agreement
may not be modified or amended, except pursuant to a writing signed by the
parties; provided, however, this Agreement may be amended on behalf of the
Investors with the approval of holders of two-thirds (2/3) of the Series A
Preferred Stock, the Series B Preferred Stock and Series C Preferred Stock,
each voting separately as a class, and the approval of holders of two-thirds
(2/3) of all Classes of Preferred Stock voting together as a class.
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<PAGE> 50
15. NOMINEES FOR BENEFICIAL OWNERS.
In the event that any Registrable Securities are held by a nominee for
the beneficial owner thereof, the beneficial owner thereof may, at its
election, be treated as the holder of such Registrable Securities for purposes
of any request or other action by any holder or holders of Registrable
Securities pursuant to this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities. A notice shall have been deemed delivered on the date such notice
is received or delivery is refused.
16. NOTICES.
All communications provided for hereunder shall be sent by nationally
recognized overnight courier, or by first-class registered or certified mail,
postage prepaid and (a) if addressed to any holder of Registrable Securities,
at the address that such holder shall have furnished to the Company in writing,
or (b) if addressed to the Company, at Net2000 Communications Group, Inc., 8614
Westwood Drive, Suite 700, Vienna, Virginia 22182, Attn: Clayton A. Thomas,
Jr., with a copy to Piper & Marbury L.L.P., 1200 Nineteenth Street, N.W.,
Washington, D.C. 20036, Attn: Nancy A. Spangler, Esq. or at such other address,
or to the attention of such other officer, as the Company shall have furnished
to each holder of Registrable Securities at the time outstanding.
17. ASSIGNMENT.
17.1. ASSIGNMENT OF REGISTRATION RIGHTS
Except as set forth in Section 17.2, the rights of each
Investor under this Agreement shall be assignable; provided, however, that the
Company is given written notice at the time of such assignment stating the name
and address of the assignee and identifying the securities with respect to
which the rights and benefits hereunder are being assigned and such assignee
expressly agrees in writing with the Company and the other holders of
Registrable Securities to be bound by and to comply with all applicable
provisions of this Agreement, whereupon such person or entity shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement with respect to such securities. Any assignment pursuant to this
Section 17.1 shall not relieve, release or otherwise discharge the holder
effecting such assignment from its obligations under this Agreement.
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<PAGE> 51
17.2. ASSIGNMENT OF PREEMPTIVE RIGHTS, RIGHTS OF FIRST REFUSAL AND
CO-SALE.
Notwithstanding Section 17.1, the preemptive rights, rights
of first refusal and right of co-sale of the Investors set forth in Sections 8,
9 and 10 are nonassignable, except that (i) such rights are assignable by each
Investor to any wholly-owned subsidiary or parent of, or to any corporation,
entity or other person which is, within the meaning of the Securities Act,
controlling, controlled by or under common control with, any such Investor,
(ii) such rights are assignable between and among any of the Investors, and
(iii) such rights are assignable by any Investor to its partners, stockholders
or members, or the managing directors thereof, in connection with distributions
of shares of Preferred Stock and/or Common Stock to such partners, stockholders
or members, or the managing directors thereof; provided, however, that the
Company is given written notice at the time of such assignment stating the name
and address of the assignee and identifying the securities with respect to
which the rights and benefits hereunder are being assigned and such assignee
expressly agrees in writing with the Company and the other holders of
Registrable Securities to be bound by and to comply with all applicable
provisions of Sections 8, 9, and 10 of this Agreement, whereupon such person or
entity shall have the benefits of, and shall be subject to the restrictions
contained in Sections 8, 9, and 10 of this Agreement with respect to such
securities. Any assignment pursuant to this Section 17.2 shall not relieve,
release or otherwise discharge the holder effecting such assignment from its
obligations under this Agreement.
17.3. ASSIGNMENT OF RIGHTS BY COMPANY.
The Company may not assign this Agreement in whole or in part
to any other person without the prior written consent of the holders of
two-thirds of each series of Preferred Stock and the majority of the Common
Stock Holders.
18. CONVERSION OF STOCK AT SG'S OPTION.
Each share of Preferred Stock or Common Stock held by SG shall be
convertible, at the option of SG (exercised by written notice from SG to the
Company), at any time and from time to time, into or from a share of non-voting
preferred stock or non-voting common stock, respectively, which share shall
have the same rights, preferences and privileges as the Preferred Stock or
Common Stock, as the case may be, except that such share shall have no voting
rights. The Company agrees, at the request of SG and to take such action as is
necessary, to create a class of preferred stock or common stock as required to
satisfy the Company's obligations under the preceding sentence, and each
Investor hereby agrees to consent to such a conversion.
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<PAGE> 52
19. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective permitted successors
and assigns, heirs and legal representatives. In addition, and whether or not
any express assignment shall have been made, the provisions of this Agreement
which are for the benefit of the parties hereto other than the Company shall
also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities.
20. DESCRIPTIVE HEADING.
The descriptive headings of the several sections and paragraphs of
this Agreement are inserted for reference only and shall not limit or otherwise
affect the meaning hereof.
21. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the Commonwealth of
Virginia (but not including the choice of law rules thereof).
22. TERMINATION.
This Agreement shall terminate and be of no further force or effect
when there shall not be any Restricted Securities, provided that the rights of
the holders of Registrable Securities and obligations of the Company under
Section 5 hereof shall terminate and be of no further force and effect at such
earlier time as to any holder of Registrable Securities as the provisions of
Rule 144(k) are applicable to the Restricted Securities then held by such
holder.
23. SEVERABILITY.
If any part of any provision of this Agreement or any other agreement
or document given pursuant to or in connection with this Agreement shall be
invalid or unenforceable in any respect, such part shall be ineffective to the
extent of such invalidity or unenforceability only, without in any way
affecting the remaining parts of such provision or the remaining provisions of
this Agreement.
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<PAGE> 53
24. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 54
EXHIBIT 10.1
IN WITNESS WHEREOF, each of the undersigned have executed and
delivered this Agreement, or caused this Agreement to be duly executed and
delivered on their behalf, as of the date first above written.
NET2000 COMMUNICATIONS, INC.
By: /s/ Clayton A. Thomas, Jr.
----------------------------------------
Name: Clayton A. Thomas, Jr.
--------------------------------------
Title: President
-------------------------------------
BLUE WATER STRATEGIC FUND I, L.L.C.
By: Blue Water Capital, L.L.C.,
Managing Member
By: /s/ Reid R. Miles
----------------------------------------
Reid R. Miles
Managing Director
CARLYLE U.S. VENTURE PARTNERS, L.P.
By: TCG VENTURES, L.L.C., its General
Partner
By: /s/ J. Mitchell Reese
----------------------------------------
Name: J. Mitchell Reese
--------------------------------------
Title:
-------------------------------------
CARLYLE VENTURE COINVESTMENT, L.L.C.
By: TCG VENTURES, L.L.C., its Managing
Member
By: /s/ J. Mitchell Reese
----------------------------------------
Name: J. Mitchell Reese
--------------------------------------
Title:
-------------------------------------
<PAGE> 55
CARLYLE VENTURE PARTNERS, L.P.
By: TCG VENTURES, LTD., its General
Partner
By: /s/ J. Mitchell Reese
----------------------------------------
Name: J. Mitchell Reese
--------------------------------------
Title:
-------------------------------------
C/S VENTURE INVESTORS, L.P.
By: TCG VENTURES, LTD., its General Partner
By: /s/ J. Mitchell Reese
----------------------------------------
Name: J. Mitchell Reese
--------------------------------------
Title:
-------------------------------------
MID ATLANTIC VENTURE FUND III, L.P.
By: MAVF III Partners, L.P., General
Partners
By: MAVF III GP Inc.
By: /s/ Marc F. Benson
-------------------------------
Name: Marc F. Benson
-----------------------------
Title: Vice President
----------------------------
PNC CAPITAL CORP
By: /s/ David Hillman
----------------------------------------
Name: David Hillman
--------------------------------------
Title: Executive Vice President
-------------------------------------
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<PAGE> 56
SOCIETE GENERALE CAPITAL
CORPORATION
By: /s/ Justin Tipping-Hall
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Name: Justin Tipping-Hall
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Title:
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NORTHERN TELECOM INC.
By: /s/ illegible
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Name:
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Title:
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The undersigned Common Stock Holders hereby agree to be bound by all
restrictions, terms and conditions applicable to them pursuant to Sections
5.4(c), 9, 10 and 11 of this Agreement:
/s/ Corlyn A. Marsan
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Corlyn A. Marsan Date
/s/ Peter B. Callowhill
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Peter B. Callowhill Date
/s/ Bruce W. Bednarski
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Bruce W. Bednarski Date
/s/ Clayton A. Thomas, Jr.
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Clayton Allen Thomas, Jr. Date
/s/ Mark Mendes
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Mark Mendes Date
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 31st day
of July, 1998 and effective as of the 27th day of October, 1997 (the "Effective
Date") is entered into by NET2000 GROUP, INC., a Delaware corporation with its
principal place of business at 8614 Westwood Center Drive, Suite 700, Vienna,
Virginia 22182 (the "Company"), and Clayton A. Thomas, Jr. (the "Executive").
The Company desires to employ the Executive, and the Executive
desires to be employed by the Company. In consideration of the mutual covenants
and promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts employment with the Company, subject to the terms
and conditions herein set forth.
2. Term of Employment. The term of the Executive's employment
hereunder shall commence on October 27, 1997 or such earlier date as may be
agreed to between the Executive and the Company (the "Commencement Date") and,
unless sooner terminated in accordance with the provisions of Section 5 hereof,
ending two and one-half years after the Commencement Date. Thereafter, the term
of this Agreement shall be automatically renewed for successive one year terms,
unless sooner terminated in accordance with the provisions of Section 5 hereof,
or unless either party gives to the other party written notice of intent not to
renew the Agreement at least sixty days prior to the end of the then current
term. For the purposes of this Agreement, the initial two and one-half year
term, as well as any extended terms, shall be the "Employment Period."
3. Title; Capacity. The Executive shall serve as Chief Executive
Officer and President of the Company. The Executive shall be based at the
Company's office in Vienna, Virginia or such other place as is reasonably
requested by the Company and is mutually agreed upon by both parties. The
Executive shall be subject to the supervision of, and shall have such authority
as is delegated to him by, the senior most position of the Company or the Board
of Directors (the "Board").
The Executive hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board of Directors shall from time to time
reasonably assign to him. The Executive agrees to devote his entire business
time, attention and energies to the business and interests of the Company during
the Employment Period; provided that for reasonable periods of time each month
the Executive may engage in non-competitive business or charitable activities so
long as such
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activities do not interfere with the Executive's responsibilities hereunder. The
Executive agrees to abide by the rules, regulations, instructions, personnel
practices and policies of the Company and any changes therein which may be
adopted from time to time by the Company. The Executive acknowledges receipt of
copies of all such rules and policies committed to writing as of the date of
this Agreement.
4. Compensation and Benefits.
4.1 Salary. The Company shall pay the Executive an annual salary
of $150,000 to be paid in accordance with the Company's payroll practices
commencing on the Commencement Date and continuing for the duration of the
Employment Period, prorated for any partial compensation period. On each
anniversary of the Effective Date of this Agreement, the Executive's base salary
shall be increased, at a minimum, by an amount equal to the base salary then in
effect multiplied by the percentage increase in the consumer price index for the
preceding year. Such salary shall be subject to adjustment thereafter by the
Board or by the Compensation Committee of the Board (the "Compensation
Committee"), if such duties have been delegated thereto by the Board.
4.2 Bonus. The Executive shall also be eligible to receive a bonus
in cash and stock options in an amount up to 25% of the Executive's then current
salary per calendar year based on meeting annual deliverables or goals agreed to
with the senior management team of the Company. The Company shall pay 50% of the
Bonus in cash and the remaining 50% of the Bonus shall be paid as follows: the
Executive shall be granted an option to purchase shares of the Company's common
stock with an aggregate exercise price equal to 50% of the Bonus. The Company
shall determine the number of common shares to be granted under the option by
dividing 50% of the Bonus by the fair market value of the Company's common stock
at the time of grant. At the time of grant, the stock options shall have an
exercise price at the then fair market value of the Company's stock, a maturity
of 10 years and shall vest immediately. Other terms of stock options not defined
herein will be in accordance with the Company's then applicable stock option
plan.
For example, if the Company awards a Bonus to the Executive in an
amount equal to $20,000, the Executive would receive $10,000 in cash and
(assuming a fair market value of the Company's common stock of $1 per share at
the time of grant) an option to purchase 10,000 shares of the Company's common
stock at an exercise price of $1 per share.
4.3 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
4.4 Equity Incentive Plan. The Executive shall be entitled to
participate in the Company's 1997 Equity Incentive Plan (the "1997 Plan") and
shall be eligible to receive
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additional stock options from the employee stock option pool (currently 10%) in
consideration of bonus or additional compensation. Such agreements shall be
signed and executed by the Company as of the Commencement Date. The Executive
shall be entitled to further participate in the 1997 Plan or such other stock
option plan from time to time as determined by the Board or the Compensation
Committee.
4.5 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation, expense statements, vouchers, and such other
supporting information as the Company may request, or as may be consistent with
standard company practices.
4.6 Car Allowance. The Company shall provide the Executive with an
automobile expense allowance of $500 per month, without regard to Executive's
ownership of an automobile.
5. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
5.1 Expiration of the Employment Period in accordance with Section
2;
5.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Executive. For the purposes of this Section
5.2, cause for termination shall be deemed to exist upon either (a) the
conviction of the Executive of, or the entry of a pleading of guilty or nolo
contendere by the Executive to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Company's reputation or
standing in the community or any felony, or (b) willful misconduct in connection
with the Executive's duties, or willful failure to perform his responsibilities
in the best interest of the Company (including, without limitation, material
breach by the Executive of this Agreement but not minor violations of rules and
policies), except in cases involving the mental or physical incapacity or
disability of the Executive; provided however, that the Board may terminate the
Executive's employment pursuant to Section 5.2(b) only after the failure by the
Executive to correct or cure, or to commence and continue to pursue the
correction or curing of, such refusals within forty five (45) days after receipt
by the Executive of written notice by the Board of each specific claim of any
such misconduct or failure. The Executive shall have the opportunity to appear
before the Board to discuss such written notice during such forty five (45) day
period. "Willful misconduct" and "willful failure to perform" shall not include
action or inaction on the part of the Executive which were taken or not taken in
good faith by the Executive;
5.3 Upon the death or thirty (30) days after the disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of one hundred eighty (180) days, regardless of whether consecutive, during any
360-day period to perform the services contemplated under this
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Agreement. A determination of disability shall be made by a physician
satisfactory to both the Executive and the Company, provided that if the
Executive and the Company do not agree on a physician, the Executive and the
Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties;
5.4 At the election of the Executive, upon not less than forty
five (45) days prior written notice of termination other than for "good reason"
as defined below; or
5.5 At the election of the Company, otherwise than for cause, upon
not less than sixty (60) days prior written notice or at the election of the
Executive for "good reason" upon not less than thirty (30) days prior written
notice of termination. "Good reason" shall include the occurrence of a material
breach of this Agreement by the Company or a material reduction in the
responsibilities or reporting relationship of the Executive.
6. Effect of Termination.
6.1 Termination for Cause or at the Election of the Executive. In
the event the Executive's employment is terminated for cause pursuant to Section
5.2, or at the election of the Executive pursuant to Section 5.4, the Company
shall pay to the Executive the salary and benefits otherwise payable to him
under Section 4 through the last day of his actual employment by the Company.
6.2 Termination for Death or Disability. If the Executive's
employment is terminated by death or because of disability as determined
pursuant to Section 5.3, the Company shall be obligated to pay the Executive or
the Estate (as the case may be), during each of the six months following the
termination date, a severance payment in an amount equal to one full month of
his Base Salary in effect as of the effective date of termination and in
addition an amount equal to one twelfth (1/12) of the prior year's Bonus. The
Company will be obligated to continue the Executive's medical benefits in effect
as of the effective date of the termination for disability for six months.
6.3 Termination at the Election of the Company or the Executive
for Good Reason. If the Executive's employment is terminated pursuant to Section
5.5 at the election of the Company, otherwise than for cause, or by the
Executive for good reason, subject to this Section 6.3, the Company shall pay to
the Executive the base salary, bonus compensation and medical benefits for the
most recent twelve month period which would otherwise be payable to the
Executive of up to one year following the Executive's termination. The Company
may elect to cease to make payments hereunder at any time, provided that the
non-compete restrictions set forth in Sections 7(a) and 7(b) shall also cease at
such time, except that the Company will be obligated to pay the Executive his
base salary and medical benefits for a period of six months after notification
of its intention to release the Executive from his non-compete restrictions, as
well as bonus compensation equivalent to one-half the bonus for the most recent
twelve month period prior to termination.
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6.4 Termination within 180 days of Agreement Expiration. If the
Executive is terminated within 180 days of the expiration of the Agreement, then
the Executive shall receive during each of the six months following the
termination date a severance payment in an amount equal to one full month of his
Base Salary in effect as of the effective date of termination and in addition an
amount equal to one twelfth (1/12) of the prior year's Bonus. The Company will
be obligated to continue the Executive's medical benefits in effect as of the
effective date of the termination for six months.
6.5 Survival. The provisions of Sections 7 and 8 shall survive the
termination of this Agreement.
7. Non-Compete.
(a) So long as the Company is not in breach of this Agreement,
during the Employment Period and for a period of eighteen (18) months after the
termination (subject to early termination as provided herein) or expiration
thereof, the Executive will not directly or indirectly:
(i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with, the Company or its
affiliates; or
(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts of the Company or its affiliates that were clients, customers or
accounts of the Company while the Executive was employed by the Company, or
prospective clients, customers or accounts to which written correspondence was
made within the last 60 days while the Executive was employed by the Company;
provided, however, that Executive may participate in a passive
management role of another entity and have responsibilities for overseeing
employees of another entity, who of their own accord and with no direct or
indirect stimulus from Executive, participate in activities described in
Sections 7(a)(i) and 7(a)(ii).
(b) The parties agree that the relevant public policy aspects
of covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in this Section 7 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
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(d) The restrictions contained in this Section 7 are necessary
for the protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of this Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
8. Proprietary Information and Developments.
8.1 Proprietary Information.
(a) The Executive agrees that all information, whether or not
in writing, relating to the business, technical or financial affairs of the
Company and that is generally understood in the industry as being trade secret,
confidential and/or proprietary, that is designated as being confidential or
proprietary information of the Company, either verbally or in writing, or that
is designated as representing trade secrets of the Company, either verbally or
in writing (collectively, "Proprietary Information"), is and shall be the
exclusive property of the Company. For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
confidential information (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company, including, without
limitation, any invention, existing or future product, formula, method,
manufacturing techniques and procedures, composition, compound, project,
development, plan, vendor information, supplier information, customer
information, apparatus, equipment, trade secret, process, research, reports,
clinical data, financial data, technical data, test data, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget license, patent
applications, contracts, joint ventures, price, cost and personnel data.
(b) The Executive agrees not to and will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the Company,
from the Effective Date, during or after his employment unless and until such
Proprietary Information (i) has become public knowledge through legal means
without fault by the Executive, or (ii) is already public knowledge prior to the
signing of this Agreement.
(c) The Executive agrees that all files, letters, memoranda,
reports, records, data, schematics, sketches, drawings, laboratory notebooks,
program listings, computer programs, databases, products, test equipment,
prototypes or other written, photographic, magnetic or other tangible material
containing or embodying Proprietary Information, whether created by the
Executive or others, which shall come into his custody or possession
(hereinafter collectively referred to as the Company Records) shall be, shall
continue to be and are the exclusive property of the Company to be used by the
Executive only in the performance of his duties for the Company. All such
Company Records or copies thereof and all other tangible
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property of the Company in the custody or possession of the Executive shall be
delivered to the Company, upon the earlier of (i) a request by the Company or
(ii) termination of this Agreement. After such request, termination or delivery,
the Executive agrees not to and shall not retain any such Company Records or
copies thereof or any such other tangible property.
8.2 Developments.
(a) The Executive agrees to make and will make full and prompt
disclosure to the Company of all inventions, know-how, improvements, product
ideas, new products, discoveries, methods, developments, software, and works of
authorship, whether or not patentable and whether or not copyrightable, and all
other intellectual property rights, including but not limited to patents,
copyrights, copyrightable works, trade secrets and trademarks, and all books,
schematics, magnetic files and written records related thereto which are or were
created, made, conceived, reduced to practice by or became owned by the
Executive or under his direction or jointly with others either (i) during his
employment whether or not during normal working hours or on the premises of the
Company, or (ii) prior to his employment by the Company if used by the Company
during his employment by the Company, in either event, to the extent relevant to
the Company's business, including but not limited to, its techniques,
developments, projects or products, but excluding systems, methods and
techniques used prior to his employment by the Company (all of which, whether
disclosed or not, are collectively referred to in this Agreement as
"Developments").
(b) The Executive agrees to assign and does hereby assign,
convey and transfer to the Company (or any person or entity designated by the
Company) all his rights, title and interest in and to all Developments; provided
that the Executive may use Developments described in (a)(ii) above in a manner
that complies with terms set forth in Section 7 (Non-Compete) and Section 8.1
(Proprietary Information) hereof.
(c) The Executive agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
worldwide procurement, maintenance and enforcement, including assistance or
cooperation in legal proceedings, of copyrights, patents and similar protections
(both in the United States and foreign countries) relating to Developments; and,
if such cooperation by the Executive is required after the Executive has ceased
to be employed by the Company, then the Company will reimburse the Executive for
any expenses reasonably incurred by Executive in connection with such
cooperation. The Executive shall sign all papers, copyright applications,
assignments, declarations, powers of attorney, patent applications, and other
related or necessary documents, which the Company may deem necessary or
desirable in order to enforce and/or protect its rights and interests in any
Developments or any Proprietary Information.
8.3 Other Agreements. Except as set forth in Exhibit B, if any,
Executive hereby represents that he is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from competing,
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directly or indirectly, with the business of such previous employer or any other
party. The Executive intends to exercise his best efforts and use his best
skills in performing his obligations under this Agreement, except to the extent
it may be prohibited by prior employment agreements. The Executive represents
that his performance of all the terms of this Agreement and as an employee of
the Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by him in confidence or in
trust prior to his employment with the Company.
8.4 Company and Affiliates. Where the term "Company" is used in
this Section 8 it will be deemed to include any affiliate of the Company.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon delivery personally, by
facsimile or by overnight mail, or upon deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. Entire Agreement. This Agreement and the exhibits hereto
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Virginia.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
15. Arbitration. The parties agree that any controversy, claim, or
dispute arising out of or relating to this Agreement, or the breach thereof, or
arising out of or relating to the employment of the Executive, or the
termination thereof, including any claims under federal, state, or local law,
shall be resolved by arbitration in Fairfax, Virginia in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. The
parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
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16. Indemnification. The Company shall indemnify and save harmless
the Executive for any liability incurred by reason of any act or omission
performed by the Executive while acting in good faith on behalf of the Company
and within the scope of the authority of the Executive pursuant to this
Agreement and to the fullest extent provided under the By-laws, the Certificate
of Incorporation and the General Corporation Law of the State of Delaware,
except that the Executive must have in good faith believed that such action was
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful.
17. Miscellaneous.
17.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
17.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17.4 This Agreement is effective as of the date of execution of
this Agreement, will survive Employees employment with the Company, and does not
in any way restrict Employees right or the right of the Company to terminate
Executive's employment.
17.5 Executive certifies and acknowledges that he has carefully
read all of the provisions of this Agreement and that he understands and will
fully and faithfully comply with its provisions.
[Intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
NET2000 GROUP, INC.
By: /s/ Reid R. Miles
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Its: Chairman, Compensation Committee
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EXECUTIVE
/s/ Clayton A. Thomas, Jr.
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Clayton A. Thomas, Jr.
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT made as of the 31st day of July, 1998
and effective as of the 27th day of October, 1997 (the "Effective Date") by and
between NET2000 GROUP, INC., a Delaware corporation, (the "Company"), and Mark
A. Mendes, residing at 35641 Dunthorpe Lane, Purcellville, VA 20132 (the
"Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive, and the
Executive is willing to be employed by the Company, upon the terms and subject
to the conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Employment. The Company agrees to and does hereby employ the
Executive, and the Executive agrees to and does hereby accept employment by the
Company, subject to the terms and conditions herein set forth.
2. Term. The term of the Executive's employment hereunder shall
commence on October 27, 1997 (the "Effective Date"), unless sooner terminated in
accordance with the provisions of Section 5 hereof, ending two and one-half
years after the Effective Date. Thereafter, the term of this Agreement shall be
automatically renewed for successive one year terms, unless sooner terminated in
accordance with the provisions of Section 5 hereof, or unless either party gives
to the other party written notice of intent not to renew the Agreement at least
sixty days prior to the end of the then current term. For the purposes of this
Agreement, the initial two and one-half year term, as well as any extended
terms, shall be the "Term".
3. Duties.
3.1 During the Term, the Executive shall be employed as Chief
Operating Officer of the Company based in Vienna, Virginia and any successors
thereto or to its business, and shall be in charge of and responsible for the
general and supervisory duties normally and customarily attendant to such office
and shall render such other lawful services, and exercise such powers, which are
from time to time requested of him, assigned to him or vested in him by the
Chief Executive Officer of the Company and which are commensurate with his
position as Chief Operating Officer.
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3.2 The Executive agrees that, during the Term, unless the Chief
Executive Officer of the Company shall otherwise consent, he will devote such
amount of his time, energies, labor and skills to the business of the Company
and to the duties and responsibilities specified in Section 3.1 as shall be
reasonably necessary; provided that for reasonable periods of time each month
the Executive may engage in charitable activities as long as such activities do
not interfere with the Executive's responsibilities hereunder
4. Compensation and Benefits.
4.1 Salary. In consideration for services performed hereunder, the
Company shall pay to the Executive an annual base salary of $145,000 in
installments payable in accordance with the Company's customary payroll
practices, but in no event less than one time per month. On each anniversary of
the Effective Date of this Agreement, the Executive's base salary shall be
increased, at a minimum, by an amount equal to the base salary then in effect
multiplied the percentage increase in the consumer price index from the
preceding year. Any additional increase will be voted on by the Compensation
Committee of the Board of Directors and may be based on market value for
comparable positions, performance and other variables.
4.2 Bonus. The Executive shall also be eligible to receive a bonus
in cash and stock options in an amount up to 25% of the Executive's then current
salary per calendar year based on meeting annual deliverables or goals agreed to
with the senior management team of the Company. The Company shall pay 50% of the
Bonus in cash and the remaining 50% of the Bonus shall be paid as follows: the
Executive shall be granted an option to purchase shares of the Company's common
stock with an aggregate exercise price equal to 50% of the Bonus. The Company
shall determine the number of common shares to be granted under the option by
dividing 50% of the Bonus by the fair market value of the Company's common stock
at the time of grant. At the time of grant, the stock options shall have an
exercise price at the then fair market value of the Company's stock, a maturity
of 10 years and shall vest in the following manner: 50% at the time of grant and
25% on the first anniversary of the date of grant and 25% on the second
anniversary of the date of grant. Other terms of stock options not defined
herein will be in accordance with the Company's then applicable stock option
plan.
For example, if the Company awards a Bonus to the Executive in an
amount equal to $20,000, the Executive would receive $10,000 in cash and
(assuming a fair market value of the Company's common stock of $1 per share at
the time of grant) an option to purchase 10,000 shares of the Company's common
stock and an exercise price equal to $1 per share.
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4.3 Stock Options.
(a) The Executive shall be entitled to participate in the
Company's 1997 Equity Incentive Plan (the "1997 Plan") subject to the terms and
conditions set out in the Stock Option Agreement attached hereto as Exhibit A.
(b) If the Company receives equity financing of at least
$4,000,000 relating to the Company's operations as a Competitive Local Exchange
Carrier (the "Financing"), the Executive shall receive an additional option to
purchase shares of Company common stock at an exercise price of the then current
fair market value for such common stock (the "Adjustment Option") in an amount
necessary to maintain Executive's level of ownership at 2.25% of all the
outstanding shares of the Company on a fully diluted basis (including all
options, whether exercised or unexercised, and all shares in the Company's
option pool). The shares subject to the Adjustment Option shall vest in
accordance with the Stock Option Agreement attached hereto as Exhibit A. The
Executive shall be entitled to only one adjustment pursuant to this Section
4.3(b) and such adjustment shall occur simultaneously with the closing of the
Financing.
(c) If there is a Change in Control (as defined in Section 2.7
of the Stock Option Agreement attached hereto as Exhibit A) the options
described in this Section 4.3 will vest in accordance with the terms and
conditions set forth in such Incentive Stock Option Agreement.
4.4 Preferred Stock Option. The Company shall grant to the
Executive options to purchase 21,898 shares of the Company's Series A Preferred
Stock (the "Series A Preferred Stock") at a price per share of $3.425 and
options to purchase additional shares of the Company's Preferred Stock
("Additional Preferred Stock") at an aggregate offering amount of $50,000,
pursuant to the terms of the Stock Option Agreements attached as Exhibits B and
C.
4.5 Health Insurance. The Company shall provide to the Executive
at no expense to Executive health insurance (PPO or equivalent) for Executive
and his immediately family.
4.6 Life Insurance. The Company shall provide the Executive with a
policy of term life insurance in an amount equal to not less than two (2) times
his yearly salary hereunder, payable to such beneficiary or such beneficiaries
as shall be designated in writing by the Executive.
4.7 Vacation. The Executive shall be entitled to annual vacation
leave of three weeks plus all paid Bell Atlantic holidays.
4.8 Automotive. The Company shall provide Executive an automobile
allowance of $400 per month to cover Executive's use of his vehicle for business
purposes.
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4.9 Computer Equipment. The Company shall provide the Executive
with a computer, peripherals and an ISDN phone line at Executive's residence.
4.10 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
5. Termination of Executive's Employment. The employment of the
Executive by the Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
5.1 Expiration of the Term in accordance with Section 2;
5.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Executive. For the purposes of this Section
5.2, cause for termination shall be deemed to exist upon either (a) the
conviction of the Executive of, or the entry of a pleading of guilty or nolo
contendere by the Executive to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Company's reputation or
standing in the community or any felony, or (b) willful misconduct in connection
with the Executive's duties, or willful failure to perform his responsibilities
in the best interest of the Company (including, without limitation, material
breach by the Executive of this Agreement but not minor violations of rules and
policies), except in cases involving the mental or physical incapacity or
disability of the Executive; provided however, that the Board may terminate the
Executive's employment pursuant to Section 5.2(b) only after the failure by the
Executive to correct or cure, or to commence and continue to pursue the
correction or curing of, such refusals within forty-five (45) days after receipt
by the Executive of written notice by the Board of each specific claim of any
such misconduct or failure. The Executive shall have the opportunity to appear
before the Board to discuss such written notice during such forty-five (45) day
period. "Willful misconduct" and "willful failure to perform" shall not include
action or inaction on the part of the Executive which were taken or not taken in
good faith by the Executive;
5.3 Upon the death or thirty (30) days after the disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of one hundred eighty (180) days, regardless of whether consecutive, during any
360-day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Company, provided that if the Executive and the Company do
not agree on a physician, the Executive and the Company shall each select a
physician and these two together shall select a third physician, whose
determination as to disability shall be binding on all parties;
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5.4 At the election of the Executive, upon not less than
forty-five (45) days prior written notice of termination other than for "good
reason" as defined below; or
5.5 At the election of the Company, otherwise than for cause, upon
not less than sixty (60) days prior written notice or at the election of the
Executive for "good reason" upon not less than thirty (30) days prior written
notice of termination. "Good reason" shall include the occurrence of a material
breach of this Agreement by the Company or a material reduction in the
responsibilities or reporting relationship of the Executive.
6. Effect of Termination
6.1 If the Executive's employment is terminated as a result of the
circumstances described under Section 5.2 or Section 5.4 then the Company shall
have no further obligations or liabilities to the Executive hereunder, such that
all benefits and salary provided for within this Agreement shall terminate
simultaneously with the termination of the Executive's employment except for
benefits and salary earned and accrued through the date of such termination.
Nothing in this Section 6.1 shall supersede any rights of the Executive to
receive any amounts or benefits otherwise due to him upon the occurrence of any
of the events described in the immediately preceding sentence, whether such
rights are created by this Agreement or otherwise.
6.2 If the Executive's employment is terminated during the initial
twelve months of the Term as a result of circumstances described under Section
5.3 or Section 5.5 then the Company shall be obligated to pay the Executive or
the Estate (as the case may be), during each of the six months following the
termination date, a severance payment in an amount equal to one full month of
his Base Salary in effect as of the effective date of termination and in
addition an amount equal to one twelfth (1/12) of the prior year's Bonus. If the
Executive's employment hereunder is terminated after the initial twelve months
of the Term as a result of circumstances described under Section 5.3 or Section
5.5 then the Company shall be obligated to pay the Executive or the Estate (as
the case may be), during each of the three months following the termination
date, a severance payment in the amount equal to one full month of his Base
Salary in effect as of the effective date of termination and in addition an
amount equal to one twelfth (1/12) of the prior year's Bonus. The Company will
be obligated to continue the Executive's medical benefits in effect as of the
effective date of the termination for disability for six months.
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6.3 Termination within 180 days of Agreement Expiration. If the
Executive is terminated within 180 days of the expiration of the Agreement, then
the Executive shall receive during each of the three months following the
termination date a severance payment in an amount equal to one full month of his
Base Salary in effect as of the effective date of termination and in addition an
amount equal to one twelfth (1/12) of the prior year's Bonus. The Company will
be obligated to continue the Executive's medical benefits in effect as of the
effective date of the termination for six months.
6.4 Call Option
If the Executive's employment hereunder is terminated, for any
reason or no reason, with or without Cause, the Company shall have the right and
option (the "Purchase Option") to purchase any Common Stock issued to the
Executive pursuant to the exercise of options issued pursuant to Section 4.3
hereof and any Series A Preferred Stock or Additional Preferred Stock issued to
the Executive pursuant to Section 4.4 hereof, (collectively the "Purchase Option
Stock"), in accordance with the terms and provisions of Article V of the Stock
Restriction Agreement to be entered into by and between the Company and the
Executive upon exercise of any such options (the "Stock Restriction Agreement),
attached as Exhibit D.
6.5 Put Option.
If the Executive's employment hereunder is terminated, for any
reason or no reason, with or without Cause, the Executive shall have the right
and option (the "Put Option") to require the Company to repurchase any or all of
the Purchase Option Stock (as defined above), in accordance with Article V of
the Stock Restriction Agreement.
6.6 Survival.
The provisions of Sections 7 and 8 shall survive the
termination of this Agreement.
7. Non-Compete.
(a) So long as the Company is not in breach of this Agreement,
during the Term and for a period of eighteen (18) months after the termination
(subject to early termination as provided herein) or expiration thereof, the
Executive will not directly or indirectly:
(i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with, the Company or its
affiliates; or
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(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts of the Company or its affiliates that were clients, customers or
accounts of the Company while the Executive was employed by the Company, or
prospective clients, customers or accounts to which written correspondence was
made within the last 60 days while the Executive was employed by the Company;
provided, however, that Executive may participate in a passive
management role of another entity and have responsibilities for overseeing
employees of another entity, who of their own accord and with no direct or
indirect stimulus from Executive, participate in activities described in
Sections 7(a)(i) and 7(a)(ii).
(b) The parties agree that the relevant public policy aspects
of covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in this Section 7 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) The restrictions contained in this Section 7 are necessary
for the protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of this Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
8. Proprietary Information and Developments.
8.1 Proprietary Information.
(a) The Executive agrees that all information, whether or not
in writing, relating to the business, technical or financial affairs of the
Company and that is generally understood in the industry as being trade secret,
confidential and/or proprietary, that is designated as being confidential or
proprietary information of the Company, either verbally or in writing, or that
is designated as representing trade secrets of the Company, either verbally or
in writing (collectively, "Proprietary Information"), is and shall be the
exclusive property of the Company. For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
confidential information (whether or not patentable and
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whether or not copyrightable) owned, possessed or used by the Company,
including, without limitation, any invention, existing or future product,
formula, method, manufacturing techniques and procedures, composition, compound,
project, development, plan, vendor information, supplier information, customer
information, apparatus, equipment, trade secret, process, research, reports,
clinical data, financial data, technical data, test data, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget license, patent
applications, contracts, joint ventures, price, cost and personnel data.
(b) The Executive agrees not to and will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the Company,
from the Effective Date, during or after his employment unless and until such
Proprietary Information (i) has become public knowledge through legal means
without fault by the Executive, or (ii) is already public knowledge prior to the
signing of this Agreement.
(c) The Executive agrees that all files, letters, memoranda,
reports, records, data, schematics, sketches, drawings, laboratory notebooks,
program listings, computer programs, databases, products, test equipment,
prototypes or other written, photographic, magnetic or other tangible material
containing or embodying Proprietary Information, whether created by the
Executive or others, which shall come into his custody or possession
(hereinafter collectively referred to as the Company Records) shall be, shall
continue to be and are the exclusive property of the Company to be used by the
Executive only in the performance of his duties for the Company. All such
Company Records or copies thereof and all other tangible property of the Company
in the custody or possession of the Executive shall be delivered to the Company,
upon the earlier of (i) a request by the Company or (ii) termination of this
Agreement. After such request, termination or delivery, the Executive agrees not
to and shall not retain any such Company Records or copies thereof or any such
other tangible property.
8.2 Developments.
(a) The Executive agrees to make and will make full and prompt
disclosure to the Company of all inventions, know-how, improvements, product
ideas, new products, discoveries, methods, developments, software, and works of
authorship, whether or not patentable and whether or not copyrightable, and all
other intellectual property rights, including but not limited to patents,
copyrights, copyrightable works, trade secrets and trademarks, and all books,
schematics, magnetic files and written records related thereto which are or were
created, made, conceived, reduced to practice by or became owned by the
Executive or under his direction or jointly with others during his employment
whether or not during normal working hours or on the premises of the Company to
the extent relevant to the Company's business, as contemplated under the most
recent version of the business plan as of the Effective Date, including but not
limited to, its techniques, developments, projects or products, but excluding
systems, methods and techniques used prior to his employment by the Company (all
of which,
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whether disclosed or not, are collectively referred to in this Agreement as
"Developments"). Notwithstanding anything contained in this Section 8.2 to the
contrary, Developments shall not include the patents held by the Executive prior
to his commencement of his employment with the Company.
(b) The Executive agrees to assign and does hereby assign,
convey and transfer to the Company (or any person or entity designated by the
Company) all his rights, title and interest in and to all Developments; provided
that the Executive may use Developments described in (a)(ii) above in a manner
that complies with terms set forth in Section 7 (Non-Compete) and Section 8.1
(Proprietary Information) hereof.
(c) The Executive agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
worldwide procurement, maintenance and enforcement, including assistance or
cooperation in legal proceedings, of copyrights, patents and similar protections
(both in the United States and foreign countries) relating to Developments; and,
if such cooperation by the Executive is required after the Executive has ceased
to be employed by the Company, then the Company will reimburse the Executive for
any expenses reasonably incurred by Executive in connection with such
cooperation. The Executive shall sign all papers, copyright applications,
assignments, declarations, powers of attorney, patent applications, and other
related or necessary documents, which the Company may deem necessary or
desirable in order to enforce and/or protect its rights and interests in any
Developments or any Proprietary Information.
8.3 Other Agreements. Except as set forth in Exhibit E, Executive
hereby represents that he is not bound by the terms of any agreement with any
previous employer or other party to refrain from using or disclosing any trade
secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. The
Executive intends to exercise his best efforts and use his best skills in
performing his obligations under this Agreement, except to the extent it may be
prohibited by prior employment agreements. The Executive represents that his
performance of all the terms of this Agreement and as an employee of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by him in confidence or in trust prior
to his employment with the Company.
8.4 Company and Affiliates. Where the term "Company" is used in
this Section 8 it will be deemed to include any affiliate of the Company.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon delivery personally, by
facsimile or by overnight mail, or upon deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
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10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. Entire Agreement. This Agreement and the exhibits hereto
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Virginia.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
15. Arbitration. The parties agree that any controversy, claim, or
dispute arising out of or relating to this Agreement, or the breach thereof, or
arising out of or relating to the employment of the Executive, or the
termination thereof, including any claims under federal, state, or local law,
shall be resolved by arbitration in Fairfax, Virginia in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. The
parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
16. Indemnification. The Company shall indemnify and save harmless
the Executive for any liability incurred by reason of any act or omission
performed by the Executive while acting in good faith on behalf of the Company
and within the scope of the authority of the Executive pursuant to this
Agreement and to the fullest extent provided under the By-laws, the Certificate
of Incorporation and the General Corporation Law of the State of Delaware,
except that the Executive must have in good faith believed that such action was
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful.
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17. Miscellaneous.
17.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
17.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17.4 This Agreement is effective as of the date of execution of
this Agreement, will survive Employees employment with the Company, and does not
in any way restrict Employees right or the right of the Company to terminate
Executive's employment.
17.5 Executive certifies and acknowledges that he has carefully
read all of the provisions of this Agreement and that he understands and will
fully and faithfully comply with its provisions.
[signatures on next page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
--------------------------------------
Its: President
-------------------------------------
EXECUTIVE
/s/ Mark A. Mendes
- -----------------------------------------
Mark A. Mendes
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT made as of the 31st day of July, 1998
and effective as of the 15th day of December (the "Effective Date") by and
between NET2000 GROUP, INC., a Delaware corporation, (the "Company"), and Donald
E. Clarke, residing at 1510 Judd Court Herndon, VA 20170 (the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive, and the
Executive is willing to be employed by the Company, upon the terms and subject
to the conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Employment. The Company agrees to and does hereby employ the
Executive, and the Executive agrees to and does hereby accept employment by the
Company, subject to the terms and conditions herein set forth.
2. Term. The term of the Executive's employment hereunder shall
commence on December 15, 1997 (the "Effective Date"), unless sooner terminated
in accordance with the provisions of Section 5 hereof, ending two and one-half
years after the Effective Date. Thereafter, the term of this Agreement shall be
automatically renewed for successive one year terms, unless sooner terminated in
accordance with the provisions of Section 5 hereof, or unless either party gives
to the other party written notice of intent not to renew the Agreement at least
sixty days prior to the end of the then current term. For the purposes of this
Agreement, the initial two and one-half year term, as well as any extended
terms, shall be the "Term".
3. Duties.
3.1 During the Term, the Executive shall be employed as Chief
Financial Officer of the Company based in Vienna, Virginia and any successors
thereto or to its business, and shall be in charge of and responsible for the
general and supervisory duties normally and customarily attendant to such office
and shall render such other lawful services, and exercise such powers, which are
from time to time requested of him, assigned to him or vested in him by the
Chief Executive Officer of the Company and which are commensurate with his
position as Chief Financial Officer.
<PAGE> 2
3.2 The Executive agrees that, during the Term, unless the Chief
Executive Officer of the Company shall otherwise consent, he will devote such
amount of his time, energies, labor and skills to the business of the Company
and to the duties and responsibilities specified in Section 3.1 as shall be
reasonably necessary.
4. Compensation and Benefits.
4.1 Salary. In consideration for services performed hereunder, the
Company shall pay to the Executive an annual base salary of $140,000 in
installments payable in accordance with the Company's customary payroll
practices, but in no event less than one time per month. On each anniversary of
the Effective Date of this Agreement, the Executive's base salary shall be
increased, at a minimum, by an amount equal to the base salary then in effect
multiplied by the percentage increase in the consumer price index from the
preceding year.
4.2 Bonus. The Executive shall also be eligible to receive a bonus
in cash and stock options in an amount up to 25% of the Executive's then current
salary per calendar year based on meeting annual deliverables or goals agreed to
with the senior management team of the Company. The Company shall pay 50% of the
Bonus in cash and the remaining 50% of the Bonus shall be paid as follows: the
Executive shall be granted an option to purchase shares of the Company's common
stock with an aggregate exercise price equal to 50% of the Bonus. The Company
shall determine the number of common shares to be granted under the option by
dividing 50% of the Bonus by the fair market value of the Company's common stock
at the time of grant. At the time of grant, the stock options shall have an
exercise price at the then fair market value of the Company's stock, a maturity
of 10 years and shall vest in the following manner: 50% at the time of grant and
25% on the first anniversary of the date of grant and 25% on the second
anniversary of the date of grant. Other terms of stock options not defined
herein will be in accordance with the Company's then applicable stock option
plan.
For example, if the Company awards a Bonus to the Executive in an
amount equal to $20,000, the Executive would receive $10,000 in cash and
(assuming a fair market value of the Company's common stock of $1 per share at
the time of grant) an option to purchase 10,000 shares of the Company's common
stock at an exercise price of $1 per share.
The Executive shall receive a one-time signing bonus of $7,500
(seven thousand five hundred dollars.)
4.3 Stock Options.
(a) The Executive shall be entitled to participate in the
Company's 1997 Equity Incentive Plan (the "1997 Plan") subject to the terms and
conditions set out in the Stock Option Agreement attached hereto as Exhibit A.
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(b) If the Company receives equity financing of at least
$4,000,000 relating to the Company's operations as a Competitive Local Exchange
Carrier (the "Financing"), the Executive shall receive an additional option to
purchase shares of Company common stock at an exercise price of the then current
fair market value for such common stock (the "Adjustment Option") in an amount
necessary to maintain Executive's level of ownership at 1.5% of all the
outstanding shares of the Company on a fully diluted basis (including all
options, whether exercised or unexercised, and all shares in the Company's
option pool). The shares subject to the Adjustment Option shall vest in
accordance with the Stock Option Agreement attached hereto as Exhibit A. The
Executive shall be entitled to only one adjustment pursuant to this Section
4.3(b) and such adjustment shall occur simultaneously with the closing of the
Financing.
(c) If there is a Change in Control (as defined in Section 2.7
of the Stock Option Agreement attached hereto as Exhibit A) the options
described in this Section 4.3 will vest in accordance with the terms and
conditions set forth in Section 2.7 of the Stock Option Agreement attached
hereto as Exhibit A.
4.4 Health Insurance. The Company shall provide to Executive at no
expense to Executive health insurance (PPO or equivalent) for Executive and his
immediately family.
4.5 Life Insurance. The Company shall provide the Executive with a
policy of term life insurance in an amount equal to not less than two (2) times
his yearly salary hereunder, payable to such beneficiary or such beneficiaries
as shall be designated in writing by the Executive.
4.6 Vacation. The Executive shall be entitled to annual vacation
leave of three weeks plus all paid Bell Atlantic holidays.
4.7 Automotive. The Company shall provide Executive an automobile
allowance of $400 per month to cover Executive's use of his vehicle for business
purposes.
4.8 Computer Equipment. The Company shall provide the Executive
with a computer, peripherals and an ISDN phone line at Executive's residence.
4.9 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
5. Termination of Executive's Employment. The employment of the
Executive by the Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
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5.1 Expiration of the Term in accordance with Section 2;
5.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Executive. For the purposes of this Section
5.2, cause for termination shall be deemed to exist upon either (a) the
conviction of the Executive of, or the entry of a pleading of guilty or nolo
contendere by the Executive to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Company's reputation or
standing in the community or any felony, or (b) willful misconduct in connection
with the Executive's duties, or willful failure to perform his responsibilities
in the best interest of the Company (including, without limitation, material
breach by the Executive of this Agreement but not minor violations of rules and
policies), except in cases involving the mental or physical incapacity or
disability of the Executive; provided however, that the Board may terminate the
Executive's employment pursuant to Section 5.2(b) only after the failure by the
Executive to correct or cure, or to commence and continue to pursue the
correction or curing of, such claims within forty-five (45) days after receipt
by the Executive of written notice by the Board of each specific claim of any
such misconduct or failure. The Executive shall have the opportunity to appear
before the Board to discuss such written notice during such forty-five (45) day
period. "Willful misconduct" and "willful failure to perform" shall not include
action or inaction on the part of the Executive which were taken or not taken in
good faith by the Executive;
5.3 Upon the death or thirty (30) days after the disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of one hundred eighty (180) days, regardless of whether consecutive, during any
360-day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Company, provided that if the Executive and the Company do
not agree on a physician, the Executive and the Company shall each select a
physician and these two together shall select a third physician, whose
determination as to disability shall be binding on all parties;
5.4 At the election of the Executive, upon not less than
forty-five (45) days prior written notice of termination other than for "good
reason" as defined below; or
5.5 At the election of the Company, otherwise than for cause, upon
not less than sixty (60) days prior written notice or at the election of the
Executive for "good reason" upon not less than thirty (30) days prior written
notice of termination. "Good reason" shall include the occurrence of a material
breach of this Agreement by the Company or a material reduction in the
responsibilities or reporting relationship of the Executive.
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6. Effect of Termination
6.1 If the Executive's employment is terminated as a result of the
circumstances described under Section 5.2 or Section 5.4 then the Company shall
have no further obligations or liabilities to the Executive hereunder, such that
all benefits and salary provided for within this Agreement shall terminate
simultaneously with the termination of the Executive's employment except for
benefits and salary earned and accrued through the date of such termination.
Nothing in this Section 6.1 shall supersede any rights of the Executive to
receive any amounts or benefits otherwise due to him upon the occurrence of any
of the events described in the immediately preceding sentence, whether such
rights are created by this Agreement or otherwise.
6.2 If the Executive's employment is terminated during the initial
twelve months of the Term as a result of circumstances described under Section
5.3 or Section 5.5 then the Company shall be obligated to pay the Executive or
the Estate (as the case may be), during each of the three months following the
termination date, a severance payment in an amount equal to one full month of
his Base Salary in effect as of the effective date of termination and in
addition an amount equal to one twelfth (1/12) of the prior year's Bonus. If the
Executive's employment hereunder is terminated after the initial twelve months
of the Term as a result of circumstances described under Section 5.3 or Section
5.5 then the Company shall be obligated to pay the Executive or the Estate (as
the case may be), during each of the six months following the termination date,
a severance payment in the amount equal to one full month of his Base Salary in
effect as of the effective date of termination and in addition an amount equal
to one twelfth (1/12) of the prior year's Bonus.. The Company will be obligated
to continue the Executive's medical benefits in effect as of the effective date
of the termination for disability for six months.
6.3 Termination within 180 days of Agreement Expiration. If the
Executive is terminated within 180 days of the expiration of the Agreement, then
the Executive shall receive during each of the six months following the
termination date a severance payment in an amount equal to one full month of his
Base Salary in effect as of the effective date of termination and in addition an
amount equal to one twelfth (1/12) of the prior year's Bonus. The Company will
be obligated to continue the Executive's medical benefits in effect as of the
effective date of the termination for six months.
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6.4 Call Option. If the Executive's employment hereunder is
terminated, for any reason or no reason, with or without Cause, the Company
shall have the right and option (the "Purchase Option") to purchase any Common
Stock issued to the Executive pursuant to the exercise of options issued
pursuant to Section 4.3 hereof (the "Purchase Option Stock") in accordance with
the terms and provisions of Article V of the Stock Restriction Agreement to be
entered into by and between the Company and the Executive upon exercise of any
such options (the "Stock Restriction Agreement"), attached as Exhibit B.
6.5 Put Option. If the Executive's employment hereunder is
terminated, for any reason or no reason, with or without Cause, the Executive
shall have the right and option (the "Put Option") to require the Company to
repurchase any or all of the Purchase Option Stock (as defined above), in
accordance with Article V of the Stock Restriction Agreement.
6.6 Survival.
The provisions of Sections 7 and 8 shall survive the
termination of this Agreement.
7. Non-Compete.
(a) So long as the Company is not in breach of this Agreement,
during the Term and for a period of eighteen (18) months after the termination
(subject to early termination as provided herein) or expiration thereof, the
Executive will not directly or indirectly:
(i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with, the Company or its
affiliates; or
(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts of the Company or its affiliates that were clients, customers or
accounts of the Company while the Executive was employed by the Company, or
prospective clients, customers or accounts to which written correspondence was
made within the last 60 days while the Executive was employed by the Company;
provided, however, that Executive may participate in a passive
management role of another entity and have responsibilities for overseeing
employees of another entity, who of their own accord and with no direct or
indirect stimulus from Executive, participate in activities described in
Sections 7(a)(i) and 7(a)(ii).
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(b) The parties agree that the relevant public policy aspects
of covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in this Section 7 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) The restrictions contained in this Section 7 are necessary
for the protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of this Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
8. Proprietary Information and Developments.
8.1 Proprietary Information.
(a) The Executive agrees that all information, whether or not
in writing, relating to the business, technical or financial affairs of the
Company and that is generally understood in the industry as being trade secret,
confidential and/or proprietary, that is designated as being confidential or
proprietary information of the Company, either verbally or in writing, or that
is designated as representing trade secrets of the Company, either verbally or
in writing (collectively, "Proprietary Information"), is and shall be the
exclusive property of the Company. For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
confidential information (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company, including, without
limitation, any invention, existing or future product, formula, method,
manufacturing techniques and procedures, composition, compound, project,
development, plan, vendor information, supplier information, customer
information, apparatus, equipment, trade secret, process, research, reports,
clinical data, financial data, technical data, test data, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget license, patent
applications, contracts, joint ventures, price, cost and personnel data.
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(b) The Executive agrees not to and will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the Company,
from the Effective Date, during or after his employment unless and until such
Proprietary Information (i) has become public knowledge through legal means
without fault by the Executive, or (ii) is already public knowledge prior to the
signing of this Agreement.
(c) The Executive agrees that all files, letters, memoranda,
reports, records, data, schematics, sketches, drawings, laboratory notebooks,
program listings, computer programs, databases, products, test equipment,
prototypes or other written, photographic, magnetic or other tangible material
containing or embodying Proprietary Information, whether created by the
Executive or others, which shall come into his custody or possession
(hereinafter collectively referred to as the Company Records) shall be, shall
continue to be and are the exclusive property of the Company to be used by the
Executive only in the performance of his duties for the Company. All such
Company Records or copies thereof and all other tangible property of the Company
in the custody or possession of the Executive shall be delivered to the Company,
upon the earlier of (i) a request by the Company or (ii) termination of this
Agreement. After such request, termination or delivery, the Executive agrees not
to and shall not retain any such Company Records or copies thereof or any such
other tangible property.
8.2 Developments.
(a) The Executive agrees to make and will make full and prompt
disclosure to the Company of all inventions, know-how, improvements, product
ideas, new products, discoveries, methods, developments, software, and works of
authorship, whether or not patentable and whether or not copyrightable, and all
other intellectual property rights, including but not limited to patents,
copyrights, copyrightable works, trade secrets and trademarks, and all books,
schematics, magnetic files and written records related thereto which are or were
created, made, conceived, reduced to practice by or became owned by the
Executive or under his direction or jointly with others during his employment
whether or not during normal working hours or on the premises of the Company to
the extent relevant to the Company's business, as contemplated under the most
recent version of the business plan as of the Effective Date, including but not
limited to, its techniques, developments, projects or products, but excluding
systems, methods and techniques used prior to his employment by the Company (all
of which, whether disclosed or not, are collectively referred to in this
Agreement as "Developments"). Notwithstanding anything contained in this Section
8.2 to the contrary, Developments shall not include the patents held by the
Executive prior to his commencement of his employment with the Company.
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(b) The Executive agrees to assign and does hereby assign,
convey and transfer to the Company (or any person or entity designated by the
Company) all his rights, title and interest in and to all Developments; provided
that the Executive may use Developments described in (a)(ii) above in a manner
that complies with terms set forth in Section 7 (Non-Compete) and Section 8.1
(Proprietary Information) hereof.
(c) The Executive agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
worldwide procurement, maintenance and enforcement, including assistance or
cooperation in legal proceedings, of copyrights, patents and similar protections
(both in the United States and foreign countries) relating to Developments; and,
if such cooperation by the Executive is required after the Executive has ceased
to be employed by the Company, then the Company will reimburse the Executive for
any expenses reasonably incurred by Executive in connection with such
cooperation. The Executive shall sign all papers, copyright applications,
assignments, declarations, powers of attorney, patent applications, and other
related or necessary documents, which the Company may deem necessary or
desirable in order to enforce and/or protect its rights and interests in any
Developments or any Proprietary Information.
8.3 Other Agreements. Except as set forth in Exhibit C, if any,
Executive hereby represents that he is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. The
Executive intends to exercise his best efforts and use his best skills in
performing his obligations under this Agreement, except to the extent it may be
prohibited by prior employment agreements. The Executive represents that his
performance of all the terms of this Agreement and as an employee of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by him in confidence or in trust prior
to his employment with the Company.
8.4 Company and Affiliates. Where the term "Company" is used in
this Section 8 it will be deemed to include any affiliate of the Company.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon delivery personally, by
facsimile or by overnight mail, or upon deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
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<PAGE> 10
11. Entire Agreement. This Agreement and the exhibits hereto
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Virginia.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
15. Arbitration. The parties agree that any controversy, claim, or
dispute arising out of or relating to this Agreement, or the breach thereof, or
arising out of or relating to the employment of the Executive, or the
termination thereof, including any claims under federal, state, or local law,
shall be resolved by arbitration in Fairfax, Virginia in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. The
parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
16. Indemnification. The Company shall indemnify and save harmless
the Executive for any liability incurred by reason of any act or omission
performed by the Executive while acting in good faith on behalf of the Company
and within the scope of the authority of the Executive pursuant to this
Agreement and to the fullest extent provided under the By-laws, the Certificate
of Incorporation and the General Corporation Law of the State of Delaware,
except that the Executive must have in good faith believed that such action was
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful.
17. Miscellaneous.
17.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
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17.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17.4 This Agreement is effective as of the date of execution of
this Agreement, will survive Employees employment with the Company, and does not
in any way restrict Employees right or the right of the Company to terminate
Executive's employment.
17.5 Executive certifies and acknowledges that he has carefully
read all of the provisions of this Agreement and that he understands and will
fully and faithfully comply with its provisions.
[signatures on next page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
--------------------------------------
Its: President
EXECUTIVE
/s/ Donald E. Clarke
- -----------------------------------------
Donald E. Clarke
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 31st day
of July, 1998 and effective as of the 27th day of October, 1997 (the "Effective
Date") is entered into by NET2000 GROUP, INC., a Delaware corporation with its
principal place of business at 8614 Westwood Center Drive, Suite 700, Vienna,
Virginia 22182 (the "Company"), and Bruce W. Bednarski (the "Executive").
The Company desires to employ the Executive, and the Executive
desires to be employed by the Company. In consideration of the mutual covenants
and promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts employment with the Company, subject to the terms
and conditions herein set forth.
2. Term of Employment. The term of the Executive's employment
hereunder shall commence on October 27, 1997 or such earlier date as may be
agreed to between the Executive and the Company (the "Commencement Date") and,
unless sooner terminated in accordance with the provisions of Section 5 hereof,
ending two and one-half years after the Commencement Date. Thereafter, the term
of this Agreement shall be automatically renewed for successive one year terms,
unless sooner terminated in accordance with the provisions of Section 5 hereof,
or unless either party gives to the other party written notice of intent not to
renew the Agreement at least sixty days prior to the end of the then current
term. For the purposes of this Agreement, the initial two and one-half year
term, as well as any extended terms, shall be the "Employment Period."
3. Title; Capacity. The Executive shall serve as Vice President of
the Company. The Executive shall be based at the Company's office in Vienna,
Virginia or such other place as is reasonably requested by the Company and is
mutually agreed upon by both parties. The Executive shall be subject to the
supervision of, and shall have such authority as is delegated to him by, the
President and Chief Executive Officer of the Company or if separate persons, the
senior most position of the Company or the Board of Directors (the "Board").
The Executive hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board of Directors shall from time to time
reasonably assign to him. The Executive agrees to devote his entire business
time, attention and energies to the business and interests of the Company during
the Employment Period; provided that for reasonable periods of time each month
the Executive may engage in non-competitive business or charitable activities so
long as such activities do not interfere with the Executive's responsibilities
hereunder. The Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company
<PAGE> 2
and any changes therein which may be adopted from time to time by the Company.
The Executive acknowledges receipt of copies of all such rules and policies
committed to writing as of the date of this Agreement.
4. Compensation and Benefits.
4.1 Salary. The Company shall pay the Executive an annual salary
of $130,000 to be paid in accordance with the Company's payroll practices
commencing on the Commencement Date and continuing for the duration of the
Employment Period, prorated for any partial compensation period. On each
anniversary of the Effective Date of this Agreement, the Executive's base salary
shall be increased, at a minimum, by an amount equal to the base salary then in
effect multiplied by the percentage increase in the consumer price index for the
preceding year. Such salary shall be subject to adjustment thereafter by the
Board or by the Compensation Committee of the Board (the "Compensation
Committee"), if such duties have been delegated thereto by the Board.
4.2 Bonus. The Executive shall also be eligible to receive a bonus
in cash and stock options in an amount up to 25% of the Executive's then current
salary per calendar year based on meeting annual deliverables or goals agreed to
with the senior management team of the Company. The Company shall pay 50% of the
Bonus in cash and the remaining 50% of the Bonus shall be paid as follows: the
Executive shall be granted an option to purchase shares of the Company's common
stock with an aggregate exercise price equal to 50% of the Bonus. The Company
shall determine the number of common shares to be granted under the option by
dividing 50% of the Bonus by the fair market value of the Company's common stock
at the time of grant. At the time of grant, the stock options shall have an
exercise price at the then fair market value of the Company's stock, a maturity
of 10 years and shall vest immediately. Other terms of stock options not defined
herein will be in accordance with the Company's then applicable stock option
plan.
For example, if the Company awards a Bonus to the Executive in an
amount equal to $20,000, the Executive would receive $10,000 in cash and
(assuming a fair market value of the Company's common stock of $1 per share at
the time of grant) an option to purchase 10,000 shares of the Company's common
stock at an exercise price of $1 per share.
4.3 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
4.4 Equity Incentive Plan. The Executive shall be entitled to
participate in the Company's 1997 Equity Incentive Plan (the "1997 Plan") and
shall be eligible to receive additional stock options from the employee stock
option pool (currently 10%) in consideration of bonus or additional
compensation. Such agreements shall be signed and executed by the
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Company as of the Commencement Date. The Executive shall be entitled to further
participate in the 1997 Plan or such other stock option plan from time to time
as determined by the Board or the Compensation Committee.
4.5 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation, expense statements, vouchers, and such other
supporting information as the Company may request, or as may be consistent with
standard company practices.
4.6 Car Allowance. The Company shall provide the Executive with an
automobile expense allowance of $500 per month, without regard to Executive's
ownership of an automobile.
5. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
5.1 Expiration of the Employment Period in accordance with Section
2;
5.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Executive. For the purposes of this Section
5.2, cause for termination shall be deemed to exist upon either (a) the
conviction of the Executive of, or the entry of a pleading of guilty or nolo
contendere by the Executive to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Company's reputation or
standing in the community or any felony, or (b) willful misconduct in connection
with the Executive's duties, or willful failure to perform his responsibilities
in the best interest of the Company (including, without limitation, material
breach by the Executive of this Agreement but not minor violations of rules and
policies), except in cases involving the mental or physical incapacity or
disability of the Executive; provided however, that the Board may terminate the
Executive's employment pursuant to Section 5.2(b) only after the failure by the
Executive to correct or cure, or to commence and continue to pursue the
correction or curing of, such refusals within forty five (45) days after receipt
by the Executive of written notice by the Board of each specific claim of any
such misconduct or failure. The Executive shall have the opportunity to appear
before the Board to discuss such written notice during such forty five (45) day
period. "Willful misconduct" and "willful failure to perform" shall not include
action or inaction on the part of the Executive which were taken or not taken in
good faith by the Executive;
5.3 Upon the death or thirty (30) days after the disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of one hundred eighty (180) days, regardless of whether consecutive, during any
360-day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Company, provided that if the Executive and the Company do
not agree on a
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<PAGE> 4
physician, the Executive and the Company shall each select a physician and these
two together shall select a third physician, whose determination as to
disability shall be binding on all parties;
5.4 At the election of the Executive, upon not less than forty
five (45) days prior written notice of termination other than for "good reason"
as defined below; or
5.5 At the election of the Company, otherwise than for cause, upon
not less than sixty (60) days prior written notice or at the election of the
Executive for "good reason" upon not less than thirty (30) days prior written
notice of termination. "Good reason" shall include the occurrence of a material
breach of this Agreement by the Company or a material reduction in the
responsibilities or reporting relationship of the Executive.
6. Effect of Termination.
6.1 Termination for Cause or at the Election of the Executive. In
the event the Executive's employment is terminated for cause pursuant to Section
5.2, or at the election of the Executive pursuant to Section 5.4, the Company
shall pay to the Executive the salary and benefits otherwise payable to him
under Section 4 through the last day of his actual employment by the Company.
6.2 Termination for Death or Disability. If the Executive's
employment is terminated by death or because of disability as determined
pursuant to Section 5.3, the Company shall be obligated to pay the Executive or
the Estate (as the case may be), during each of the six months following the
termination date, a severance payment in an amount equal to one full month of
his Base Salary in effect as of the effective date of termination and in
addition an amount equal to one twelfth (1/12) of the prior year's Bonus. The
Company will be obligated to continue the Executive's medical benefits in effect
as of the effective date of the termination for disability for six months.
6.3 Termination at the Election of the Company or the Executive
for Good Reason. If the Executive's employment is terminated pursuant to Section
5.5 at the election of the Company, otherwise than for cause, or by the
Executive for good reason, subject to this Section 6.3, the Company shall pay to
the Executive the base salary, bonus compensation and medical benefits for the
most recent twelve month period which would otherwise be payable to the
Executive of up to one year following the Executive's termination. The Company
may elect to cease to make payments hereunder at any time, provided that the
non-compete restrictions set forth in Sections 7(a) and 7(b) shall also cease at
such time, except that the Company will be obligated to pay the Executive his
base salary and medical benefits for a period of six months after notification
of its intention to release the Executive from his non-compete restrictions, as
well as bonus compensation equivalent to one-half the bonus for the most recent
twelve month period prior to termination.
6.4 Termination within 180 days of Agreement Expiration. If the
Executive is terminated within 180 days of the expiration of the Agreement, then
the Executive shall receive
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during each of the six months following the termination date a severance payment
in an amount equal to one full month of his Base Salary in effect as of the
effective date of termination and in addition an amount equal to one twelfth
(1/12) of the prior year's Bonus. The Company will be obligated to continue the
Executive's medical benefits in effect as of the effective date of the
termination for six months.
6.5 Survival. The provisions of Sections 7 and 8 shall survive the
termination of this Agreement.
7. Non-Compete.
(a) So long as the Company is not in breach of this Agreement,
during the Employment Period and for a period of eighteen (18) months after the
termination (subject to early termination as provided herein) or expiration
thereof, the Executive will not directly or indirectly:
(i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with, the Company or its
affiliates; or
(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts of the Company or its affiliates that were clients, customers or
accounts of the Company while the Executive was employed by the Company, or
prospective clients, customers or accounts to which written correspondence was
made within the last 60 days while the Executive was employed by the Company;
provided, however, that Executive may participate in a passive
management role of another entity and have responsibilities for overseeing
employees of another entity, who of their own accord and with no direct or
indirect stimulus from Executive, participate in activities described in
Sections 7(a)(i) and 7(a)(ii).
(b) The parties agree that the relevant public policy aspects
of covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in this Section 7 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) The restrictions contained in this Section 7 are necessary
for the protection of the business and goodwill of the Company and/or its
affiliates and are considered
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by the Executive to be reasonable for such purposes. The Executive agrees that
any material breach of this Section 7 will cause the Company and/or its
affiliates substantial and irrevocable damage and therefore, in the event of any
such breach, in addition to such other remedies which may be available, the
Company shall have the right to seek specific performance and injunctive relief.
8. Proprietary Information and Developments.
8.1 Proprietary Information.
(a) The Executive agrees that all information, whether or not
in writing, relating to the business, technical or financial affairs of the
Company and that is generally understood in the industry as being trade secret,
confidential and/or proprietary, that is designated as being confidential or
proprietary information of the Company, either verbally or in writing, or that
is designated as representing trade secrets of the Company, either verbally or
in writing (collectively, "Proprietary Information"), is and shall be the
exclusive property of the Company. For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
confidential information (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company, including, without
limitation, any invention, existing or future product, formula, method,
manufacturing techniques and procedures, composition, compound, project,
development, plan, vendor information, supplier information, customer
information, apparatus, equipment, trade secret, process, research, reports,
clinical data, financial data, technical data, test data, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget license, patent
applications, contracts, joint ventures, price, cost and personnel data.
(b) The Executive agrees not to and will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the Company,
from the Effective Date, during or after his employment unless and until such
Proprietary Information (i) has become public knowledge through legal means
without fault by the Executive, or (ii) is already public knowledge prior to the
signing of this Agreement.
(c) The Executive agrees that all files, letters, memoranda,
reports, records, data, schematics, sketches, drawings, laboratory notebooks,
program listings, computer programs, databases, products, test equipment,
prototypes or other written, photographic, magnetic or other tangible material
containing or embodying Proprietary Information, whether created by the
Executive or others, which shall come into his custody or possession
(hereinafter collectively referred to as the Company Records) shall be, shall
continue to be and are the exclusive property of the Company to be used by the
Executive only in the performance of his duties for the Company. All such
Company Records or copies thereof and all other tangible property of the Company
in the custody or possession of the Executive shall be delivered to the Company,
upon the earlier of (i) a request by the Company or (ii) termination of this
Agreement.
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After such request, termination or delivery, the Executive agrees not to and
shall not retain any such Company Records or copies thereof or any such other
tangible property.
8.2 Developments.
(a) The Executive agrees to make and will make full and prompt
disclosure to the Company of all inventions, know-how, improvements, product
ideas, new products, discoveries, methods, developments, software, and works of
authorship, whether or not patentable and whether or not copyrightable, and all
other intellectual property rights, including but not limited to patents,
copyrights, copyrightable works, trade secrets and trademarks, and all books,
schematics, magnetic files and written records related thereto which are or were
created, made, conceived, reduced to practice by or became owned by the
Executive or under his direction or jointly with others either (i) during his
employment whether or not during normal working hours or on the premises of the
Company, or (ii) prior to his employment by the Company if used by the Company
during his employment by the Company, in either event, to the extent relevant to
the Company's business, including but not limited to, its techniques,
developments, projects or products, but excluding systems, methods and
techniques used prior to his employment by the Company (all of which, whether
disclosed or not, are collectively referred to in this Agreement as
"Developments").
(b) The Executive agrees to assign and does hereby assign,
convey and transfer to the Company (or any person or entity designated by the
Company) all his rights, title and interest in and to all Developments; provided
that the Executive may use Developments described in (a)(ii) above in a manner
that complies with terms set forth in Section 7 (Non-Compete) and Section 8.1
(Proprietary Information) hereof.
(c) The Executive agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
worldwide procurement, maintenance and enforcement, including assistance or
cooperation in legal proceedings, of copyrights, patents and similar protections
(both in the United States and foreign countries) relating to Developments; and,
if such cooperation by the Executive is required after the Executive has ceased
to be employed by the Company, then the Company will reimburse the Executive for
any expenses reasonably incurred by Executive in connection with such
cooperation. The Executive shall sign all papers, copyright applications,
assignments, declarations, powers of attorney, patent applications, and other
related or necessary documents, which the Company may deem necessary or
desirable in order to enforce and/or protect its rights and interests in any
Developments or any Proprietary Information.
8.3 Other Agreements. Except as set forth in Exhibit B, if any,
Executive hereby represents that he is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. The
Executive intends to exercise his best efforts and use his best skills in
performing his obligations
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under this Agreement, except to the extent it may be prohibited by prior
employment agreements. The Executive represents that his performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Company.
8.4 Company and Affiliates. Where the term "Company" is used in
this Section 8 it will be deemed to include any affiliate of the Company.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon delivery personally, by
facsimile or by overnight mail, or upon deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. Entire Agreement. This Agreement and the exhibits hereto
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Virginia.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
15. Arbitration. The parties agree that any controversy, claim, or
dispute arising out of or relating to this Agreement, or the breach thereof, or
arising out of or relating to the employment of the Executive, or the
termination thereof, including any claims under federal, state, or local law,
shall be resolved by arbitration in Fairfax, Virginia in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. The
parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
16. Indemnification. The Company shall indemnify and save harmless
the Executive for any liability incurred by reason of any act or omission
performed by the Executive while
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acting in good faith on behalf of the Company and within the scope of the
authority of the Executive pursuant to this Agreement and to the fullest extent
provided under the By-laws, the Certificate of Incorporation and the General
Corporation Law of the State of Delaware, except that the Executive must have in
good faith believed that such action was in, or not opposed to, the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that such conduct was unlawful.
17. Miscellaneous.
17.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
17.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17.4 This Agreement is effective as of the date of execution of
this Agreement, will survive Employees employment with the Company, and does not
in any way restrict Employees right or the right of the Company to terminate
Executive's employment.
17.5 Executive certifies and acknowledges that he has carefully
read all of the provisions of this Agreement and that he understands and will
fully and faithfully comply with its provisions.
[Intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
--------------------------------------
Its: President and CEO
-------------------------------------
EXECUTIVE
/s/ Bruce W. Bednarski
- -----------------------------------------
Bruce W. Bednarski
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 31st day
of July, 1998 and effective as of the 27th day of October, 1997 (the "Effective
Date") is entered into by NET2000 GROUP, INC., a Delaware corporation with its
principal place of business at 8614 Westwood Center Drive, Suite 700, Vienna,
Virginia 22182 (the "Company"), and Peter B. Callowhill (the "Executive").
The Company desires to employ the Executive, and the Executive
desires to be employed by the Company. In consideration of the mutual covenants
and promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts employment with the Company, subject to the terms
and conditions herein set forth.
2. Term of Employment. The term of the Executive's employment
hereunder shall commence on October 27, 1997 or such earlier date as may be
agreed to between the Executive and the Company (the "Commencement Date") and,
unless sooner terminated in accordance with the provisions of Section 5 hereof,
ending two and one-half years after the Commencement Date. Thereafter, the term
of this Agreement shall be automatically renewed for successive one year terms,
unless sooner terminated in accordance with the provisions of Section 5 hereof,
or unless either party gives to the other party written notice of intent not to
renew the Agreement at least sixty days prior to the end of the then current
term. For the purposes of this Agreement, the initial two and one-half year
term, as well as any extended terms, shall be the "Employment Period."
3. Title; Capacity. The Executive shall serve as Vice President of
the Company. The Executive shall be based at the Company's office in New York,
New York or such other place as is reasonably requested by the Company and is
mutually agreed upon by both parties. The Executive shall be subject to the
supervision of, and shall have such authority as is delegated to him by, the
President and Chief Executive Officer of the Company or if separate persons, the
senior most position of the Company or the Board of Directors (the "Board").
The Executive hereby accepts such employment and agrees to undertake
the duties and responsibilities inherent in such position and such other duties
and responsibilities as the Board of Directors shall from time to time
reasonably assign to him. The Executive agrees to devote his entire business
time, attention and energies to the business and interests of the Company during
the Employment Period; provided that for reasonable periods of time each month
the Executive may engage in non-competitive business or charitable activities so
long as such activities do not interfere with the Executive's responsibilities
hereunder. The Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company
<PAGE> 2
and any changes therein which may be adopted from time to time by the Company.
The Executive acknowledges receipt of copies of all such rules and policies
committed to writing as of the date of this Agreement.
4. Compensation and Benefits.
4.1 Salary. The Company shall pay the Executive an annual salary
of $150,000 to be paid in accordance with the Company's payroll practices
commencing on the Commencement Date and continuing for the duration of the
Employment Period, prorated for any partial compensation period. On each
anniversary of the Effective Date of this Agreement, the Executive's base salary
shall be increased, at a minimum, by an amount equal to the base salary then in
effect multiplied by the percentage increase in the consumer price index for the
preceding year. Such salary shall be subject to adjustment thereafter by the
Board or by the Compensation Committee of the Board (the "Compensation
Committee"), if such duties have been delegated thereto by the Board.
4.2 Bonus. The Executive shall also be eligible to receive a bonus
in cash and stock options in an amount up to 25% of the Executive's then current
salary per calendar year based on meeting annual deliverables or goals agreed to
with the senior management team of the Company. The Company shall pay 50% of the
Bonus in cash and the remaining 50% of the Bonus shall be paid as follows: the
Executive shall be granted an option to purchase shares of the Company's common
stock with an aggregate exercise price equal to 50% of the Bonus. The Company
shall determine the number of common shares to be granted under the option by
dividing 50% of the Bonus by the fair market value of the Company's common stock
at the time of grant. At the time of grant, the stock options shall have an
exercise price at the then fair market value of the Company's stock, a maturity
of 10 years and shall vest immediately. Other terms of stock options not defined
herein will be in accordance with the Company's then applicable stock option
plan.
For example, if the Company awards a Bonus to the Executive in an
amount equal to $20,000, the Executive would receive $10,000 in cash and
(assuming a fair market value of the Company's common stock of $1 per share at
the time of grant) an option to purchase 10,000 shares of the Company's common
stock at an exercise price of $1 per share.
4.3 Fringe Benefits. The Executive shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to its employees, if any, to the extent that Executive's position,
tenure, salary, age, health and other qualifications make him eligible to
participate.
4.4 Equity Incentive Plan. The Executive shall be entitled to
participate in the Company's 1997 Equity Incentive Plan (the "1997 Plan") and
shall be eligible to receive additional stock options from the employee stock
option pool (currently 10%) in consideration of bonus or additional
compensation. Such agreements shall be signed and executed by the
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<PAGE> 3
Company as of the Commencement Date. The Executive shall be entitled to further
participate in the 1997 Plan or such other stock option plan from time to time
as determined by the Board or the Compensation Committee.
4.5 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation, expense statements, vouchers, and such other
supporting information as the Company may request, or as may be consistent with
standard company practices.
4.6 Car Allowance. The Company shall provide the Executive with an
automobile expense allowance of $500 per month, without regard to Executive's
ownership of an automobile.
5. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
5.1 Expiration of the Employment Period in accordance with Section
2;
5.2 At the election of the Company, for cause, immediately upon
written notice by the Company to the Executive. For the purposes of this Section
5.2, cause for termination shall be deemed to exist upon either (a) the
conviction of the Executive of, or the entry of a pleading of guilty or nolo
contendere by the Executive to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Company's reputation or
standing in the community or any felony, or (b) willful misconduct in connection
with the Executive's duties, or willful failure to perform his responsibilities
in the best interest of the Company (including, without limitation, material
breach by the Executive of this Agreement but not minor violations of rules and
policies), except in cases involving the mental or physical incapacity or
disability of the Executive; provided however, that the Board may terminate the
Executive's employment pursuant to Section 5.2(b) only after the failure by the
Executive to correct or cure, or to commence and continue to pursue the
correction or curing of, such refusals within forty five (45) days after receipt
by the Executive of written notice by the Board of each specific claim of any
such misconduct or failure. The Executive shall have the opportunity to appear
before the Board to discuss such written notice during such forty five (45) day
period. "Willful misconduct" and "willful failure to perform" shall not include
action or inaction on the part of the Executive which were taken or not taken in
good faith by the Executive;
5.3 Upon the death or thirty (30) days after the disability of the
Executive. As used in this Agreement, the term "disability" shall mean the
inability of the Executive, due to a physical or mental disability, for a period
of one hundred eighty (180) days, regardless of whether consecutive, during any
360-day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Company, provided that if the Executive and the Company do
not agree on a
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<PAGE> 4
physician, the Executive and the Company shall each select a physician and these
two together shall select a third physician, whose determination as to
disability shall be binding on all parties;
5.4 At the election of the Executive, upon not less than forty
five (45) days prior written notice of termination other than for "good reason"
as defined below; or
5.5 At the election of the Company, otherwise than for cause, upon
not less than sixty (60) days prior written notice or at the election of the
Executive for "good reason" upon not less than thirty (30) days prior written
notice of termination. "Good reason" shall include the occurrence of a material
breach of this Agreement by the Company or a material reduction in the
responsibilities or reporting relationship of the Executive.
6. Effect of Termination.
6.1 Termination for Cause or at the Election of the Executive. In
the event the Executive's employment is terminated for cause pursuant to Section
5.2, or at the election of the Executive pursuant to Section 5.4, the Company
shall pay to the Executive the salary and benefits otherwise payable to him
under Section 4 through the last day of his actual employment by the Company.
6.2 Termination for Death or Disability. If the Executive's
employment is terminated by death or because of disability as determined
pursuant to Section 5.3, the Company shall be obligated to pay the Executive or
the Estate (as the case may be), during each of the six months following the
termination date, a severance payment in an amount equal to one full month of
his Base Salary in effect as of the effective date of termination and in
addition an amount equal to one twelfth (1/12) of the prior year's Bonus. The
Company will be obligated to continue the Executive's medical benefits in effect
as of the effective date of the termination for disability for six months.
6.3 Termination at the Election of the Company or the Executive
for Good Reason. If the Executive's employment is terminated pursuant to Section
5.5 at the election of the Company, otherwise than for cause, or by the
Executive for good reason, subject to this Section 6.3, the Company shall pay to
the Executive the base salary, bonus compensation and medical benefits for the
most recent twelve month period which would otherwise be payable to the
Executive of up to one year following the Executive's termination. The Company
may elect to cease to make payments hereunder at any time, provided that the
non-compete restrictions set forth in Sections 7(a) and 7(b) shall also cease at
such time, except that the Company will be obligated to pay the Executive his
base salary and medical benefits for a period of six months after notification
of its intention to release the Executive from his non-compete restrictions, as
well as bonus compensation equivalent to one-half the bonus for the most recent
twelve month period prior to termination.
6.4 Termination within 180 days of Agreement Expiration. If the
Executive is terminated within 180 days of the expiration of the Agreement, then
the Executive shall receive
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during each of the six months following the termination date a severance payment
in an amount equal to one full month of his Base Salary in effect as of the
effective date of termination and in addition an amount equal to one twelfth
(1/12) of the prior year's Bonus. The Company will be obligated to continue the
Executive's medical benefits in effect as of the effective date of the
termination for six months.
6.5 Survival. The provisions of Sections 7 and 8 shall survive the
termination of this Agreement.
7. Non-Compete.
(a) So long as the Company is not in breach of this Agreement,
during the Employment Period and for a period of eighteen (18) months after the
termination (subject to early termination as provided herein) or expiration
thereof, the Executive will not directly or indirectly:
(i) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with, the Company or its
affiliates; or
(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts of the Company or its affiliates that were clients, customers or
accounts of the Company while the Executive was employed by the Company, or
prospective clients, customers or accounts to which written correspondence was
made within the last 60 days while the Executive was employed by the Company;
provided, however, that Executive may participate in a passive
management role of another entity and have responsibilities for overseeing
employees of another entity, who of their own accord and with no direct or
indirect stimulus from Executive, participate in activities described in
Sections 7(a)(i) and 7(a)(ii).
(b) The parties agree that the relevant public policy aspects
of covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in this Section 7 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) The restrictions contained in this Section 7 are necessary
for the protection of the business and goodwill of the Company and/or its
affiliates and are considered
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<PAGE> 6
by the Executive to be reasonable for such purposes. The Executive agrees that
any material breach of this Section 7 will cause the Company and/or its
affiliates substantial and irrevocable damage and therefore, in the event of any
such breach, in addition to such other remedies which may be available, the
Company shall have the right to seek specific performance and injunctive relief.
8. Proprietary Information and Developments.
8.1 Proprietary Information.
(a) The Executive agrees that all information, whether or not
in writing, relating to the business, technical or financial affairs of the
Company and that is generally understood in the industry as being trade secret,
confidential and/or proprietary, that is designated as being confidential or
proprietary information of the Company, either verbally or in writing, or that
is designated as representing trade secrets of the Company, either verbally or
in writing (collectively, "Proprietary Information"), is and shall be the
exclusive property of the Company. For purposes of this Agreement, Proprietary
Information shall mean, by way of illustration and not limitation, all
confidential information (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company, including, without
limitation, any invention, existing or future product, formula, method,
manufacturing techniques and procedures, composition, compound, project,
development, plan, vendor information, supplier information, customer
information, apparatus, equipment, trade secret, process, research, reports,
clinical data, financial data, technical data, test data, computer program,
software, software documentation, hardware design, technology, marketing or
business plan, forecast, unpublished financial statement, budget license, patent
applications, contracts, joint ventures, price, cost and personnel data.
(b) The Executive agrees not to and will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the Company,
from the Effective Date, during or after his employment unless and until such
Proprietary Information (i) has become public knowledge through legal means
without fault by the Executive, or (ii) is already public knowledge prior to the
signing of this Agreement.
(c) The Executive agrees that all files, letters, memoranda,
reports, records, data, schematics, sketches, drawings, laboratory notebooks,
program listings, computer programs, databases, products, test equipment,
prototypes or other written, photographic, magnetic or other tangible material
containing or embodying Proprietary Information, whether created by the
Executive or others, which shall come into his custody or possession
(hereinafter collectively referred to as the Company Records) shall be, shall
continue to be and are the exclusive property of the Company to be used by the
Executive only in the performance of his duties for the Company. All such
Company Records or copies thereof and all other tangible property of the Company
in the custody or possession of the Executive shall be delivered to the Company,
upon the earlier of (i) a request by the Company or (ii) termination of this
Agreement.
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After such request, termination or delivery, the Executive agrees not to and
shall not retain any such Company Records or copies thereof or any such other
tangible property.
8.2 Developments.
(a) The Executive agrees to make and will make full and prompt
disclosure to the Company of all inventions, know-how, improvements, product
ideas, new products, discoveries, methods, developments, software, and works of
authorship, whether or not patentable and whether or not copyrightable, and all
other intellectual property rights, including but not limited to patents,
copyrights, copyrightable works, trade secrets and trademarks, and all books,
schematics, magnetic files and written records related thereto which are or were
created, made, conceived, reduced to practice by or became owned by the
Executive or under his direction or jointly with others either (i) during his
employment whether or not during normal working hours or on the premises of the
Company, or (ii) prior to his employment by the Company if used by the Company
during his employment by the Company, in either event, to the extent relevant to
the Company's business, including but not limited to, its techniques,
developments, projects or products, but excluding systems, methods and
techniques used prior to his employment by the Company (all of which, whether
disclosed or not, are collectively referred to in this Agreement as
"Developments").
(b) The Executive agrees to assign and does hereby assign,
convey and transfer to the Company (or any person or entity designated by the
Company) all his rights, title and interest in and to all Developments; provided
that the Executive may use Developments described in (a)(ii) above in a manner
that complies with terms set forth in Section 7 (Non-Compete) and Section 8.1
(Proprietary Information) hereof.
(c) The Executive agrees to cooperate fully with the Company,
both during and after his employment with the Company, with respect to the
worldwide procurement, maintenance and enforcement, including assistance or
cooperation in legal proceedings, of copyrights, patents and similar protections
(both in the United States and foreign countries) relating to Developments; and,
if such cooperation by the Executive is required after the Executive has ceased
to be employed by the Company, then the Company will reimburse the Executive for
any expenses reasonably incurred by Executive in connection with such
cooperation. The Executive shall sign all papers, copyright applications,
assignments, declarations, powers of attorney, patent applications, and other
related or necessary documents, which the Company may deem necessary or
desirable in order to enforce and/or protect its rights and interests in any
Developments or any Proprietary Information.
8.3 Other Agreements. Except as set forth in Exhibit B, if any,
Executive hereby represents that he is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from competing,
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<PAGE> 8
directly or indirectly, with the business of such previous employer or any other
party. The Executive intends to exercise his best efforts and use his best
skills in performing his obligations under this Agreement, except to the extent
it may be prohibited by prior employment agreements. The Executive represents
that his performance of all the terms of this Agreement and as an employee of
the Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by him in confidence or in
trust prior to his employment with the Company.
8.4 Company and Affiliates. Where the term "Company" is used in
this Section 8 it will be deemed to include any affiliate of the Company.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon delivery personally, by
facsimile or by overnight mail, or upon deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. Entire Agreement. This Agreement and the exhibits hereto
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Virginia.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by him.
15. Arbitration. The parties agree that any controversy, claim, or
dispute arising out of or relating to this Agreement, or the breach thereof, or
arising out of or relating to the employment of the Executive, or the
termination thereof, including any claims under federal, state, or local law,
shall be resolved by arbitration in Fairfax, Virginia in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. The
parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
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16. Indemnification. The Company shall indemnify and save harmless
the Executive for any liability incurred by reason of any act or omission
performed by the Executive while acting in good faith on behalf of the Company
and within the scope of the authority of the Executive pursuant to this
Agreement and to the fullest extent provided under the By-laws, the Certificate
of Incorporation and the General Corporation Law of the State of Delaware,
except that the Executive must have in good faith believed that such action was
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful.
17. Miscellaneous.
17.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
17.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
17.4 This Agreement is effective as of the date of execution of
this Agreement, will survive Employees employment with the Company, and does not
in any way restrict Employees right or the right of the Company to terminate
Executive's employment.
17.5 Executive certifies and acknowledges that he has carefully
read all of the provisions of this Agreement and that he understands and will
fully and faithfully comply with its provisions.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
--------------------------------------
Its: President
-------------------------------------
EXECUTIVE
/s/ Peter B. Callowhill
- -----------------------------------------
Peter B. Callowhill
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<PAGE> 1
EXHIBIT 10.8
NET2000 GROUP, INC.
1997 EQUITY INCENTIVE PLAN
ARTICLE I
DEFINITIONS
1.01. Administrator means the Board or any delegate of the Board that is
appointed in accordance with Article III.
1.02. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company, including a corporation that
becomes an Affiliate after the adoption of this plan.
1.03. Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award, an Option or SAR granted to such Participant.
1.04. Award means any Option, SAR, or Stock Award granted under the Plan.
1.05. Board means the Board of Directors of the Company.
1.06. Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.07. Committee means the Compensation Committee of the Board.
1.08. Common Stock means the common stock of the Company.
1.09. Company means Net2000 Group, Inc.
1.10. Corresponding SAR means an SAR that is granted in relation to a
particular Option and that can be exercised only upon the surrender to the
Company, unexercised, of that portion of the Option to which the SAR relates.
1.11. Exchange Act means the Securities Exchange Act of 1934, as amended
and as in effect on the date of this Agreement.
1.12. Fair Market Value of a share of the Common Stock for any purpose on a
particular date means the fair market value of such share as determined in a
manner such as the Board (or the Committee if such responsibilities are
delegated thereto by the Board) shall in good faith determine to be appropriate;
provided, however, that in the case of incentive stock options, the
determination of Fair Market Value shall be made by the Board (or the Committee
if such responsibilities are delegated thereto by the Board) in good faith in
conformance with the Treasury Regulations under Section 422 of the Code.
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1.13. Initial Value means, with respect to an SAR, the Fair Market Value of
one share of Common Stock on the date of grant.
1.14. Option means a stock option that entitles the holder to purchase from
the Company a stated number of shares of Common Stock at the price set forth in
an Agreement.
1.15. Participant means an employee of the Company or an Affiliate,
including an employee who is a member of the Board, or an individual who
provides services to the Company or an Affiliate, who satisfies the requirements
of Article IV and is selected by the Administrator to receive a Stock Award, an
Option, an SAR or a combination thereof.
1.16. Plan means the Net2000 Group, Inc., 1997 Equity Incentive Plan.
1.17. SAR means a stock appreciation right that in accordance with the
terms of an Agreement entitles the holder to receive, with respect to each share
of Common Stock encompassed by the exercise of such SAR, the amount determined
by the Administrator and specified in an Agreement. In the absence of such a
determination, the holder shall be entitled to receive, with respect to each
share of Common Stock encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial Value. References to
"SARs" include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.
1.18. Share means a share of the Common Stock.
1.19. Stock Award means Common Stock awarded to a Participant under Article
VIII.
1.20. Stock Restriction Agreement means the agreement between the Company
and the Participant, restricting the transfer of Common Stock, that the Company
will require to be executed prior to the exercise of Options and may require to
be executed prior to the issuance of Stock Awards.
1.21. Ten Percent Shareholder means any individual owning more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of an Affiliate. An individual shall be considered to own any voting
stock owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary.
1.22 Change of control shall be deemed to occur upon the first of the
following events:
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(i) any person becomes the beneficial owner, directly or
indirectly, of the securities of the company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities and
such person has the ability to elect a majority of the members of the Company's
Board of Directors, if such ownership is not in place on the date of the grant:
(ii) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company sufficient to elect a majority of
the members of the Board of Directors of the Company, provided that the
Optionee's responsibilities as an employee of the Company are materially
adversely diminished by such change in control; or
(iii) the sale of all or substantially all of the assets of the
Company, or a merger, consolidation, or similar transaction of the company in
which the Company is not the surviving entity or the Company's stockholders
immediately prior to such transaction hold less than 50% of the voting
securities of the surviving entity:
A "change in control" shall not include either of the
following events:
(i) a transaction, the sole purpose of which is to change the
state of the Company's incorporation; or
(ii) a transaction, the result of which is to sell all or
substantially all of the assets of the Company to another entity ( the
"surviving entity"); provided the surviving entity is owned directly or
indirectly by the Company's stockholders immediately following such transaction
in substantially the same proportions as their ownership of the Company's voting
capital stock immediately preceding such transaction.
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ARTICLE II
PURPOSES
The Plan is intended to assist the Company and its Affiliates in recruiting
and retaining individuals with ability and initiative by enabling such persons
to participate in the future success of the Company and its Affiliates and to
associate their interests with those of the Company and its shareholders. The
Plan is intended to permit the grant of both Options qualifying under Section
422 of the Code ("incentive stock options") and Options not so qualifying, and
the grant of SARs and Stock Awards. No Option that is intended to be an
incentive stock option shall be invalid for failure to qualify as an incentive
stock option. The proceeds received by the Company from the sale of Common Stock
pursuant to this Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator, subject to the
supervision of the Board. The Board may at any time designate the Committee or
another committee as Administrator. Until such time, the Board shall act as
Administrator. The Administrator shall have authority to grant Awards upon such
terms as the Administrator may consider appropriate. Such terms may include
conditions (in addition to those contained in this Plan) on the exercisability
of all or any part of an Option or SAR or on the transferability or
forfeitability of a Stock Award. Notwithstanding any such conditions, the
Administrator may, in its discretion, accelerate the time at which any Option or
SAR may be exercised, or the time at which a Stock Award may become transferable
or nonforfeitable. In addition, the Administrator shall have complete authority
to interpret all provisions of this Plan; to prescribe the form of Agreements;
to adopt, amend, and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or
advisable for the administration of this Plan. The express grant in the Plan of
any specific power to the Administrator shall not be construed as limiting any
power or authority of the Administrator. Any decision made, or action taken, by
the Administrator or in connection with the administration of this Plan shall be
final and conclusive. Neither the Administrator nor any member of the Board
shall be liable for any act done in good faith with respect to this Plan or any
Agreement or Award. All expenses of administering this Plan shall be borne by
the Company.
To the extent permitted by applicable law, the Administrator, in its
discretion, may delegate to another committee or officer, all or part of the
Administrator's authority and duties under the Plan. The Administrator may
revoke or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator's delegate that were
consistent with the terms of the Plan.
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ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate or a person who provides
services to the Company or an Affiliate is eligible to participate in this Plan
if the Administrator, in its sole discretion, determines that such person has
contributed significantly or can be expected to contribute significantly to the
profits or growth of the Company or an Affiliate. Incentive stock options may be
granted only to persons eligible to receive such Options under the Code.
ARTICLE V
STOCK SUBJECT TO PLAN
5.01. Shares Issued. Upon the award of shares of Common Stock pursuant to a
Stock Award, or upon the exercise of any Option or SAR, the Company may issue
shares of Common Stock from its authorized but unissued Common Stock or treasury
shares.
5.02. Aggregate Limit. Subject to adjustment as provided in Article IX, the
maximum aggregate number of shares of Common Stock that may be issued under this
Plan pursuant to the exercise of SARs and Options and the grant of Stock Awards
is 335,766 shares.
5.03. Reallocation of Shares. If any Award expires or is terminated
unexercised or is forfeited or settled in a manner that results in fewer shares
outstanding than were awarded, the shares subject to such Award, to the extent
of such expiration, termination, forfeiture, or decrease, shall again be
available for award under the Plan.
ARTICLE VI
OPTIONS
6.01. Terms of Award. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom an Option is to be granted
and will specify the number of shares of Common Stock covered by such awards.
Each award will be evidenced by an Agreement that details the terms and
conditions of the award, which need not be identical for different participants.
The Agreement may specify terms and conditions for the award in addition to, but
not inconsistent with, those appearing in this Plan.
6.02. Option Price. The price per share for Common Stock purchased on the
exercise of an Option shall be determined by the Administrator on the date of
grant, but in the case of an incentive stock option, the price shall not be less
than the Fair Market Value on the date the
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Option is granted. Notwithstanding the preceding sentence, the price per share
for Common Stock purchased on the exercise of any incentive stock option granted
to an individual who is a Ten Percent Shareholder on the date such option is
granted, shall not be less than one hundred ten percent (110%) of the Fair
Market Value on the date the Option is granted.
6.03. Maximum Option Period. The maximum period in which an Option may be
exercised shall be determined by the Administrator on the date of grant, except
that no incentive stock option shall be exercisable after the expiration of ten
years from the date such Option was granted. In the case of an incentive stock
option that is granted to a Participant who is a Ten Percent Shareholder on the
date of grant, such Option shall not be exercisable after the expiration of five
years from the date of grant. The terms of any incentive stock option may
provide that it is exercisable for a period less than such maximum period.
6.04. Vesting of Options. Incentive stock options and non-qualified stock
options shall vest according to the terms and conditions specified in the
applicable Agreement.
6.05. Nontransferability. Except as provided in Section 6.06, each Option
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. In the event of any such transfer, the Option and
any Corresponding SAR that relates to such Option must be transferred to the
same person or persons or entity or entities. During the lifetime of the
Participant to whom the Option is granted, the Option may be exercised only by
the Participant. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.
6.06. Transferable Options. Section 6.05 to the contrary notwithstanding,
if the Agreement provides, an Option that is not an incentive stock option may
be transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners; provided,
however, that Participant may not receive any consideration for the transfer. In
addition to transfers described in the preceding sentence the Administrator may
grant Options that are not incentive stock options that are transferable on
other terms and conditions as may be permitted under Securities Exchange
Commission Rule 16b-3 as in effect from time to time. The holder of an Option
transferred pursuant to this Section 6.05 shall be bound by the same terms and
conditions that governed the Option during the period that it was held by the
Participant. In the event of any such transfer, the Option and any Corresponding
SAR that relates to such Option must be transferred to the same person or
persons or entity or entities.
6.07. Death. In the case of the death of a Participant, the Option shall
expire on the one (1) year anniversary of the Participant's death, or if
earlier, the date specified in Section 6.03 above. During the one (1) year
period following the Participant's death, the Option may be exercised to the
extent it could have been exercised at the time the Participant died, subject to
any adjustment under Article IX herein.
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6.08. Disability. If a Participant becomes disabled within the meaning of
Code section 22(3)(3) and as a result thereof, his or her employment with the
Company terminates, the Option shall expire on the one (1) year anniversary date
of the Participant's last day of employment, or, if earlier, the date specified
in Section 6.03 above. During the one (1) year period following the
Participant's termination of employment by reason of disability, the Option may
be exercised as to the number of Shares for which it could have been exercised
at the time the Participant became disabled, subject to any adjustments under
Article IX herein.
6.09. Retirement. If the Participant's employment terminates by reason of
normal retirement under the Company's normal retirement policies, the Option
will expire ninety (90) days after the Participant's last day of employment, or,
if earlier, on the date specified in Section 6.03 above. During the ninety (90)
day period following the Participant's normal retirement, the Option may be
exercised as to the number of Shares for which the Option would have been
exercisable on the retirement date, subject to any adjustment under Article IX
herein.
6.10. Termination of Service. Unless an Agreement provides otherwise, if
the Participant ceases employment for any reason other than death, disability,
or retirement (as described above), all Options held by the Participant shall
lapse and terminate on the 30th day following the day upon which the
Participant's employment with the Company is terminated. For purposes of
determining the applicability of Section 422 of the Code (relating to incentive
stock options), the Administrator may decide to what extent leaves of absence
for governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment.
6.11. Securities Law Compliance. Options granted to Employees under the
Plan shall be exercisable only if the issuance of Shares pursuant to the
exercise would be in compliance with applicable securities laws, as contemplated
by Article X of the Plan.
6.12. Exercise. Subject to the provisions of this Plan, including the
vesting schedule in Section 6.04, and the applicable Agreement, an Option may be
exercised in whole at any time or in part from time to time at such times and in
compliance with such requirements as the Administrator shall determine;
provided, however, that incentive stock options (granted under the Plan and all
plans of the Company and its Affiliates) may not be first exercisable in a
calendar year for stock having a Fair Market Value (determined as of the date an
Option is granted) exceeding $100,000. In addition, no Option may be exercised
until the Participant executes a Stock Restriction Agreement covering the Shares
to be acquired by exercise of the Option. An Option granted under this Plan may
be exercised with respect to any number of whole shares less than the full
number for which the Option could be exercised. A partial exercise of an Option
shall not affect the right to exercise the Option from time to time in
accordance with this Plan and the applicable Agreement with respect to the
remaining shares subject to the Option. The exercise of an Option shall result
in the termination of any Corresponding SAR to the extent of the number of
shares with respect to which the Option is exercised.
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6.13. Payment. Unless otherwise provided by the Agreement, payment of the
Option price shall be made in cash or a cash equivalent acceptable to the
Administrator. If the Agreement provides, payment of all or part of the Option
price may be made by surrendering shares of Common Stock to the Company. If
Common Stock is used to pay all or part of the Option price, the sum of the cash
and cash equivalent and the Fair Market Value (determined as of the day
preceding the date of exercise) of the shares surrendered must not be less than
the Option price of the shares for which the Option is being exercised.
6.14. Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares subject to his Option until the date of
exercise of such Option.
6.15. Disposition of Stock. A Participant shall notify the Company of any
permitted sale or other disposition of Common Stock acquired pursuant to an
incentive stock option if such permitted sale or disposition occurs (i) within
two years of the grant of an Option or (ii) within one year of the issuance of
the Common Stock to the Participant. Such notice shall be in writing and
directed to the Secretary of the Company.
ARTICLE VII
SARS
7.01. Award. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom SARs are to be granted and
will specify the number of shares covered by such awards. For purposes of the
preceding sentence, an Option and Corresponding SAR shall be treated as a single
award. In addition no Participant may be granted Corresponding SARs (under all
incentive stock option plans of the Company and its Affiliates) that are related
to incentive stock options which are first exercisable in any calendar year for
stock having an aggregate Fair Market Value (determined as of the date the
related Option is granted) that exceeds $100,000.
7.02. Maximum SAR Period. The maximum period in which an SAR may be
exercised shall be determined by the Administrator on the date of grant, except
that no Corresponding SAR that is related to an incentive stock option shall be
exercisable after the expiration of ten years from the date such related Option
was granted. In the case of a Corresponding SAR that is related to an incentive
stock option granted to a Participant who is a Ten Percent Shareholder, such
Corresponding SAR shall not be exercisable after the expiration of five years
from the date such related Option was granted. The terms of any Corresponding
SAR that is related to an incentive stock option may provide that it is
exercisable for a period less than such maximum period.
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7.03. Nontransferability. Except as provided in Section 7.04, each SAR
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. In the event of any such transfer, the
Corresponding SAR and the related Option must be transferred to the same person
or persons or entity or entities. During the lifetime of the Participant to whom
the SAR is granted, the SAR may be exercised only by the Participant. No right
or interest of a Participant in any SAR shall be liable for, or subject to, any
lien, obligation, or liability of such Participant.
7.04. Transferable SARs. Section 7.03 to the contrary notwithstanding, the
Administrator may grant transferable SARs to the extent that, and on such terms
as, may be permitted by Securities Exchange Commission Rule 16b-3 as in effect
from time to time. In the event of any such transfer, the Corresponding SAR and
the related Option must be transferred to the same person or person or entity or
entities. The holder of an SAR transferred pursuant to this Section 7.04 shall
be bound by the same terms and conditions that governed the SAR during the
period that it was held by the Participant.
7.05. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an SAR may be exercised in whole at any time or in part from time to
time at such times and in compliance with such requirements as the Administrator
shall determine; provided, however, that a Corresponding SAR that is related to
an incentive stock option may be exercised only to the extent that the related
Option is exercisable and only when the Fair Market Value exceeds the option
price of the related Option. An SAR granted under this Plan may be exercised
with respect to any number of whole shares less than the full number for which
the SAR could be exercised. A partial exercise of an SAR shall not affect the
right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of a Corresponding SAR shall result in the termination of the
related Option to the extent of the number of shares with respect to which the
SAR is exercised.
7.06. Employee Status. If the terms of any SAR provide that it may be
exercised only during employment or within a specified period of time after
termination of employment, the Administrator may decide to what extent leaves of
absence for governmental or military service, illness, temporary disability or
other reasons shall not be deemed interruptions of continuous employment.
7.07. Settlement. At the Administrator's discretion, the amount payable as
a result of the exercise of an SAR may be settled in cash, Common Stock, or a
combination of cash and Common Stock. No fractional share will be deliverable
upon the exercise of an SAR but a cash payment will be made in lieu thereof.
7.08. Shareholder Rights. No Participant shall, as a result of receiving an
SAR award, have any rights as a shareholder of the Company or any Affiliate
until the date that the SAR is exercised and then only to the extent that the
SAR is settled by the issuance of Common Stock.
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ARTICLE VIII
STOCK AWARDS
8.01. Award. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom a Stock Award is to be made
and will specify the number of shares of Common Stock covered by such awards.
8.02. Vesting. The Administrator, on the date of the award, may prescribe
that a Participant's rights in the Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement, or may require that the Participant execute a Stock
Restriction Agreement. If a Stock Award is not nonforfeitable and transferable
upon its grant, the period of restriction shall be at least three years;
provided, however, that the minimum period of restriction shall be at least one
year in the case of a Stock Award that will become transferable and
nonforfeitable on account of the satisfaction of performance objectives
prescribed by the Administrator.
8.03. Performance Objectives. In accordance with Section 8.02, the
Administrator may prescribe that Stock Awards will become vested or transferable
or both based on objectives stated with respect to the Company's, an Affiliate's
or an operating unit's return on equity, earnings per share, total earnings,
earnings growth, return on capital, return on assets, or Fair Market Value. If
the Administrator, on the date of award, prescribes that a Stock Award shall
become nonforfeitable and transferable only upon the attainment of performance
objectives stated with respect to one or more of the foregoing criteria, the
shares subject to such Stock Award shall become nonforfeitable and transferable
only to the extent that the Administrator certifies that such objectives have
been achieved.
8.04. Employee Status. In the event that the terms of any Stock Award
provide that shares may become transferable and nonforfeitable thereunder only
after completion of a specified period of employment, the Administrator may
decide in each case to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
8.05. Shareholder Rights. Prior to their forfeiture (in accordance with the
applicable Agreement and while the shares of Common Stock granted pursuant to
the Stock Award may be forfeited or are nontransferable), a Participant will
have all rights of a shareholder with respect to a Stock Award, including the
right to receive dividends and vote the shares; provided, however, that during
such period (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to
a Stock Award, (ii) the Company shall retain custody of the certificates
evidencing shares of Common Stock granted pursuant to a Stock Award, and (iii)
the Participant will deliver to the Company a stock power,
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endorsed in blank, with respect to each Stock Award. The limitations set forth
in the preceding sentence shall not apply after the shares of Common Stock
granted under the Stock Award are transferable and are no longer forfeitable.
ARTICLE IX
ADJUSTMENT UPON CERTAIN EVENTS
The maximum number of shares as to which Awards may be granted under this
Plan, and the terms of outstanding Awards shall be adjusted as the Administrator
shall determine to be equitably required in the event that (a) the Company (i)
effects one or more stock dividends, stock split-ups, subdivisions or
consolidations of shares or (ii) engages in a transaction to which Section 424
of the Code applies or (b) there occurs any other event which, in the judgment
of the Administrator, necessitates such action. Any determination made under
this Article IX by the Administrator shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the maximum
number of shares as to which Awards may be granted, or the terms of outstanding
Awards.
The Administrator may make Stock Awards and may grant Options and SARs in
substitution for performance shares, phantom shares, stock awards, stock
options, stock appreciation rights, or similar awards held by an individual who
becomes an employee of the Company or an Affiliate in connection with a
transaction described in the first paragraph of this Article IX. Notwithstanding
any provision of the Plan (other than the limitation of Section 5.02), the terms
of such substituted Awards shall be as the Administrator, in its discretion,
determines is appropriate.
If there is a Change of Control 50% of the options or SARs outstanding will
vest immediately.
Except as otherwise expressly provided in this Article IX, the Participant
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class in the Company or by
reason of any dissolution, liquidation, merger, or consolidation or spin-off of
assets or stock of another corporation, and any issue by the Company of shares
of stock or any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of the Shares subject to the Option or SAR, or
the Stock Award.
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The grant of an Award pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassification,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell, or transfer all or any of its business
or assets.
ARTICLE X
TAXES, COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
As a condition to the issuance of Shares upon Option exercise (whether to
the Participant or to his beneficiary), the Company shall have the right to
withhold from payments otherwise due and owing to the Participant (or his
beneficiary) or to require the Participant (or his beneficiary) to remit to the
Company in cash upon demand an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, or local withholding tax requirements
at the time the Participant (or his beneficiary) recognizes income for federal,
state, or local tax purposes as the result of the receipt of Shares pursuant to
the Plan
Options and SARs are exercisable, and Shares may be delivered under this
Plan, only in compliance with all applicable federal and state laws and
regulations and the rules of all stock exchanges on which the Company's stock is
listed at any time. An Option or SAR is exercisable only if either: (a) a
registration statement pertaining to the Shares to be issued upon exercise of
the Option or SAR has been filed with and declared effective by the Securities
and Exchange Commission and remains effective on the date of exercise; or (b) an
exemption from the registration requirements of applicable securities laws is
available. This Plan does not require the Company, however, to file such a
registration statement or to assure the availability of such exemptions. Any
certificate issued to evidence Shares issued under the Plan may bear such
legends and statements, and shall be subject to such transfer restrictions, as
the Administrator deems advisable to assure compliance with federal and state
laws and regulations and with the requirements of this Article X. No Option or
SAR may be exercised, and Shares may not be issued under this Plan, until the
Company has obtained the consent or approval of every regulatory body, federal
or state, having jurisdiction over such matters as the Administrator deems
advisable.
Each person who acquires the right to exercise an Option or SAR or to
ownership of Shares by bequest or inheritance may be required by the
Administrator to furnish reasonable evidence of ownership of the Option or SAR
as a condition to his exercise of the Option or SAR. In addition, the
Administrator may require such consents and releases of taxing authorities as
the Administrator deems advisable.
With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934 ("1934 Act"), transactions under this Plan are intended to comply
with all applicable conditions
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of Rule 16b-3 under the 1934 Act or its successor under the 1934 Act. To the
extent any provision of the Plan or action by the Plan administrators fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan administrators.
ARTICLE XI
GENERAL PROVISIONS
11.01. Effect on Employment and Service. Neither the adoption of this Plan,
its operation, nor any documents describing or referring to this Plan (or any
part thereof) shall confer upon any individual any right to continue in the
employ or service of the Company or an Affiliate or in any way affect any right
and power of the Company or an Affiliate to terminate the employment or service
of any individual at any time with or without assigning a reason therefor.
11.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
11.03. Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
11.04. Indemnification of the Administrator, Committee, and the Board. In
addition to such other rights of indemnification as they may have as directors,
the members of the Administrator, Committee and the Board shall be indemnified
by the Company against the reasonable expenses, including attorneys' fees
actually and necessarily incurred in connection with the defense of any action,
suit, or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit, or
proceeding that such Administrator, Committee, or Board member is liable for
negligence or misconduct in the performance of his duties; provided that within
sixty (60) days after institution of any such action, suit, or proceeding, the
Administrator, Committee or Board member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
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11.05. Applicable Law. The validity, interpretation, and enforcement of
this Plan is governed in all respects by the laws of the State of Delaware and
the United States of America.
11.06. Investment Purpose. Each Award shall be granted on the condition
that the purchase or issuance of Shares thereunder shall be for investment
purposes, and not with a view to resale or distribution except that in the event
that the Shares issued or subject to such Option or SAR are registered under the
Securities Act of 1933, as amended, or in the event a resale of such Shares
without such registration would otherwise be permissible, such condition shall
be inoperative if in the opinion of counsel for the Company such condition is
not required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
11.07. Liability of the Company. The Company shall not be liable to any
person for any tax consequences expected but not realized by a Participant or
other person due to the exercise of an Option or SAR.
11.08. Stock Restriction Agreement. The Shares acquired under this Plan
shall be subject to the Stock Restriction Agreement to be executed by such
Participant as a condition precedent to the exercise of an Option or SAR, or to
the issuance of a Stock Award. The Stock Restriction Agreement shall include,
among other items, the right of the Company to purchase any Shares offered by a
Participant and an offer of the Shares to the Company if a Participant's
employment by the Company terminates for any reason.
11.09. Designation of Beneficiary. Each Participant shall designate in the
Agreement he executes, a beneficiary to receive Awards granted hereunder in the
event of his death; provided, that if no such beneficiary is designated or if
the beneficiary so designated does not survive the Participant, the estate of
such Participant shall be deemed to be his beneficiary. Participants may, by
written notice to the Board, change the beneficiary designated in any
outstanding Agreements.
ARTICLE XII
AMENDMENT
The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan, (ii) the amendment changes the class of
individuals eligible to become Participants or (iii) the amendment materially
increases the benefits that may be provided under the Plan. No amendment shall,
without a Participant's consent, adversely affect any vested rights of such
Participant under any Award outstanding at the time such amendment is made.
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<PAGE> 15
ARTICLE XIII
DURATION OF PLAN
No Award may be granted under this Plan after October 20, 2007. Awards
granted before that date shall remain valid in accordance with their terms.
ARTICLE XIV
EFFECTIVE DATE OF PLAN
Options and SARs may be granted under this Plan upon its adoption by the
Board, provided that no Option or SAR shall be effective or exercisable unless
this Plan is approved by a majority of the votes entitled to be cast by the
Company's shareholders, voting either in person or by proxy, at a duly held
shareholders' meeting within twelve months of such adoption. Stock Awards may be
granted under this Plan upon the later of its adoption by the Board or its
approval by shareholders in accordance with the preceding sentence.
<TABLE>
<S> <C>
Date Plan adopted by Board of Directors: October 20, 1997
Date Plan approved by Shareholders: October 20, 1997
</TABLE>
This Plan, having been approved by the Board of Directors and Shareholders
of the Company, is effective as of October 20, 1997.
/s/ Bruce W. Bednarski /s/ Clayton A. Thomas, Jr.
- ----------------------- ----------------------------
Bruce W. Bednarski Clayton A. Thomas, Jr.
Secretary President
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<PAGE> 1
EXHIBIT 10.9
NET2000 COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
NET2000 COMMUNICATIONS, INC. a Delaware corporation (the "Company"), hereby
establishes the NET2000 COMMUNICATIONS, INC. 1999 STOCK INCENTIVE PLAN (the
"Plan"). The purpose of the Plan is to promote the long-term growth and
profitability of the Company by (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Company, and (ii) enabling the Company to attract, retain and reward the
best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, other stock-based awards, or any combination of the
foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the Company
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, performance award, or other stock-based award.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Company, par
value of one cent ($0.01) per share.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
(g) "Fair Market Value" shall mean, with respect to a share of the
Company's Common Stock for any purpose on a particular date, the value
determined by the Administrator in good faith. However, if the Common Stock is
registered under Section 12(b) of the Exchange Act, "Fair Market Value" shall
mean, as applicable, (i) either the closing price or the average of the high and
low sale price on the relevant date, as determined in the Administrator's
discretion, quoted on the New York Stock Exchange, the American Stock Exchange,
or the Nasdaq National Market; (ii) the last sale price on the relevant date
quoted on the Nasdaq SmallCap Market; (iii) the average of the high bid and low
asked prices on the relevant date quoted on the Nasdaq OTC Bulletin Board
Service or by the National Quotation Bureau, Inc. or a comparable service as
determined in the Administrator's discretion; or (iv) if the Common Stock is not
quoted by any of the above, the average of the closing bid and asked prices on
the relevant date furnished by a professional market maker for the Common Stock,
or by such other source, selected by the Administrator. If no public trading of
the Common Stock occurs on the relevant date, then Fair Market Value shall be
determined as of the next preceding date on which trading of the Common Stock
does occur. For all purposes under this Plan, the term "relevant date" as used
in this Section 2.1(g) shall mean either the date as of which Fair Market Value
is to be determined or the next preceding date on which public trading of the
Common Stock occurs, as determined in the Administrator's discretion.
(h) "Grant Agreement" shall mean a written document memorializing the terms
and conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in Code
section 424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Code section 424(f), or any
successor thereto.
3. ADMINISTRATION
(a) Administration of the Plan. The Plan shall be administered by the Board
or by such committee or committees as may be appointed by the Board from time to
time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
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<PAGE> 3
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no member of
the Administrator shall be liable for any action taken or decision made in good
faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions and
determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Company, its stockholders, any participants in the Plan
and any other employee, consultant, or director of the Company, and their
respective successors in interest.
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<PAGE> 4
4. SHARES AVAILABLE FOR THE PLAN
Subject to adjustments as provided in Section 7(d) of the Plan, the shares
of Common Stock that may be issued with respect to Awards granted under the Plan
shall not exceed an aggregate of 3,500,000 shares of Common Stock. The Company
shall reserve such number of shares for Awards under the Plan, subject to
adjustments as provided in Section 7(d) of the Plan. If any Award, or portion of
an Award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated, surrendered or canceled
as to any shares, or if any shares of Common Stock are surrendered to the
Company in connection with any Award (whether or not such surrendered shares
were acquired pursuant to any Award), or if any shares are withheld by the
Company, the shares subject to such Award and the withheld and surrendered
shares shall thereafter be available for further Awards under the Plan;
provided, however, that any such shares that are surrendered to or withheld by
the Company in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers, and
directors of, and other individuals providing bona fide services to or for, the
Company, or of any Affiliate of the Company, as may be selected by the
Administrator from time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement. The Administrator may permit or require a
recipient of an Award to defer such individual's receipt of the payment of cash
or the delivery of Common Stock that would otherwise be due to such individual
by virtue of the exercise of, payment of, or lapse or waiver of restrictions
respecting, any Award. If any such payment deferral is required or permitted,
the Administrator shall, in its sole discretion, establish rules and procedures
for such payment deferrals.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the Company
or of any Parent or Subsidiary of the Company. Options intended to qualify as
incentive stock options under Code section 422 must have an exercise price at
least equal to Fair Market Value on the date of grant, but nonqualified stock
options may be granted with an exercise price less than Fair Market Value. No
stock option shall be an incentive stock option unless so designated by the
Administrator at the time of grant or in the Grant Agreement evidencing such
stock option.
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<PAGE> 5
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit solely as a result of the grant of a phantom stock unit to the
grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Company's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Company or an Affiliate as a whole, over such performance
period as the Administrator may designate.
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<PAGE> 6
(f) Other Stock-Based Awards. The Administrator may from time to time grant
other stock-based awards to eligible participants in such amounts, on such terms
and conditions, and for such consideration, including no consideration or such
minimum consideration as may be required by law, as it shall determine. Other
stock-based awards may be denominated in cash, in Common Stock or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination of
the foregoing and may be paid in Common Stock or other securities, in cash, or
in a combination of Common Stock or other securities and cash, all as determined
in the sole discretion of the Administrator.
7. MISCELLANEOUS
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Company or its Affiliate, or make provision satisfactory to the Administrator
for payment of, any taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax liability. The Company
or its Affiliate may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the grantee or holder
of an Award. In the event that payment to the Company or its Affiliate of such
tax obligations is made in shares of Common Stock, such shares shall be valued
at Fair Market Value on the applicable date for such purposes.
(b) Loans. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments for Changes in Capitalization, Business Combinations, Etc.
(i) In the event of a stock dividend of, or stock split or reverse
stock split affecting, the Common Stock of the Company, (A) the maximum number
of shares reserved for issuance or with respect to which Awards may be granted
under the Plan, as provided in Section 4 and (B) the number of shares covered by
and the exercise price and other terms of outstanding Awards, shall, without
further action of the Board, be adjusted to reflect such event unless the Board
determines, at the time it approves such stock dividend, stock split or reverse
stock split, that no such adjustment shall be made. The Administrator may make
adjustments, in its discretion, to address the treatment of fractional shares
and fractional cents that arise with respect to outstanding Awards as a result
of the stock dividend, stock split or reverse stock split.
(ii) In the event of any other changes affecting the Company, the
capitalization of the Company or the Common Stock of the Company by reason of
any spin-off,
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<PAGE> 7
split-up, dividend, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator, in its
discretion and without the consent of holders of Awards, shall make: (A)
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan, as
provided in Section 4, the number, kind and price of shares covered by
outstanding Awards; and (B) any other adjustments in outstanding Awards,
including but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of the
Awards in cash or in shares of Common Stock or other securities of the Company
or of any other entity, or in any other matters which relate to Awards as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
(iii) Notwithstanding anything in the Plan to the contrary and without
the consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
(iv) The Administrator is authorized to make, in its discretion and
without the consent of holders of Awards, adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events affecting the Company, or the financial statements of the
Company or any Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Administrator determines that such
adjustments are appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company or
an Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Company or shall interfere in any way with the right of
the Company to terminate such service at any time with or without cause or
notice.
-7-
<PAGE> 8
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(i) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of Delaware, without regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of the date
on which the Plan is adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan, or if
earlier, the tenth anniversary of the date this Plan is approved by the
stockholders. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board: November 16, 1999
----------------------------------------
Date Approved by the Stockholders: December 2, 1999
---------------------------------
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<PAGE> 1
EXHIBIT 10.10
NET2000 COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The Plan provides eligible employees of Net2000 Communications, Inc. (the
"CORPORATION") and certain of its subsidiaries with opportunities to purchase
shares of the Corporation's Common Stock, $0.01 par value per share (the "COMMON
STOCK"). The Plan is intended to benefit the Corporation by increasing the
employees' interest in the Corporation's growth and success and encouraging
employees to remain in the employ of the Corporation or its participating
subsidiaries. The Plan is intended to constitute an "employee stock purchase
plan" within the meaning of section 423 of the Internal Revenue Code of 1986, as
amended (the "CODE"), and shall be so applied and interpreted.
1. Shares Subject to the Plan. Subject to adjustment as provided herein,
the aggregate number of shares of Common Stock that may be made available for
purchase under the Plan is 1,500,000 shares. The shares purchased under the Plan
may, in the discretion of the Board of Directors of the Corporation (the
"BOARD"), be authorized but unissued shares of Common Stock, shares purchased on
the open market, or shares from any other proper source.
2. Administration. The Plan will be administered by the Board or by a
committee appointed by the Board (the "ADMINISTRATOR"). The Administrator has
authority to interpret the Plan, to make, amend and rescind all rules and
regulations for the administration and operation of the Plan, and to make all
other determinations necessary or desirable in administering and operating the
Plan, all of which will be final and conclusive. No member of the Administrator
shall be liable for any action or determination made in good faith with respect
to the Plan.
3. Eligibility. All employees of the Corporation, including directors who
are employees, and all employees of any subsidiary of the Corporation (as
defined in Code section 424(f)), now or hereafter existing, that is designated
by the Administrator from time to time as a participating employer under the
Plan (a "DESIGNATED SUBSIDIARY"), are eligible to participate in the Plan,
subject to such further eligibility requirements as may be specified by the
Administrator consistent with Code section 423.
4. Options to Purchase Common Stock.
(a) Options ("OPTIONS") will be granted pursuant to the Plan to each
eligible employee on the first day on which the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system is open for trading
("TRADING DAY") on or after January 1 of each year commencing on or after the
Effective Date, or such other date specified by the Administrator. Each Option
will terminate on the last Trading Day of a period specified by the
Administrator (each such period referred to herein as an "OPTION PERIOD"). No
Option Period shall be longer than 27 months in duration. Unless the
Administrator determines otherwise, subsequent Option Periods of equal duration
will follow consecutively thereafter, each commencing on the first Trading Day
immediately after the expiration of the preceding Option Period.
<PAGE> 2
(b) An individual must be employed as an eligible employee by the
Corporation or a Designated Subsidiary on the first Trading Day of an Option
Period in order to be granted an Option for that Option Period. However, the
Administrator may designate any subsequent Trading Day(s) (each such designated
Trading Day referred to herein as an "INTERIM TRADING DAY") in an Option Period
upon which Options will be granted to eligible employees who first commence
employment with, or first become eligible employees of, the Corporation or a
Designated Subsidiary after the first Trading Day of the Option Period. In such
event, the Interim Trading Day shall constitute the first Trading Day of the
Option Period for all Options granted on such day for all purposes under the
Plan.
(c) Each Option represents a right to purchase on the last Trading Day of
the Option Period, at the Purchase Price hereinafter provided for, whole shares
of Common Stock up to such maximum number of shares specified by the
Administrator on or before the first day of the Option Period. All eligible
employees granted Options under the Plan for an Option Period shall have the
same rights and privileges with respect to such Options. The purchase price of
each share of Common Stock (the "PURCHASE PRICE") subject to an Option will be
determined by the Administrator, in its discretion, on or before the beginning
of the Option Period; provided, however, that the Purchase Price for an Option
with respect to any Option Period shall never be less than the lesser of 85
percent of the Fair Market Value of the Common Stock on the (i) first Trading
Day of the Option Period or (ii) last Trading Day of the Option Period, and
shall never be less than the par value of the Common Stock.
(d) For purposes of the Plan, "FAIR MARKET VALUE" on a Trading Day means
the value determined by the Administrator in good faith. However, if the Common
Stock is registered under Section 12(b) of the Exchange Act, "Fair Market Value"
shall mean as applicable: (i) either the closing price or the average of the
high and low sale price on the relevant date, as determined in the
Administrator's discretion, quoted on the New York Stock Exchange, the American
Stock Exchange, or the Nasdaq National Market; (ii) the last sale price on the
relevant date quoted on the Nasdaq SmallCap Market; (iii) the average of the
high bid and low asked prices on the relevant date quoted on the Nasdaq OTC
Bulletin Board Service or by the National Quotation Bureau, Inc. or a comparable
service as determined in the Administrator's discretion; or (iv) if the Common
Stock is not quoted by any of the above, the average of the closing bid and
asked prices on the relevant date furnished by a professional market maker for
the Common Stock, or by such other source, selected by the Administrator. If no
public trading of the Common Stock occurs on the relevant date, then Fair Market
Value shall be determined as of the next preceding date on which trading of the
Common Stock does occur. For all purposes under this Plan, the term "relevant
date" as used in this Section 2.1(g) shall mean either the date as of which Fair
Market Value is to be determined or the next preceding date on which public
trading of the Common Stock occurs, as determined in the Administrator's
discretion. Notwithstanding the foregoing, for the Trading Day that occurs on
the date of the initial public offering of the Common Stock, "Fair Market Value"
shall mean the initial offering price of the Common Stock to the public as
indicated in the Corporation's final prospectus in connection with such offering
and as such price is negotiated between the Corporation and the managing
underwriters.
(e) Notwithstanding any provision in this Plan to the contrary, no
employee shall be granted an Option under this Plan if such employee,
immediately after the Option would otherwise be granted, would own 5% or more of
the total combined voting power or value of the stock of the Corporation or any
subsidiary. For purposes of the preceding sentence, the attribution rules of
Code section 424(d) will apply in determining the stock ownership of an
employee, and all stock which the employee has a contractual right to purchase
will be treated as stock owned by the employee.
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<PAGE> 3
(f) Notwithstanding any provision in this Plan to the contrary, no
employee may be granted an Option which permits his rights to purchase Common
Stock under this Plan and all other stock purchase plans of the Corporation and
its subsidiaries to accrue at a rate which exceeds $25,000 of the fair market
value of such Common Stock (determined at the time such Option is granted) for
each calendar year in which the Option is outstanding at any time, as required
by Code section 423.
5. Payroll Deductions and Cash Contributions.
To facilitate payment of the Purchase Price of Options, the Administrator,
in its discretion, may permit eligible employees to authorize payroll deductions
to be made on each payday during the Option Period, and/or to contribute cash or
cash-equivalents to the Corporation, up to a maximum amount determined by the
Administrator. The Corporation will maintain bookkeeping accounts for all
employees who authorize payroll deduction or make cash contributions. Interest
will not be paid on any employee accounts, unless the Administrator determines
otherwise. The Administrator shall establish rules and procedures, in its
discretion, from time to time regarding elections to authorize payroll
deductions, changes in such elections, timing and manner of cash contributions,
and withdrawals from employee accounts. Amounts credited to employee accounts on
the last Trading Day of an Option Period will be applied to the payment of the
Purchase Price of outstanding Options pursuant to Section 6
below.
6. Exercise of Options; Purchase of Common Stock. Options shall be
exercised on the close of business on the last Trading Day of the Option Period.
In accordance with rules established by the Administrator, the Purchase Price of
Common Stock subject to an option shall be paid (i) from funds credited to an
eligible employee's account, (ii) by a broker-assisted cashless exercise in
accordance with Regulation T of the Board of Governors of the Federal Reserve
System, or (iii) by such other method as the Administrator shall determine from
time to time. Options shall be exercised only to the extent the purchase price
is paid with respect to whole shares of Common Stock. Any balance remaining in
an employee's account at the end of an Option Period after such purchase of
Common Stock will be carried forward automatically into the employee's account
for the next Option Period unless the employee is not an eligible employee with
respect to the next Option Period, in which case such amount will be promptly
refunded.
7. Issuance of Certificates. As soon as practicable following the end of
each Option Period, certificates representing shares of Common Stock purchased
under the Plan for such Option Period will be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Administrator's sole discretion)
in the street name of a brokerage firm, bank or other nominee holder designated
by the employee.
8. Rights on Retirement, Death, Termination of Employment, or Termination
of Status as Eligible Employee. In the event of an employee's termination of
employment or termination of status as an eligible employee prior to the last
Trading Day of an Option Period (whether as a result of the employee's voluntary
or involuntary termination, retirement, death or otherwise), any outstanding
Option granted to him will immediately terminate, no further payroll deduction
will be taken from any pay due and owing to the employee and the balance in the
employee's account will be paid to the employee or, in the event of the
employee's death, (a) to the executor or administrator of the employee's estate
or (b) if no such executor or administrator has been appointed to the knowledge
of the Administrator, to such other person(s) as the Administrator may, in its
discretion, designate. If, prior to the last Trading Day of an Option Period,
the Designated Subsidiary by which an employee is employed will cease to be a
subsidiary of the Corporation, or if the employee is transferred to a subsidiary
of the Corporation that is not a
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<PAGE> 4
Designated Subsidiary, the employee will be deemed to have terminated employment
for the purposes of this Plan.
9. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay will constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
10. Options Not Transferable. Options under this Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
11. Withholding of Taxes. To the extent that a participating employee
realizes ordinary income in connection with the purchase, sale or other transfer
of any shares of Common Stock purchased under the Plan or the crediting of
interest to the employee's account, the Corporation may withhold amounts needed
to cover such taxes from any payments otherwise due and owing to the
participating employee or from shares that would otherwise be issued to the
participating employee hereunder. Any participating employee who sells or
otherwise transfers shares purchased under the Plan must, within 30 days of such
sale or transfer, notify the Corporation in writing of the sale or transfer.
12. Application of Funds. All funds received or held by the Corporation
under the Plan may be used for any corporate purpose until applied to the
purchase of Common Stock and/or refunded to participating employees and can be
commingled with other general corporate funds. Participating employees' accounts
will not be segregated.
13. Effect of Changes in Capitalization.
(a) Changes in Stock. If the number of outstanding shares of Common Stock
is increased or decreased or the shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Corporation by reason of any recapitalization, reclassification, stock split,
reverse split, combination of shares, exchange of shares, stock dividend, or
other distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Corporation
occurring after the effective date of the Plan, the number and kind of shares
that may be purchased under the Plan shall be adjusted proportionately and
accordingly by the Corporation. In addition, the number and kind of shares for
which Options are outstanding shall be similarly adjusted so that the
proportionate interest, if any, of a participating employee immediately
following such event shall, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Purchase Price payable by a participating
employee with respect to shares subject to such Options, but shall include a
corresponding proportionate adjustment in the Purchase Price per share.
(b) Reorganization in Which the Corporation Is the Surviving Corporation.
Subject to Subsection (c) of this Section 13, if the Corporation shall be the
surviving corporation in any reorganization, merger or consolidation of the
Corporation with one or more other corporations, all outstanding Options under
the Plan shall pertain to and apply to the securities to which a holder of the
number of shares of Common Stock subject to such Options would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Purchase Price per share so
that the aggregate Purchase Price thereafter shall be the same as the aggregate
Purchase Price of the shares subject to such Options immediately prior to such
reorganization, merger or consolidation.
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<PAGE> 5
(c) Reorganization in Which the Corporation Is Not the Surviving
Corporation or Sale of Assets or Stock. Upon any dissolution or liquidation of
the Corporation, or upon a merger, consolidation or reorganization of the
Corporation with one or more other corporations in which the Corporation is not
the surviving corporation, or upon a sale of all or substantially all of the
assets of the Corporation to another corporation, or upon any transaction
(including, without limitation, a merger or reorganization in which the
Corporation is the surviving corporation) approved by the Board that results in
any person or entity owning more than 50 percent of the combined voting power of
all classes of stock of the Corporation, the Plan and all Options outstanding
hereunder shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new Options covering the stock of a successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kinds of shares and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. In the event of any such termination of the Plan, the Option Period
shall be deemed to have ended on the last Trading Day prior to such termination,
and, unless the Administrator determines otherwise in its discretion, each
participating employee shall have the ability to choose either to (i) have all
monies then credited to such employee's account (including interest, to the
extent any has accrued) returned to such participating employee or (ii) exercise
his Options in accordance with Section 6 on such last Trading Day; provided,
however, that if a participating employee does not exercise his right of choice,
his Options shall be deemed to have been automatically exercised in accordance
with Section 6 on such last Trading Day. The Administrator shall send written
notice of an event that will result in such a termination to all participating
employees not later than the time at which the Corporation gives notice thereof
to its stockholders.
(d) Adjustments. Adjustments under this Section 13 related to stock or
securities of the Corporation shall be made by the Committee, whose
determination in that respect shall be final, binding, and conclusive.
(e) No Limitations on Corporation. The grant of an Option pursuant to the
Plan shall not affect or limit in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, dissolve or liquidate,
or to sell or transfer all or any part of its business or assets.
14. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Corporation is required by Code
section 423, such amendment will not be effected without such approval, and (b)
in no event may any amendment be made which would cause the Plan to fail to
comply with Code section 423 unless expressly so provided by the Board.
15. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Option plus the
number of shares purchased under all Options previously granted under this Plan
exceeds the maximum number of shares issuable under this Plan, the Administrator
will allot the shares then available on a pro rata basis. Any funds then
remaining in a participating employee's account after purchase of the employee's
pro-rata number of shares will be refunded.
16. Termination of the Plan. This Plan may be terminated at any time by
the Board. Except as otherwise provided in Section 13(c) hereof, upon
termination of this Plan all outstanding Options shall immediately terminate and
amounts in the employees' accounts will be promptly refunded.
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<PAGE> 6
17. Governmental Regulations.
(a) The Corporation's obligation to sell and deliver Common Stock under
this Plan is subject to listing on a national stock exchange or quotation on
Nasdaq and the approval of all governmental authorities required in connection
with the authorization, issuance or sale of such stock.
(b) The Plan will be governed by the laws of the State of Delaware,
without regard to the conflict of laws principles thereof, except to the extent
that such law is preempted by federal law.
18. Effective Date. The Plan is effective upon the completion of an
initial public offering of Common Stock, subject to the approval of the
stockholders of the Corporation within 12 months of the date on which the Plan
was adopted by the Board.
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<PAGE> 1
EXHIBIT 10.11
NET2000 GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement"), effective as of
October 27, 1997 (the "Effective Date"), is made by and between NET2000 GROUP,
INC., a Delaware corporation (the "Company"), and MARK A. MENDES (the
"Optionee").
WHEREAS, the Company wishes to grant an option to purchase shares of the
Company's common stock to the Optionee pursuant to the terms of the Company's
1997 Equity Incentive Plan (the "Plan");
WHEREAS, the Company desires that the option to be granted hereunder
qualify under Section 422 of the Internal Revenue Code of 1986 as an incentive
stock option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
GRANT OF OPTION
Section 1.1 - Grant of Option
In consideration of service to the Company and for other good and
valuable consideration, the Company grants to the Optionee an option to purchase
75,547 shares of the Company's common stock in accordance with the terms and
conditions of the Plan. The option is intended by the parties to be, and shall
be treated as, an incentive stock option to the extent allowed under applicable
law. The Optionee's rights with respect to the option shall be governed by the
terms contained herein and in the absence of such definition the Plan.
Section 1.2 - Option Price
The purchase price of the shares of stock covered by the option shall be
$0.70 per share, which is the fair market value for a share of the Company's
common stock as of the effective date of this Agreement, as determined in good
faith by the Board of Directors of the Company.
<PAGE> 2
Section 1.3 - Adjustments in Option
In the event that the outstanding shares of stock subject to the option
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares, the shares subject to the option and the price per share will be
equitably adjusted to reflect such changes pursuant to Article IX of the Plan.
Such adjustment in the option shall be made without change in the total price
applicable to the unexercised portion of the option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the option price per share.
Any such adjustment made by the Administrator of the Plan (the "Administrator"
as defined in the Plan) shall be final and binding upon the Optionee, the
Company and all other interested persons.
ARTICLE II
EXERCISE OF OPTION
Section 2.1 - Person Eligible to Exercise.
During the lifetime of the Optionee, only the Optionee may exercise the
option or any portion thereof. After the death of the Optionee, any exercisable
portion of the option may, prior to the time when the option becomes
unexercisable under the terms of the Plan or this Agreement, be exercised by the
Optionee's personal representative or by any other person empowered to do so
under the Optionee's will, trust or under then applicable laws of descent and
distribution.
Section 2.2 - Manner of Exercise
The option, or any portion thereof, may be exercised only in accordance
with the terms of the Plan and solely by delivery to the President of the
Company of all of the following items prior to the time when the option or such
portion becomes unexercisable under the terms of the Plan:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the option or portion thereof, stating that the option
or portion thereof is thereby exercised, such notice complying with all
applicable rules (if any) established by the Administrator;
(b) Full payment (in cash or by cashiers' or certified check)
for the shares with respect to which such option or portion thereof is
exercised;
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<PAGE> 3
(c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Optionee or other person then
entitled to exercise such option or portion thereof, stating that the shares of
stock are being acquired for his or her own account, for investment and without
any present intention of distributing or reselling said shares, or any of them,
except as may be permitted under the Securities Act of 1933, as amended (the
"Act"), and then applicable rules and regulations thereunder, and that the
Optionee or other person then entitled to exercise such option or portion will
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation and
agreement referred to above. The Administrator may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the observance
and performance of such representations and agreement and to effect compliance
with all federal and state securities laws or regulations. Without limiting the
generality of the foregoing, the Administrator may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an option exercise does not violate the Act and may issue stop-transfer
orders covering such shares. The written representations and agreement referred
to in the first sentence of this subsection (c), however, shall not be required
if the shares to be issued pursuant to such exercise have been registered under
the Act, and such registration is then effective in respect of such shares; and
(d) In the event the option or any portion thereof shall be
exercised pursuant to Section 2.1 by any person or persons other than the
Optionee, appropriate proof, reasonably satisfactory to the Administrator, of
the right of such person or persons to exercise the option.
(e) As a condition to the issuance of Shares upon Option
exercise (whether to the Optionee or to his beneficiary), the Company shall have
the right to withhold from payments otherwise due and owing to the Optionee (or
his beneficiary) or to require the Optionee (or his beneficiary) to remit to the
Company in cash upon demand an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, or local withholding tax requirements
at the time the Optionee (or his beneficiary) recognizes income for federal,
state, or local tax purposes as the result of the receipt of Shares pursuant to
this Agreement.
Section 2.3 - Conditions to Issuance of Shares
(a) The Company shall not issue any shares to the Optionee until
the Optionee has executed and delivered to the Company a Stock Restriction
Agreement substantially in the form of attached Exhibit 1, and a Notice of
Exercise of Stock Option letter, substantially in the form of attached Exhibit
2.
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<PAGE> 4
(b) The shares of stock deliverable upon the exercise of the
option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have been reacquired by the Company. Such shares
shall be fully paid and nonassessable and certificates representing such shares
shall be delivered to Optionee immediately upon full compliance with the terms
and conditions contained in this Agreement and the Plan.
Section 2.4 - Rights of Shareholders
The Optionee shall not be, nor have any of the rights or privileges of, a
shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the option unless and until certificates representing
such shares shall have been issued by the Company to the Optionee.
Section 2.5 - Vesting and Exercisability.
The option granted hereunder shall vest according to the schedule in this
Section 2.5 and shall be exercisable as to not more than the vested percentage
of the shares subject to the option at any point in time. The option shall
become vested according to the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage
Date of Shares Vested
---- ----------------
<S> <C>
Immediately 50%
11/27/98 75%
11/27/99 87.5%
11/27/00 100%
</TABLE>
Administrator, in its sole and absolute discretion, may accelerate the
vesting of the option at any time.
Section 2.6 - Duration of Option
Except as specified below, the option granted hereunder shall expire ten
years from the effective date of grant. Notwithstanding the foregoing, the
option may expire prior to ten years from the effective date of this Agreement,
in the following circumstances:
(a) In the case of the Optionee's death, the option shall expire
on the one-year anniversary of the Optionee's death.
(b) In the case of the Optionee's total and permanent disability
and resulting termination of affiliation with the Company, the option shall
expire on the one-year anniversary date of the Optionee's last day of
affiliation with the Company.
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<PAGE> 5
(c) If the Optionee ceases affiliation with the Company for any
reason other than death or disability (as described in the preceding paragraph),
the option shall lapse ninety days following the last day that the Optionee is
affiliated with the Company.
(d) Notwithstanding any provisions set forth above in this
Section 2.6, if the Optionee shall (i) commit any act of malfeasance or
wrongdoing affecting the Company or its affiliates, (ii) breach any covenant not
to compete or any material provision of any other agreement with the Company or
any affiliate, or (iii) engage in conduct that would warrant the Optionee's
discharge for cause, any unexercised part of the option shall lapse immediately
upon the earlier of the occurrence of such event or the last day the Optionee is
affiliated with the Company.
Section 2.7 - Change of Control
If there is a Change in Control, as defined below, 50% of the unvested
outstanding options to purchase Company capital stock shall immediately vest.
Notwithstanding the preceding sentence, (i) if the Optionee shall be terminated
by the Company, without cause (as defined in the Employment Agreement by and
between the Company and the Optionee of even date herewith, the "Employment
Agreement"), within three months of a Change in Control, as defined below, 100%
of the outstanding unvested options to purchase Company capital stock held by
the Optionee shall vest at the time of termination or (ii) if the Optionee shall
be terminated by the acquiring company, without cause (as defined in the
Employment Agreement), within six months following a Change in Control, as
defined below, 100% of the outstanding unvested options to purchase Company
capital stock held by the Optionee shall vest at the time of termination
Change of control shall be deemed to occur upon the first of the
following events:
(i) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities (other
than through issuance of securities by the Company) and such person has the
ability to elect a majority of the members of the Company's Board of Directors,
if such ownership is not in place on the date of the grant:
(ii) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company sufficient to elect a majority of
the members of the Board of Directors of the Company, provided that the
Optionee's responsibilities as an employee of the Company are materially
adversely diminished by such change in control; or
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<PAGE> 6
(iii) the sale of all or substantially all of the assets
of the Company, or a merger, consolidation, or similar transaction of the
company in which the Company is not the surviving entity or the Company's
stockholders immediately prior to such transaction hold less than 50% of the
voting securities of the surviving entity:
A "change in control" shall not include either of the
following events:
(i) a transaction, the sole purpose of which is to change
the state of the Company's incorporation; or
(ii) a transaction, the result of which is to sell all or
substantially all of the assets of the Company to another entity ( the
"surviving entity"); provided the surviving entity is owned directly or
indirectly by the Company's stockholders immediately following such transaction
in substantially the same proportions as their ownership of the Company's voting
capital stock immediately preceding such transaction.
ARTICLE III
MISCELLANEOUS
Section 3.1 - Administration
The Administrator shall have the power to interpret this Agreement and to
adopt such rules for the administration, interpretation and application of the
Agreement as are consistent herewith and to interpret or revoke any such rules.
All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Administrator shall
be personally liable for any action, determination or interpretation made in
good faith with respect to this Agreement or any similar agreement to which the
Company is a party.
Section 3.2 - Options Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is voluntary
or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 3.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
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<PAGE> 7
Section 3.3 - Shares to be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 3.4 - Proceeds
The proceeds received by the Company for the sale of shares of stock
pursuant to this Agreement shall be used for general corporate purposes.
Section 3.5 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature below. By a notice given pursuant to this Section 3.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall have been deemed duly given
when enclosed in a properly sealed envelope addressed as aforesaid, deposited
(with postage prepaid) in a United States postal receptacle.
Section 3.6 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 3.7 - Incorporation of the Plan by Reference
The option is granted in accordance with the terms and conditions of the
Plan, the terms of which are incorporated herein by reference, and the Agreement
shall in all respects be interpreted in accordance with the Plan. Any
capitalized term used in the Agreement that is not otherwise defined in the
Agreement shall have the meaning assigned to it in the Plan.
Section 3.8 - Governing Law.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the Commonwealth of Virginia.
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<PAGE> 8
Section 3.9 - Amendment.
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Optionee.
Section 3.10 - Entire Agreement.
This Agreement, the exhibits hereto and the Plan constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
Section 3.11 - Arbitration.
The parties agree that any controversy, claim, or dispute arising out of
or relating to this Agreement, or the breach thereof, or arising out of or
relating to the employment of the Optionee, or the termination thereof,
including any claims under federal, state, or local law, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree that
any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
[signatures on next page]
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<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties as of the Effective Date.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
----------------------------------------
Clayton A. Thomas, Jr., President
MARK A. MENDES
/s/ Mark A. Mendes
---------------------------------------------
35641 Dunthorpe Lane,
Purcellville, VA 20132
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<PAGE> 1
EXHIBIT 10.11.1
NET2000 GROUP, INC.
PREFERRED STOCK INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement"), effective as of
October 27, 1997 (the "Effective Date"), is made by and between NET2000 GROUP,
INC., a Delaware corporation (the "Company"), and MARK A. MENDES (the
"Optionee").
WHEREAS, the Company wishes to grant an option to purchase shares of the
Company's Series A Preferred Stock to the Optionee;
WHEREAS, the Company desires that the option to be granted hereunder
qualify under Section 422 of the Internal Revenue Code of 1986 as an incentive
stock option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
GRANT OF OPTION
Section 1.1 - Grant of Option
In consideration of service to the Company and for other good and
valuable consideration, the Company grants to the Optionee an option to purchase
21,898 shares of the Company's Series A Preferred Stock in accordance with the
terms and conditions of the Plan. The option is intended by the parties to be,
and shall be treated as, an incentive stock option, to the extent allowed under
applicable law. The Optionee's rights with respect to the option shall be
governed by the terms contained herein.
Section 1.2 - Option Price
The purchase price of the shares of stock covered by the option shall be
$3.425 per share, the fair market value for a share of the Company's Series A
Preferred Stock as of the effective date of this Agreement, as determined in
good faith by the Board of Directors of the Company.
Section 1.3 - Adjustments in Option
In the event that the outstanding shares of stock subject to the option
are changed into or exchanged for a different number or kind of shares of the
Company or other
<PAGE> 2
securities of the Company by reason of merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or combination of shares, the
shares subject to the option and the price per share will be equitably adjusted
to reflect such changes pursuant to this Agreement. Such adjustment in the
option shall be made without change in the total price applicable to the
unexercised portion of the option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices) and with any
necessary corresponding adjustment in the option price per share. Any such
adjustment made by the Company shall be final and binding upon the Optionee, the
Company and all other interested persons.
ARTICLE II
EXERCISE OF OPTION
Section 2.1 - Person Eligible to Exercise.
During the lifetime of the Optionee, only the Optionee may exercise the
option or any portion thereof. After the death of the Optionee, any exercisable
portion of the option may, prior to the time when the option becomes
unexercisable under the terms of this Agreement, be exercised by the Optionee's
personal representative or by any other person empowered to do so under the
Optionee's will, trust or under then applicable laws of descent and
distribution.
Section 2.2 - Manner of Exercise
The option, or any portion thereof, may be exercised only in accordance
with the terms of this Agreement and solely by delivery to the President of the
Company of all of the following items prior to the time when the option or such
portion becomes unexercisable under the terms of this Agreement:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the option or portion thereof, stating that the option
or portion thereof is thereby exercised, such notice complying with all
applicable rules (if any) established by the Company;
(b) Full payment (in cash or by cashiers' or certified check)
for the shares with respect to which such option or portion thereof is
exercised;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such option or portion thereof, stating that the shares of
stock are being acquired for his or her own account, for investment and without
any present intention of distributing or reselling said shares, or any of them,
except as may be permitted under the Securities Act of 1933, as amended (the
"Act"), and then applicable rules and regulations
-2-
<PAGE> 3
thereunder, and that the Optionee or other person then entitled to exercise such
option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to ensure the
observance and performance of such representations and agreement and to effect
compliance with all federal and state securities laws or regulations. Without
limiting the generality of the foregoing, the Company may require an opinion of
counsel acceptable to it to the effect that any subsequent transfer of shares
acquired on an option exercise does not violate the Act and may issue
stop-transfer orders covering such shares. The written representations and
agreement referred to in the first sentence of this subsection (c), however,
shall not be required if the shares to be issued pursuant to such exercise have
been registered under the Act, and such registration is then effective in
respect of such shares; and
(d) In the event the option or any portion thereof shall be
exercised pursuant to Section 2.1 by any person or persons other than the
Optionee, appropriate proof, reasonably satisfactory to the Company, of the
right of such person or persons to exercise the option.
(e) As a condition to the issuance of Shares upon Option
exercise (whether to the Optionee or to his beneficiary), the Company shall have
the right to withhold from payments otherwise due and owing to the Optionee (or
his beneficiary) or to require the Optionee (or his beneficiary) to remit to the
Company in cash upon demand an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, or local withholding tax requirements
at the time the Optionee (or his beneficiary) recognizes income for federal,
state, or local tax purposes as the result of the receipt of Shares pursuant to
this Agreement.
Section 2.3 - Conditions to Issuance of Shares
(a) The Company shall not issue any shares to the Optionee until
the Optionee has executed and delivered to the Company a Stock Restriction
Agreement substantially in the form of attached Exhibit 1, and a Notice of
Exercise of Stock Option letter, substantially in the form of attached Exhibit
2.
(b) The shares of stock deliverable upon the exercise of the
option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have been reacquired by the Company. Such shares
shall be fully paid and nonassessable and certificates representing such shares
shall be delivered to Optionee upon full compliance with the terms and
conditions contained in this Agreement.
-3-
<PAGE> 4
Section 2.4 - Rights of Shareholders
The Optionee shall not be, nor have any of the rights or privileges of, a
shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the option unless and until certificates representing
such shares shall have been issued by the Company to the Optionee.
Section 2.5 - Vesting and Exercisability.
The option granted hereunder shall vest as follows: 21,400 shares vest
immediately and 498 shares vest on January 1, 1998.
Section 2.6 - Duration of Option
Except as specified below, the option granted hereunder shall expire ten
months from the effective date of grant. Notwithstanding the foregoing, the
option may expire prior to ten months from the effective date of this Agreement,
in the following circumstances:
(a) In the case of the Optionee's death, the option shall expire
on the one-year anniversary of the Optionee's death.
(b) In the case of the Optionee's total and permanent disability
and resulting termination of affiliation with the Company, the option shall
expire on the one-year anniversary date of the Optionee's last day of
affiliation with the Company.
(c) If the Optionee ceases affiliation with the Company for any
reason other than death or disability (as described in the preceding paragraph),
the option shall lapse ninety (90) days following the last day that the Optionee
is affiliated with the Company.
(d) Notwithstanding any provisions set forth above in this
Section 2.6, if the Optionee shall (i) commit any act of malfeasance or
wrongdoing affecting the Company or its affiliates, (ii) breach any covenant not
to compete or any material provision of any other agreement with the Company or
any affiliate, or (iii) engage in conduct that would warrant the Optionee's
discharge for cause, any unexercised part of the option shall lapse immediately
upon the earlier of the occurrence of such event or the last day the Optionee is
affiliated with the Company.
-4-
<PAGE> 5
ARTICLE III
MISCELLANEOUS
Section 3.1 - Administration
The Company shall have the power to interpret this Agreement and to adopt
such rules for the administration, interpretation and application of the
Agreement as are consistent herewith and to interpret or revoke any such rules.
All actions taken and all interpretations and determinations made by the Company
in good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to this Agreement or any similar agreement to which the Company is a party.
Section 3.2 - Options Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is voluntary
or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 3.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
Section 3.3 - Shares to be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 3.4 - Proceeds
The proceeds received by the Company for the sale of shares of stock
pursuant to this Agreement shall be used for general corporate purposes.
Section 3.5 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature below. By a notice given pursuant to this Section 3.5, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the
-5-
<PAGE> 6
Optionee shall, if the Optionee is then deceased, be given to the Optionee's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section. Any
notice shall have been deemed duly given when enclosed in a properly sealed
envelope addressed as aforesaid, deposited (with postage prepaid) in a United
States postal receptacle.
Section 3.6 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 3.7 - Governing Law.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the Commonwealth of Virginia.
Section 3.8 - Amendment.
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Optionee.
Section 3.9 - Arbitration.
The parties agree that any controversy, claim, or dispute arising out of
or relating to this Agreement, or the breach thereof, or arising out of or
relating to the employment of the Optionee, or the termination thereof,
including any claims under federal, state, or local law, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree that
any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
Section 3.10 - Notification of Disposition
The Optionee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made within two (2) years from the date of the
exercise of an option with respect to such shares. Such notice shall specify the
date of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Optionee in such disposition or other transfer.
[signatures on next page]
-6-
<PAGE> 7
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties as of the Effective Date.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
--------------------------------------------
Clayton A. Thomas, Jr., President
MARK A. MENDES
/s/ Mark A. Mendes
------------------------------------------------
35641 Dunthorpe Lane,
Purcellville, VA 20132
-7-
<PAGE> 1
EXHIBIT 10.11.2
NET2000 GROUP, INC.
AMENDMENT NO. 1 TO
PREFERRED STOCK INCENTIVE STOCK OPTION AGREEMENT
THIS AMENDMENT NO. 1 TO INCENTIVE STOCK OPTION AGREEMENT (the
"Amendment No. 1") is made and effective this 1st day of April, 1998, by and
among Net2000 Group, Inc., a Delaware corporation (the "Company") and Mark A.
Mendes.
WHEREAS, the Company and Mendes previously entered into an
Incentive Stock Option Agreement (the "Agreement"), a copy of which is attached
hereto as Exhibit A, granting Mendes an option (the "Option") to purchase 21,898
shares of the Company's Series A Preferred Stock at a price per share of $3.425;
and
WHEREAS, the Company and Mendes desire to amend the Agreement to
provide that the Option shall be exercisable for 21,898 shares of the Common
Stock of the Company at a price per share of $3.425.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Effective the date hereof, the Agreement shall be and hereby
is amended to provide that the Option set forth therein shall be an option to
purchase shares of the Company's Common Stock at a price per share of $3.425.
2. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
{Signatures on following page}
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands as of the day and year first above written.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
-----------------------------------
Clayton A. Thomas, Jr.
President
MARK A. MENDES
/s/ Mark A. Mendes
-----------------------------------
-2-
<PAGE> 1
EXHIBIT 10.11.3
NET2000 GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement"), effective as of
May 19, 1998 (the "Effective Date"), is made by and between NET2000 GROUP, INC.,
a Delaware corporation (the "Company"), and MARK A. MENDES (the "Optionee").
WHEREAS, the Company wishes to grant an option to purchase shares of the
Company's common stock to the Optionee pursuant to the terms of the Company's
1997 Equity Incentive Plan (the "Plan");
WHEREAS, the Company desires that the option to be granted hereunder
qualify under Section 422 of the Internal Revenue Code of 1986 as an incentive
stock option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
GRANT OF OPTION
Section 1.1 - Grant of Option
In consideration of service to the Company and for other good and
valuable consideration, the Company grants to the Optionee an option to purchase
155,844 shares of the Company's common stock in accordance with the terms and
conditions of the Plan. The option is intended by the parties to be, and shall
be treated as, an incentive stock option to the extent allowed under applicable
law. The Optionee's rights with respect to the option shall be governed by the
terms contained herein and in the absence of such definition the Plan.
Section 1.2 - Option Price
The purchase price of the shares of stock covered by the option shall be
$0.95 per share, which is the fair market value for a share of the Company's
common stock as of the effective date of this Agreement, as determined in good
faith by the Board of Directors of the Company.
<PAGE> 2
Section 1.3 - Adjustments in Option
In the event that the outstanding shares of stock subject to the option
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares, the shares subject to the option and the price per share will be
equitably adjusted to reflect such changes pursuant to Article IX of the Plan.
Such adjustment in the option shall be made without change in the total price
applicable to the unexercised portion of the option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the option price per share.
Any such adjustment made by the Administrator of the Plan (the "Administrator"
as defined in the Plan) shall be final and binding upon the Optionee, the
Company and all other interested persons.
ARTICLE II
EXERCISE OF OPTION
Section 2.1 - Person Eligible to Exercise.
During the lifetime of the Optionee, only the Optionee may exercise the
option or any portion thereof. After the death of the Optionee, any exercisable
portion of the option may, prior to the time when the option becomes
unexercisable under the terms of the Plan or this Agreement, be exercised by the
Optionee's personal representative or by any other person empowered to do so
under the Optionee's will, trust or under then applicable laws of descent and
distribution.
Section 2.2 - Manner of Exercise
The option, or any portion thereof, may be exercised only in accordance
with the terms of the Plan and solely by delivery to the President of the
Company of all of the following items prior to the time when the option or such
portion becomes unexercisable under the terms of the Plan:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the option or portion thereof, stating that the option
or portion thereof is thereby exercised, such notice complying with all
applicable rules (if any) established by the Administrator;
(b) Full payment (in cash or by cashiers' or certified check)
for the shares with respect to which such option or portion thereof is
exercised;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Optionee or other person then
entitled to
-2-
<PAGE> 3
exercise such option or portion thereof, stating that the shares of stock are
being acquired for his or her own account, for investment and without any
present intention of distributing or reselling said shares, or any of them,
except as may be permitted under the Securities Act of 1933, as amended (the
"Act"), and then applicable rules and regulations thereunder, and that the
Optionee or other person then entitled to exercise such option or portion will
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation and
agreement referred to above. The Administrator may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the observance
and performance of such representations and agreement and to effect compliance
with all federal and state securities laws or regulations. Without limiting the
generality of the foregoing, the Administrator may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an option exercise does not violate the Act and may issue stop-transfer
orders covering such shares. The written representations and agreement referred
to in the first sentence of this subsection (c), however, shall not be required
if the shares to be issued pursuant to such exercise have been registered under
the Act, and such registration is then effective in respect of such shares; and
(d) In the event the option or any portion thereof shall be
exercised pursuant to Section 2.1 by any person or persons other than the
Optionee, appropriate proof, reasonably satisfactory to the Administrator, of
the right of such person or persons to exercise the option.
(e) As a condition to the issuance of Shares upon Option
exercise (whether to the Optionee or to his beneficiary), the Company shall have
the right to withhold from payments otherwise due and owing to the Optionee (or
his beneficiary) or to require the Optionee (or his beneficiary) to remit to the
Company in cash upon demand an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, or local withholding tax requirements
at the time the Optionee (or his beneficiary) recognizes income for federal,
state, or local tax purposes as the result of the receipt of Shares pursuant to
this Agreement.
Section 2.3 - Conditions to Issuance of Shares
(a) The Company shall not issue any shares to the Optionee until
the Optionee has executed and delivered to the Company a Stock Restriction
Agreement substantially in the form of attached Exhibit 1, and a Notice of
Exercise of Stock Option letter, substantially in the form of attached Exhibit
2.
(b) The shares of stock deliverable upon the exercise of the
option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have been reacquired by the Company. Such shares
shall be fully paid and nonassessable and certificates representing such shares
shall be delivered to Optionee
-3-
<PAGE> 4
immediately upon full compliance with the terms and conditions contained in this
Agreement and the Plan.
Section 2.4 - Rights of Shareholders
The Optionee shall not be, nor have any of the rights or privileges of, a
shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the option unless and until certificates representing
such shares shall have been issued by the Company to the Optionee.
Section 2.5 - Vesting and Exercisability.
The option granted hereunder shall vest according to the schedule in this
Section 2.5 and shall be exercisable as to not more than the vested percentage
of the shares subject to the option at any point in time. The option shall
become vested according to the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage
Date of Shares Vested
---- ----------------
<S> <C>
Immediately 50%
11/27/98 75%
11/27/99 87.5%
11/27/00 100%
</TABLE>
Administrator, in its sole and absolute discretion, may accelerate the
vesting of the option at any time.
Section 2.6 - Duration of Option
Except as specified below, the option granted hereunder shall expire ten
years from the effective date of grant. Notwithstanding the foregoing, the
option may expire prior to ten years from the effective date of this Agreement,
in the following circumstances:
(a) In the case of the Optionee's death, the option shall expire
on the one-year anniversary of the Optionee's death.
(b) In the case of the Optionee's total and permanent disability
and resulting termination of affiliation with the Company, the option shall
expire on the one-year anniversary date of the Optionee's last day of
affiliation with the Company.
(c) If the Optionee ceases affiliation with the Company for any
reason other than death or disability (as described in the preceding paragraph),
the option shall lapse ninety days following the last day that the Optionee is
affiliated with the Company.
-4-
<PAGE> 5
(d) Notwithstanding any provisions set forth above in this
Section 2.6, if the Optionee shall (i) commit any act of malfeasance or
wrongdoing affecting the Company or its affiliates, (ii) breach any covenant not
to compete or any material provision of any other agreement with the Company or
any affiliate, or (iii) engage in conduct that would warrant the Optionee's
discharge for cause, any unexercised part of the option shall lapse immediately
upon the earlier of the occurrence of such event or the last day the Optionee is
affiliated with the Company.
Section 2.7 - Change of Control
If there is a Change in Control, as defined below, 50% of the unvested
outstanding options to purchase Company capital stock shall immediately vest.
Notwithstanding the preceding sentence, (i) if the Optionee shall be terminated
by the Company, without cause (as defined in the Employment Agreement by and
between the Company and the Optionee of even date herewith, the "Employment
Agreement"), within three months of a Change in Control, as defined below, 100%
of the outstanding unvested options to purchase Company capital stock held by
the Optionee shall vest at the time of termination or (ii) if the Optionee shall
be terminated by the acquiring company, without cause (as defined in the
Employment Agreement), within six months following a Change in Control, as
defined below, 100% of the outstanding unvested options to purchase Company
capital stock held by the Optionee shall vest at the time of termination
Change of control shall be deemed to occur upon the first of the
following events:
(i) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities (other
than through issuance of securities by the Company) and such person has the
ability to elect a majority of the members of the Company's Board of Directors,
if such ownership is not in place on the date of the grant:
(ii) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company sufficient to elect a majority of
the members of the Board of Directors of the Company, provided that the
Optionee's responsibilities as an employee of the Company are materially
adversely diminished by such change in control; or
(iii) the sale of all or substantially all of the assets of the
Company, or a merger, consolidation, or similar transaction of the company in
which the Company is not the surviving entity or the Company's stockholders
immediately prior to such transaction hold less than 50% of the voting
securities of the surviving entity:
A "change in control" shall not include either of the following
events:
-5-
<PAGE> 6
(i) a transaction, the sole purpose of which is to change the
state of the Company's incorporation; or
(ii) a transaction, the result of which is to sell all or
substantially all of the assets of the Company to another entity ( the
"surviving entity"); provided the surviving entity is owned directly or
indirectly by the Company's stockholders immediately following such transaction
in substantially the same proportions as their ownership of the Company's voting
capital stock immediately preceding such transaction.
ARTICLE III
MISCELLANEOUS
Section 3.1 - Administration
The Administrator shall have the power to interpret this Agreement and to
adopt such rules for the administration, interpretation and application of the
Agreement as are consistent herewith and to interpret or revoke any such rules.
All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Administrator shall
be personally liable for any action, determination or interpretation made in
good faith with respect to this Agreement or any similar agreement to which the
Company is a party.
Section 3.2 - Options Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is voluntary
or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 3.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
Section 3.3 - Shares to be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
-6-
<PAGE> 7
Section 3.4 - Proceeds
The proceeds received by the Company for the sale of shares of stock
pursuant to this Agreement shall be used for general corporate purposes.
Section 3.5 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature below. By a notice given pursuant to this Section 3.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall have been deemed duly given
when enclosed in a properly sealed envelope addressed as aforesaid, deposited
(with postage prepaid) in a United States postal receptacle.
Section 3.6 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 3.7 - Incorporation of the Plan by Reference
The option is granted in accordance with the terms and conditions of the
Plan, the terms of which are incorporated herein by reference, and the Agreement
shall in all respects be interpreted in accordance with the Plan. Any
capitalized term used in the Agreement that is not otherwise defined in the
Agreement shall have the meaning assigned to it in the Plan.
Section 3.8 - Governing Law.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the Commonwealth of Virginia.
Section 3.9 - Amendment.
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Optionee.
Section 3.10 - Entire Agreement.
This Agreement, the exhibits hereto and the Plan constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
-7-
<PAGE> 8
Section 3.11 - Arbitration.
The parties agree that any controversy, claim, or dispute arising out of
or relating to this Agreement, or the breach thereof, or arising out of or
relating to the employment of the Optionee, or the termination thereof,
including any claims under federal, state, or local law, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree that
any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
[signatures on next page]
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties as of the Effective Date.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
------------------------------------------------
Clayton A. Thomas, Jr., President
MARK A. MENDES
/s/ Mark A. Mendes
-----------------------------------------------------
35641 Dunthorpe Lane,
Purcellville, VA 20132
-9-
<PAGE> 1
EXHIBIT 10.12
NET2000 GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement"), effective as of
December 15, 1997, is made by and between NET2000 GROUP, INC., a Delaware
corporation (the "Company"), and DONALD E. CLARKE (the "Optionee").
WHEREAS, the Company wishes to grant an option to purchase shares of the
Company's common stock to the Optionee pursuant to the terms of the Employment
Agreement of even date herewith and the Company's 1997 Equity Incentive Plan
(the "Plan");
WHEREAS, the Company desires that the option to be granted hereunder
qualify under Section 422 of the Internal Revenue Code of 1986 as an incentive
stock option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
GRANT OF OPTION
Section 1.1 - Grant of Option
In consideration of service to the Company and for other good and
valuable consideration, the Company grants to the Optionee an option to purchase
50,365 shares of the Company's common stock in accordance with the terms and
conditions of the Plan. The option is intended by the parties to be, and shall
be treated as, an incentive stock option, as such term is defined under Section
422 of the Internal Revenue Code of 1986 (the "Code"). The Optionee's rights
with respect to the option shall be governed by the terms contained herein and
in the absence of such definition the Plan.
Section 1.2 - Option Price
The purchase price of the shares of stock covered by the option shall be
$0.70 per share, which was the fair market value for a share of the Company's
common stock as of the effective date of this Agreement, as determined in good
faith by the Board of Directors of the Company in conformance with the Treasury
Regulations under Section 422 of the Code.
<PAGE> 2
Section 1.3 - Adjustments in Option
In the event that the outstanding shares of stock subject to the option
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares, the shares subject to the option and the price per share will be
equitably adjusted to reflect such changes pursuant to Article IX of the Plan.
Such adjustment in the option shall be made without change in the total price
applicable to the unexercised portion of the option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the option price per share.
Any such adjustment made by the Administrator of the Plan (the "Administrator"
as defined in the Plan) shall be final and binding upon the Optionee, the
Company and all other interested persons.
ARTICLE II
EXERCISE OF OPTION
Section 2.1 - Person Eligible to Exercise.
During the lifetime of the Optionee, only the Optionee may exercise the
option or any portion thereof. After the death of the Optionee, any exercisable
portion of the option may, prior to the time when the option becomes
unexercisable under the terms of the Plan or the Agreement, be exercised by the
Optionee's personal representative or by any other person empowered to do so
under the Optionee's will, trust or under then applicable laws of descent and
distribution.
Section 2.2 - Manner of Exercise
The option, or any portion thereof, may be exercised only in accordance
with the terms of the Plan and solely by delivery to the President of the
Company of all of the following items prior to the time when the option or such
portion becomes unexercisable under the terms of the Plan:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the option or portion thereof, stating that the option
or portion thereof is thereby exercised, such notice complying with all
applicable rules (if any) established by the Administrator;
(b) Full payment (in cash or by cashiers' or certified check)
for the shares with respect to which such option or portion thereof is
exercised;
- 2 -
<PAGE> 3
(c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Optionee or other person then
entitled to exercise such option or portion thereof, stating that the shares of
stock are being acquired for his or her own account, for investment and without
any present intention of distributing or reselling said shares, or any of them,
except as may be permitted under the Securities Act of 1933, as amended (the
"Act"), and then applicable rules and regulations thereunder, and that the
Optionee or other person then entitled to exercise such option or portion will
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation and
agreement referred to above. The Administrator may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the observance
and performance of such representations and agreement and to effect compliance
with all federal and state securities laws or regulations. Without limiting the
generality of the foregoing, the Administrator may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an option exercise does not violate the Act and may issue stop-transfer
orders covering such shares. The written representations and agreement referred
to in the first sentence of this subsection (c), however, shall not be required
if the shares to be issued pursuant to such exercise have been registered under
the Act, and such registration is then effective in respect of such shares; and
(d) In the event the option or any portion thereof shall be
exercised pursuant to Section 2.1 by any person or persons other than the
Optionee, appropriate proof, reasonably satisfactory to the Administrator, of
the right of such person or persons to exercise the option.
(e) As a condition to the issuance of Shares upon Option
exercise (whether to the Optionee or to his beneficiary), the Company shall have
the right to withhold from payments otherwise due and owing to the Optionee (or
his beneficiary) or to require the Optionee (or his beneficiary) to remit to the
Company in cash upon demand an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, or local withholding tax requirements
at the time the Optionee (or his beneficiary) recognizes income for federal,
state, or local tax purposes as the result of the receipt of Shares pursuant to
this Agreement.
Section 2.3 - Conditions to Issuance of Shares
(a) The Company shall not issue any shares to the Optionee until
the Optionee has executed and delivered to the Company a Stock Restriction
Agreement substantially in the form of attached Exhibit 1, and a Notice of
Exercise of Stock Option letter, substantially in the form of attached Exhibit
2.
(b) The shares of stock deliverable upon the exercise of the
option, or any portion thereof, may be either previously authorized but unissued
shares or issued
- 3 -
<PAGE> 4
shares which have been reacquired by the Company. Such shares shall be fully
paid and nonassessable and certificates representing such shares shall be
delivered to Optionee immediately upon full compliance with the terms and
conditions contained in this Agreement and the Plan.
Section 2.4 - Rights of Shareholders
The Optionee shall not be, nor have any of the rights or privileges of, a
shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the option unless and until certificates representing
such shares shall have been issued by the Company to the Optionee.
Section 2.5 - Vesting and Exercisability.
The option granted hereunder shall vest according to the schedule in this
Section 2.5 and shall be exercisable as to not more than the vested percentage
of the shares subject to the option at any point in time. The option shall
become vested according to the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage
Date of Shares Vested
---- ----------------
<S> <C> <C>
Immediately 25%
12/15/98 50%
12/15/99 75%
12/15/00 100%
</TABLE>
Administrator, in its sole and absolute discretion, may accelerate the
vesting of the option at any time.
Section 2.6 - Duration of Option
Except as specified below, the option granted hereunder shall expire ten
years from the effective date of grant. Notwithstanding the foregoing, the
option may expire prior to ten years from the effective date of this Agreement,
in the following circumstances:
(a) In the case of the Optionee's death, the option shall expire
on the one-year anniversary of the Optionee's death.
(b) In the case of the Optionee's total and permanent disability
and resulting termination of employment with the Company, the option shall
expire on the one-year anniversary date of the Optionee's last day of
employment.
(c) If the Optionee ceases employment for any reason other than
death, disability or retirement (as described in the preceding paragraph), the
option shall lapse
- 4 -
<PAGE> 5
on the 90th day following the day upon which the Optionee's employment with the
Company is terminated.
(d) Notwithstanding any provisions set forth above in this
Section 2.6, if the Optionee shall (i) commit any act of material malfeasance
affecting the Company or its affiliates, (ii) breach any covenant not to compete
or any material provision of any other agreement with the Company or any
affiliate, or (iii) engage in conduct that would warrant the Optionee's
discharge for cause, any unexercised part of the option shall lapse immediately
upon the earlier of the occurrence of such event or the last day the Optionee is
employed by the Company.
Section 2.7 - Change of Control
If there is a Change in Control, as defined below, 67% of the outstanding
unvested options to purchase Company capital stock held by the Optionee shall
vest immediately. Notwithstanding the preceding sentence, (i) if the Optionee
shall be terminated by the Company, without cause (as defined in the Employment
Agreement by and between the Company and the Optionee of even date herewith, the
"Employment Agreement"), within three months of a Change in Control, as defined
below, 100% of the outstanding unvested options to purchase Company capital
stock held by the Optionee shall vest at the time of termination or (ii) if the
Optionee shall be terminated by the acquiring company, without cause (as defined
in the Employment Agreement), within six months following a Change in Control,
as defined below, 100% of the outstanding unvested options to purchase Company
capital stock held by the Optionee shall vest at the time of termination
Change of control shall be deemed to occur upon the first of the
following events:
(i) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities and
such person has the ability to elect a majority of the members of the Company's
Board of Directors, if such ownership is not in place on the date of the grant;
(ii) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company sufficient to elect a majority of
the members of the Board of Directors of the Company, provided that the
Optionee's responsibilities as an employee of the Company are materially
adversely diminished by such change in control; or
(iii) the sale of all or substantially all of the assets
of the Company, or a merger, consolidation, or similar transaction of the
company in which the Company is not the surviving entity or the Company's
stockholders immediately prior to such transaction hold less than 50% of the
voting securities of the surviving entity.
- 5 -
<PAGE> 6
A "change in control" shall not include either of the following events:
(i) a transaction, the sole purpose of which is to change
the state of the Company's incorporation; or
(ii) a transaction, the result of which is to sell all or
substantially all of the assets of the Company to another entity ( the
"surviving entity"); provided the surviving entity is owned directly or
indirectly by the Company's stockholders immediately following such transaction
in substantially the same proportions as their ownership of the Company's voting
capital stock immediately preceding such transaction.
ARTICLE III
MISCELLANEOUS
Section 3.1 - Administration
The Administrator shall have the power to interpret this Agreement and to
adopt such rules for the administration, interpretation and application of the
Agreement as are consistent herewith and to interpret or revoke any such rules.
All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Administrator shall
be personally liable for any action, determination or interpretation made in
good faith with respect to this Agreement or any similar agreement to which the
Company is a party.
Section 3.2 - Options Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is voluntary
or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 3.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
Section 3.3 - Shares to be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
- 6 -
<PAGE> 7
Section 3.4 - Proceeds
The proceeds received by the Company for the sale of shares of stock
pursuant to this Agreement shall be used for general corporate purposes.
Section 3.5 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature below. By a notice given pursuant to this Section 3.5, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall have been deemed duly given
when enclosed in a properly sealed envelope addressed as aforesaid, deposited
(with postage prepaid) in a United States postal receptacle.
Section 3.6 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 3.7 - Notification of Disposition
The Optionee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made within two (2) years from the date of the
exercise of an option with respect to such shares. Such notice shall specify the
date of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Optionee in such disposition or other transfer.
Section 3.8 - Incorporation of the Plan by Reference
The option is granted in accordance with the terms and conditions of the
Agreement and the Plan, the terms of which are incorporated herein by reference,
and to the extent that terms and conditions are described in the Agreement then
such terms and conditions shall be used as described therein, otherwise the
terms and conditions of the Plan shall control. Any capitalized term used in the
Agreement that is not otherwise defined in the Agreement shall have the meaning
assigned to it in the Plan.
- 7 -
<PAGE> 8
Section 3.9 - Governing Law.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the Commonwealth of Virginia.
Section 3.10 - Entire Agreement.
This Agreement, the exhibits hereto and the Plan constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
Section 3.11 - Arbitration.
The parties agree that any controversy, claim, or dispute arising out of
or relating to this Agreement, or the breach thereof, or arising out of or
relating to the employment of the Optionee, or the termination thereof,
including any claims under federal, state, or local law, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree that
any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
[signatures on next page]
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties as of the date first written above.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
-----------------------------------------
Clayton A. Thomas, Jr., President
DONALD E. CLARKE
/s/ Donald E. Clarke
--------------------------------------------
1510 Judd Court
--------------------------------------------
Street Address
Herndon, VA 20170
--------------------------------------------
City, State and Zip Code
- 9 -
<PAGE> 1
EXHIBIT 10.12.1
NET2000 GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement"), effective as of
May 19, 1998, is made by and between NET2000 GROUP, INC., a Delaware corporation
(the "Company"), and DONALD E. CLARKE (the "Optionee").
WHEREAS, the Company wishes to grant an option to purchase shares of the
Company's common stock to the Optionee pursuant to the terms of the Employment
Agreement of even date herewith and the Company's 1997 Equity Incentive Plan
(the "Plan");
WHEREAS, the Company desires that the option to be granted hereunder
qualify under Section 422 of the Internal Revenue Code of 1986 as an incentive
stock option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
GRANT OF OPTION
Section 1.1 - Grant of Option
In consideration of service to the Company and for other good and
valuable consideration, the Company grants to the Optionee an option to purchase
103,897 shares of the Company's common stock in accordance with the terms and
conditions of the Plan. The option is intended by the parties to be, and shall
be treated as, an incentive stock option, as such term is defined under Section
422 of the Internal Revenue Code of 1986 (the "Code"). The Optionee's rights
with respect to the option shall be governed by the terms contained herein and
in the absence of such definition the Plan.
Section 1.2 - Option Price
The purchase price of the shares of stock covered by the option shall be
$0.95 per share, which was the fair market value for a share of the Company's
common stock as of the effective date of this Agreement, as determined in good
faith by the Board of Directors of the Company in conformance with the Treasury
Regulations under Section 422 of the Code.
<PAGE> 2
Section 1.3 - Adjustments in Option
In the event that the outstanding shares of stock subject to the option
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares, the shares subject to the option and the price per share will be
equitably adjusted to reflect such changes pursuant to Article IX of the Plan.
Such adjustment in the option shall be made without change in the total price
applicable to the unexercised portion of the option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the option price per share.
Any such adjustment made by the Administrator of the Plan (the "Administrator"
as defined in the Plan) shall be final and binding upon the Optionee, the
Company and all other interested persons.
ARTICLE II
EXERCISE OF OPTION
Section 2.1 - Person Eligible to Exercise.
During the lifetime of the Optionee, only the Optionee may exercise the
option or any portion thereof. After the death of the Optionee, any exercisable
portion of the option may, prior to the time when the option becomes
unexercisable under the terms of the Plan or the Agreement, be exercised by the
Optionee's personal representative or by any other person empowered to do so
under the Optionee's will, trust or under then applicable laws of descent and
distribution.
Section 2.2 - Manner of Exercise
The option, or any portion thereof, may be exercised only in accordance
with the terms of the Plan and solely by delivery to the President of the
Company of all of the following items prior to the time when the option or such
portion becomes unexercisable under the terms of the Plan:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the option or portion thereof, stating that the option
or portion thereof is thereby exercised, such notice complying with all
applicable rules (if any) established by the Administrator;
(b) Full payment (in cash or by cashiers' or certified check)
for the shares with respect to which such option or portion thereof is
exercised;
- 2 -
<PAGE> 3
(c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Optionee or other person then
entitled to exercise such option or portion thereof, stating that the shares of
stock are being acquired for his or her own account, for investment and without
any present intention of distributing or reselling said shares, or any of them,
except as may be permitted under the Securities Act of 1933, as amended (the
"Act"), and then applicable rules and regulations thereunder, and that the
Optionee or other person then entitled to exercise such option or portion will
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation and
agreement referred to above. The Administrator may, in its absolute discretion,
take whatever additional actions it deems appropriate to ensure the observance
and performance of such representations and agreement and to effect compliance
with all federal and state securities laws or regulations. Without limiting the
generality of the foregoing, the Administrator may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired
on an option exercise does not violate the Act and may issue stop-transfer
orders covering such shares. The written representations and agreement referred
to in the first sentence of this subsection (c), however, shall not be required
if the shares to be issued pursuant to such exercise have been registered under
the Act, and such registration is then effective in respect of such shares; and
(d) In the event the option or any portion thereof shall be
exercised pursuant to Section 2.1 by any person or persons other than the
Optionee, appropriate proof, reasonably satisfactory to the Administrator, of
the right of such person or persons to exercise the option.
(e) As a condition to the issuance of Shares upon Option
exercise (whether to the Optionee or to his beneficiary), the Company shall have
the right to withhold from payments otherwise due and owing to the Optionee (or
his beneficiary) or to require the Optionee (or his beneficiary) to remit to the
Company in cash upon demand an amount sufficient to satisfy any federal
(including FICA and FUTA amounts), state, or local withholding tax requirements
at the time the Optionee (or his beneficiary) recognizes income for federal,
state, or local tax purposes as the result of the receipt of Shares pursuant to
this Agreement.
Section 2.3 - Conditions to Issuance of Shares
(a) The Company shall not issue any shares to the Optionee until
the Optionee has executed and delivered to the Company a Stock Restriction
Agreement substantially in the form of attached Exhibit 1, and a Notice of
Exercise of Stock Option letter, substantially in the form of attached Exhibit
2.
(b) The shares of stock deliverable upon the exercise of the
option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have been reacquired by the Company. Such shares
shall be fully paid and
- 3 -
<PAGE> 4
nonassessable and certificates representing such shares shall be delivered to
Optionee immediately upon full compliance with the terms and conditions
contained in this Agreement and the Plan.
Section 2.4 - Rights of Shareholders
The Optionee shall not be, nor have any of the rights or privileges of, a
shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the option unless and until certificates representing
such shares shall have been issued by the Company to the Optionee.
Section 2.5 - Vesting and Exercisability.
The option granted hereunder shall vest according to the schedule in this
Section 2.5 and shall be exercisable as to not more than the vested percentage
of the shares subject to the option at any point in time. The option shall
become vested according to the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage
Date of Shares Vested
---- -----------------
<S> <C> <C>
Immediately 25%
12/15/98 50%
12/15/99 75%
12/15/00 100%
</TABLE>
Administrator, in its sole and absolute discretion, may accelerate the
vesting of the option at any time.
Section 2.6 - Duration of Option
Except as specified below, the option granted hereunder shall expire ten
years from the effective date of grant. Notwithstanding the foregoing, the
option may expire prior to ten years from the effective date of this Agreement,
in the following circumstances:
(a) In the case of the Optionee's death, the option shall expire
on the one-year anniversary of the Optionee's death.
(b) In the case of the Optionee's total and permanent disability
and resulting termination of employment with the Company, the option shall
expire on the one-year anniversary date of the Optionee's last day of
employment.
(c) If the Optionee ceases employment for any reason other than
death, disability or retirement (as described in the preceding paragraph), the
option shall lapse on the 90th day following the day upon which the Optionee's
employment with the Company is terminated.
- 4 -
<PAGE> 5
(d) Notwithstanding any provisions set forth above in this
Section 2.6, if the Optionee shall (i) commit any act of material malfeasance
affecting the Company or its affiliates, (ii) breach any covenant not to compete
or any material provision of any other agreement with the Company or any
affiliate, or (iii) engage in conduct that would warrant the Optionee's
discharge for cause, any unexercised part of the option shall lapse immediately
upon the earlier of the occurrence of such event or the last day the Optionee is
employed by the Company.
Section 2.7 - Change of Control
If there is a Change in Control, as defined below, 67% of the outstanding
unvested options to purchase Company capital stock held by the Optionee shall
vest immediately. Notwithstanding the preceding sentence, (i) if the Optionee
shall be terminated by the Company, without cause (as defined in the Employment
Agreement by and between the Company and the Optionee of even date herewith, the
"Employment Agreement"), within three months of a Change in Control, as defined
below, 100% of the outstanding unvested options to purchase Company capital
stock held by the Optionee shall vest at the time of termination or (ii) if the
Optionee shall be terminated by the acquiring company, without cause (as defined
in the Employment Agreement), within six months following a Change in Control,
as defined below, 100% of the outstanding unvested options to purchase Company
capital stock held by the Optionee shall vest at the time of termination
Change of control shall be deemed to occur upon the first of the
following events:
(i) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding voting securities and
such person has the ability to elect a majority of the members of the Company's
Board of Directors, if such ownership is not in place on the date of the grant;
(ii) any person becomes the beneficial owner, directly or
indirectly, of the securities of the Company sufficient to elect a majority of
the members of the Board of Directors of the Company, provided that the
Optionee's responsibilities as an employee of the Company are materially
adversely diminished by such change in control; or
(iii) the sale of all or substantially all of the assets
of the Company, or a merger, consolidation, or similar transaction of the
company in which the Company is not the surviving entity or the Company's
stockholders immediately prior to such transaction hold less than 50% of the
voting securities of the surviving entity.
A "change in control" shall not include either of the following events:
- 5 -
<PAGE> 6
(i) a transaction, the sole purpose of which is to change
the state of the Company's incorporation; or
(ii) a transaction, the result of which is to sell all or
substantially all of the assets of the Company to another entity ( the
"surviving entity"); provided the surviving entity is owned directly or
indirectly by the Company's stockholders immediately following such transaction
in substantially the same proportions as their ownership of the Company's voting
capital stock immediately preceding such transaction.
ARTICLE III
MISCELLANEOUS
Section 3.1 - Administration
The Administrator shall have the power to interpret this Agreement and to
adopt such rules for the administration, interpretation and application of the
Agreement as are consistent herewith and to interpret or revoke any such rules.
All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Administrator shall
be personally liable for any action, determination or interpretation made in
good faith with respect to this Agreement or any similar agreement to which the
Company is a party.
Section 3.2 - Options Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition is voluntary
or involuntary or by operation of law, by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy)
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that this Section 3.2 shall not prevent transfers by will or
by the applicable laws of descent and distribution.
Section 3.3 - Shares to be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
- 6 -
<PAGE> 7
Section 3.4 - Proceeds
The proceeds received by the Company for the sale of shares of stock
pursuant to this Agreement shall be used for general corporate purposes.
Section 3.5 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature below. By a notice given pursuant to this Section 3.5, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Optionee shall, if the Optionee is
then deceased, be given to the Optionee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall have been deemed duly given
when enclosed in a properly sealed envelope addressed as aforesaid, deposited
(with postage prepaid) in a United States postal receptacle.
Section 3.6 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 3.7 - Notification of Disposition
The Optionee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made within two (2) years from the date of the
exercise of an option with respect to such shares. Such notice shall specify the
date of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Optionee in such disposition or other transfer.
Section 3.8 - Incorporation of the Plan by Reference
The option is granted in accordance with the terms and conditions of the
Agreement and the Plan, the terms of which are incorporated herein by reference,
and to the extent that terms and conditions are described in the Agreement then
such terms and conditions shall be used as described therein, otherwise the
terms and conditions of the Plan shall control. Any capitalized term used in the
Agreement that is not otherwise defined in the Agreement shall have the meaning
assigned to it in the Plan.
- 7 -
<PAGE> 8
Section 3.9 - Governing Law.
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the Commonwealth of Virginia.
Section 3.10 - Entire Agreement.
This Agreement, the exhibits hereto and the Plan constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
Section 3.11 - Arbitration.
The parties agree that any controversy, claim, or dispute arising out of
or relating to this Agreement, or the breach thereof, or arising out of or
relating to the employment of the Optionee, or the termination thereof,
including any claims under federal, state, or local law, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree that
any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
[signatures on next page]
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties as of the date first written above.
NET2000 GROUP, INC.
By: /s/ Clayton A. Thomas, Jr.
-----------------------------------------
Clayton A. Thomas, Jr., President
DONALD E. CLARKE
/s/ Donald E. Clarke
--------------------------------------------
1510 Judd Court
--------------------------------------------
Street Address
Herndon, VA 20170
--------------------------------------------
City, State and Zip Code
- 9 -
<PAGE> 1
EXHIBIT 10.14
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of July 30, 1999
by and among
NET2000 COMMUNICATIONS GROUP, INC.
as Borrower
and
NORTEL NETWORKS INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$75,000,000 ADVANCING TERM LOAN FACILITY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Definitions..............................................................................1
Section 1.1 Definitions, etc..................................................................1
Section 1.2 Other Definitional Provisions....................................................25
Section 1.3 Accounting Terms and Determinations..............................................25
Section 1.4 Financial Covenants and Reporting................................................26
ARTICLE 2 - Loans...................................................................................27
Section 2.1 Commitments......................................................................27
Section 2.2 Notes............................................................................27
Section 2.3 Repayment of Loans...............................................................28
Section 2.4 Interest.........................................................................29
Section 2.5 Borrowing Procedure..............................................................30
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans.....................30
Section 2.7 Mandatory Prepayments............................................................30
Section 2.8 Minimum Amounts..................................................................31
Section 2.9 Certain Notices..................................................................31
Section 2.10 Use of Proceeds..................................................................32
Section 2.11 Fees.............................................................................33
Section 2.12 Computations.....................................................................33
Section 2.13 Termination or Reduction of Commitments..........................................33
ARTICLE 3 - Payments................................................................................34
Section 3.1 Method of Payment................................................................34
Section 3.2 Pro Rata Treatment...............................................................34
Section 3.3 Sharing of Payments, Etc.........................................................34
Section 3.4 Non-Receipt of Funds by the Administrative Agent.................................35
Section 3.5 Taxes............................................................................35
Section 3.6 Withholding Tax Exemption........................................................36
Section 3.7 Reinstatement of Obligations.....................................................37
Section 3.8 No Force Majeure, Disputes.......................................................37
ARTICLE 4 - Yield Protection and Illegality.........................................................38
Section 4.1 Additional Costs.................................................................38
Section 4.2 Limitation on Types of Loans.....................................................39
Section 4.3 Illegality.......................................................................40
Section 4.4 Treatment of Affected Loans......................................................40
Section 4.5 Compensation.....................................................................40
Section 4.6 Capital Adequacy.................................................................41
Section 4.7 Additional Interest on Eurodollar Loans..........................................41
</TABLE>
Page i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5 - Security................................................................................43
Section 5.1 Collateral.......................................................................43
Section 5.2 Guaranties.......................................................................43
Section 5.3 New Subsidiaries; Additional Capital Stock.......................................43
Section 5.4 New Mortgaged Properties; Landlord Waivers.......................................44
Section 5.5 Setoff...........................................................................45
ARTICLE 6 - Conditions Precedent....................................................................45
Section 6.1 Initial Extension of Credit......................................................45
Section 6.2 All Extensions of Credit.........................................................49
Section 6.3 Closing Certificates.............................................................50
ARTICLE 7 - Representations and Warranties..........................................................51
Section 7.1 Existence........................................................................51
Section 7.2 Financial Statements.............................................................51
Section 7.3 Corporate Action; No Breach......................................................51
Section 7.4 Operation of Business............................................................52
Section 7.5 Intellectual Property............................................................52
Section 7.6 Litigation and Judgments.........................................................52
Section 7.7 Rights in Properties; Liens......................................................53
Section 7.8 Enforceability...................................................................53
Section 7.9 Approvals........................................................................53
Section 7.10 Debt.............................................................................53
Section 7.11 Taxes............................................................................53
Section 7.12 Margin Securities................................................................54
Section 7.13 ERISA............................................................................54
Section 7.14 Disclosure.......................................................................55
Section 7.15 Subsidiaries.....................................................................55
Section 7.16 Compliance with Laws.............................................................55
Section 7.17 Investment Company Act...........................................................55
Section 7.18 Public Utility Holding Company Act...............................................55
Section 7.19 Environmental Matters............................................................55
Section 7.20 Year 2000 Compliance.............................................................57
Section 7.21 Labor Disputes and Acts of God...................................................57
Section 7.22 Material Contracts...............................................................57
Section 7.23 Bank Accounts....................................................................57
Section 7.24 Outstanding Securities...........................................................57
Section 7.25 Solvency.........................................................................57
Section 7.26 Employee Matters.................................................................58
Section 7.27 Insurance........................................................................58
Section 7.28 Common Enterprise................................................................58
ARTICLE 8 - Affirmative Covenants...................................................................58
Section 8.1 Reporting Requirements...........................................................58
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 8.2 Maintenance of Existence; Conduct of Business....................................61
Section 8.3 Maintenance of Properties and ...................................................62
Section 8.4 Taxes and Claims.................................................................62
Section 8.5 Insurance........................................................................62
Section 8.6 Inspection Rights................................................................64
Section 8.7 Keeping Books and Records........................................................64
Section 8.8 Compliance with Laws.............................................................64
Section 8.9 Compliance with Agreements.......................................................64
Section 8.10 Further Assurances...............................................................64
Section 8.11 ERISA............................................................................65
Section 8.12 Interest Rate Protection.........................................................65
Section 8.13 Miscellaneous Business Covenants.................................................65
Section 8.14 Year 2000 Compliance.............................................................66
Section 8.15 Trade Accounts Payable...........................................................66
Section 8.16 Delivery of Certain Amendments and Material Contracts............................66
Section 8.17 Contribution to Equity Capital of NCH and the Borrower...........................66
ARTICLE 9 - Negative Covenants......................................................................67
Section 9.1 Debt.............................................................................67
Section 9.2 Limitation on Liens..............................................................68
Section 9.3 Mergers, Etc.....................................................................68
Section 9.4 Restricted Payments..............................................................68
Section 9.5 Investments......................................................................69
Section 9.6 Limitation on Issuance of Capital Stock of the Borrower..........................70
Section 9.7 Transactions with Affiliates.....................................................70
Section 9.8 Disposition of Property..........................................................70
Section 9.9 Sale and Leaseback...............................................................71
Section 9.10 Lines of Business................................................................71
Section 9.11 Environmental Protection.........................................................71
Section 9.12 Intercompany Transactions........................................................72
Section 9.13 Management Fees..................................................................72
Section 9.14 Modification of Other Agreements.................................................72
Section 9.15 ERISA............................................................................72
Section 9.16 Financial Covenants..............................................................73
Section 9.17 No Prepayment of Debt............................................................74
ARTICLE 10 - Default................................................................................75
Section 10.1 Events of Default................................................................75
Section 10.2 Remedies.........................................................................77
Section 10.3 Performance by the Administrative Agent, etc.....................................78
ARTICLE 11 - The Administrative Agent...............................................................79
Section 11.1 Appointment, Powers and Immunities...............................................79
Section 11.2 Rights of Administrative Agent as a Lender.......................................80
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Section 11.3 Defaults.........................................................................80
Section 11.4 INDEMNIFICATION..................................................................80
Section 11.5 Independent Credit Decisions.....................................................81
Section 11.6 Several Commitments..............................................................81
Section 11.7 Successor Administrative Agent...................................................82
ARTICLE 12 - Miscellaneous..........................................................................82
Section 12.1 Expenses.........................................................................82
Section 12.2 INDEMNIFICATION..................................................................83
Section 12.3 Limitation of Liability..........................................................84
Section 12.4 No Duty..........................................................................84
Section 12.5 No Fiduciary Relationship........................................................84
Section 12.6 Equitable Relief.................................................................84
Section 12.7 No Waiver; Cumulative Remedies...................................................84
Section 12.8 Successors and Assigns...........................................................85
Section 12.9 Survival.........................................................................88
Section 12.10 ENTIRE AGREEMENT.................................................................89
Section 12.11 Amendments.......................................................................89
Section 12.12 Maximum Interest Rate............................................................89
Section 12.13 Notices..........................................................................90
Section 12.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS....................91
Section 12.15 Counterparts.....................................................................91
Section 12.16 Severability.....................................................................91
Section 12.17 Headings.........................................................................91
Section 12.18 Construction.....................................................................92
Section 12.19 Independence of Covenants........................................................92
Section 12.20 Confidentiality..................................................................92
Section 12.21 WAIVER OF JURY TRIAL.............................................................92
Section 12.22 Approvals and Consent............................................................92
Section 12.23 Service of Process...............................................................93
Section 12.24 Amendment and Restatement........................................................93
</TABLE>
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C> <C>
A - Form of Assignment and Acceptance
B - Form of Note
C - Form of Notice of Borrowings, Conversions, Continuations
and Prepayments
D - Form of Compliance Certificate
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
- -------- -----------
<S> <C> <C>
Schedule 1.1(a) - Certain Permitted Holders
Schedule 1.1(b) - Certain Permitted Liens
Schedule 7.4 - Permits, Franchises, Licenses and Authorizations required by
Governmental Requirements or issued by Governmental
Authorities
Schedule 7.5 - Intellectual Property
Schedule 7.6 - Litigation, Etc.
Schedule 7.7 - Real Property
Schedule 7.10 - Existing Debt
Schedule 7.13 - Plans
Schedule 7.15 - Subsidiaries and Capitalization
Schedule 7.22 - Material Contracts
Schedule 7.23 - Bank Accounts
Schedule 7.26 - Employee Matters
Schedule 7.27 - Insurance
Schedule 9.5 - Certain Investments
Schedule 9.16 - Financial Covenants
(a) - Total Debt to Total Capitalization
(b) - Secured Debt to Total Capitalization
(c) - Fixed Charge Coverage
(d) - Capital Expenditures
(e) - Quarterly Minimum Revenue Levels
(f) - Total Debt to Annualized EBITDA
(g) - Secured Debt to Annualized EBITDA
(h) - EBITDA
(i) - Gross Margin Percentage
(j) - Access Lines
</TABLE>
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<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 30,
1999, is by and among NET2000 COMMUNICATIONS GROUP, INC. (the "Borrower"), a
Delaware corporation, each of the lending entities which is a party hereto (as
evidenced by the signature pages of this Agreement) or which may from time to
time become a party hereto as a lender or any successor or assignee thereof
(individually, a "Lender" and, collectively, the "Lenders"), and NORTEL NETWORKS
INC., a Delaware corporation, as agent for itself and the other Lenders (in such
capacity, together with its successors in such capacity, the "Administrative
Agent").
RECITALS:
A. The Borrower, the Administrative Agent and the Lenders are parties
to that certain Credit Agreement dated as of November 2, 1998 (the "Original
Credit Agreement") relating to a $120,000,000 advancing term loan facility and a
$20,000,000 revolving credit/term loan facility provided to finance a portion of
the Borrower's costs to purchase Nortel Networks Goods and Services (as defined
herein), to finance certain Eligible Third-Party Expenses (as defined herein)
and to provide working capital for the Borrower and its Subsidiaries.
B. The Borrower, the Administrative Agent and the Lenders desire to
amend and restate the Original Credit Agreement (i) to provide for a $75,000,000
advancing term loan facility and (ii) to amend the Original Credit Agreement in
certain other respects.
C. The Lender(s) identified on the signature pages of this Agreement
and the Administrative Agent desire to provide such credit facility upon and
subject to the terms and provisions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Access Lines" means, at any time, the total number of telephone lines of
business end-users connected to the Network and for which the Borrower and its
Consolidated Subsidiaries are providing local access at such time.
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"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of one percent) determined by the Administrative Agent to be
equal to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest
Period divided by (b) one minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.
"Adjusted Net Income" means, as to any Person (the "subject Person") and
its Consolidated Subsidiaries and for any period, Consolidated Net Income less
the following (without duplication) to the extent that any of the following
shall have been included in Consolidated Net Income for such period: (a) any net
gain or loss arising from the sale of capital assets, (b) any net gain or loss
arising from any write-up or write-down of assets, (c) earnings or losses of any
other Person, substantially all of the assets of which have been acquired by the
subject Person or a Consolidated Subsidiary of the subject Person in any manner,
to the extent that such earnings or losses were realized by such other Person
prior to the date of such acquisition, (d) earnings or losses of any Person
(other than a Consolidated Subsidiary of the subject Person) in which the
subject Person or a Consolidated Subsidiary of the subject Person has an
ownership interest, unless such earnings have actually been received by the
subject Person or such Consolidated Subsidiary in the form of cash
distributions, and (e) any net gain or loss arising from the acquisition of any
securities of the subject Person or a Consolidated Subsidiary of the subject
Person.
"Administrative Agent" means as specified in the introductory paragraph
of this Agreement.
"Administrative Agent's Letter" means that certain letter agreement dated
as of November 2, 1998, between the Administrative Agent and the Borrower.
"Advance Period" means the period commencing on the Effective Date and
ending on the day immediately preceding the Commitment Termination Date.
"Advances" means the Loans made under this Agreement.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of the
Loan Documents, Nortel Networks shall not be deemed to be an Affiliate of the
Borrower.
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"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Annualized EBITDA" means, as to any Person and its Consolidated
Subsidiaries and for the applicable period, the product of (a) EBITDA for the
two most recently completed fiscal quarters, multiplied by (b) two.
"Applicable Commitment Fee Rate" means (a) from the Effective Date until
the date of the Initial Assignment of Commitments and Loans, the rate per annum
equal to one-half of one percent (0.50%) per annum and (b) from and after the
date of the Initial Assignment of Commitments and Loans and thereafter, the rate
per annum equal to (i)(A) one and three-quarters percent (1.75%) per annum at
any time when the aggregate outstanding principal amount of the Loans is equal
to or less than 30% of the aggregate amount of the Commitments, (B) one and
one-half percent (1.50%) per annum at any time when the aggregate outstanding
principal amount of the Loans is greater than 30% of the aggregate amount of the
Commitments but is equal to or less than 66% of the aggregate amount of the
Commitments, and (C) three-quarters of one percent (0.75%) per annum at any time
when the aggregate outstanding principal amount of the Loans is greater than 66%
of the aggregate amount of the Commitments or (ii) such lesser rate as Nortel
Networks determines to be the "Market Clearing Rate" under the procedures and at
the time set forth in Section 12.8(j) hereof; provided, however, that in no
event shall the Applicable Commitment Fee Rate be reduced below the rate
effective under clause (a) above.
"Applicable Lending Office" means for each Lender and each Type of Loan,
the lending office of such Lender (or an Affiliate of such Lender) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Lender that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 12.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower and
the Administrative Agent as the office by which its Loans of such Type are to be
made and maintained.
"Applicable Margin" means (a) from the Effective Date until the date of
the Initial Assignment of Commitments and Loans, the rate per annum equal to (i)
with respect to each Prime Rate Loan, two and one-half percent (2.50%) and (ii)
with respect to each Eurodollar Loan, three and one-half of one percent (3.50%)
and (b) from and after the date of the Initial Assignment of Commitments and
Loans and thereafter, the rate per annum equal to (i)(A) with respect to each
Prime Rate Loan, three and one-half percent (3.50%) and (B) with respect to each
Eurodollar Loan, four and one-half of one percent (4.50%) or (ii) such lesser
rates as Nortel Networks determines to be the "Market Clearing Rate" under the
procedures and at the time set forth in Section 12.8(j)
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hereof; provided, however, that in no event shall the Applicable Margin be
reduced below the rates set forth in clause (a) preceding.
"Asset Disposition" means the disposition of any or all of the Property
of the Borrower or any of its Subsidiaries or NCH, whether by sale, lease,
transfer, assignment, condemnation or otherwise, but excluding (a) sales of
inventory in the ordinary course of business, (b) the grant of a Lien as
security, (c) any involuntary disposition resulting from casualty damage to
Property, and (d) dispositions of equipment if and to the extent that the
equipment disposed of is, concurrently therewith, exchanged or replaced by
equipment of equal or greater value.
"Assignee" means as specified in Section 12.8(b).
"Assigning Lender" means as specified in Section 12.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 12.8(e), in substantially the form of Exhibit A hereto.
"Bankruptcy Code" means as specified in Section 10.1(e).
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.
"Board of Directors" means the board of directors of the Borrower.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Borrower to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Borrower" means as specified in the initial paragraph of this Agreement.
"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required by law to close in New
York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in connection
with Eurodollar Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
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"Business Plan" means the Borrower's marketing and Network build-out
plans, budget and schedule, including financial projections of NCH and the
Borrower and their respective Consolidated Subsidiaries for the eight and
one-half year period beginning on the Original Closing Date, certified as being
prepared generally in accordance with GAAP (except for the absence of
footnotes), such projections giving effect to the Debt to be incurred under this
Agreement as well as the other Debt to be incurred by NCH, the Borrower and
their respective Consolidated Subsidiaries during such period.
"Capital Expenditures" means as to any Person and its Consolidated
Subsidiaries, amounts paid or Debt incurred by such Persons in connection with
the purchase or lease by any such Persons of Property that would be required to
be capitalized and shown on the balance sheet of such Persons in accordance with
GAAP.
"Capital Lease Obligations" means, as to any Person and its Consolidated
Subsidiaries, the obligations of such Persons to pay rent or other amounts under
a lease of (or other agreement conveying the right to use) real and/or personal
Property, which obligations are classified as a capital lease on a balance sheet
of such Persons under GAAP. For purposes of this Agreement, the amount of such
Capital Lease Obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities, shares,
partnership interests, limited partnership interests, limited liability company
interests, membership interests, equity interests, participations, rights or
other equivalents (however designated) of corporate stock or any of the
foregoing issued by any entity (whether a corporation, a partnership or another
entity) and includes, without limitation, securities convertible into Capital
Stock and rights or options to acquire Capital Stock.
"Change in Control" means the existence or occurrence of any of the
following: (a) any of the Capital Stock of the Borrower is owned by any Person
other than NCH or any of the Capital Stock of NCH is owned by any Person other
than NCI; (b) any Capital Stock of any Subsidiary of the Borrower is owned by
any Person other than the Borrower or any Wholly-Owned Subsidiary of the
Borrower, (c) any Person or two or more Persons (other than the Permitted
Holders) acting as a group (as defined in Section 13d-3 of the Exchange Act)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Exchange Act) of 35% or more of
the outstanding shares of Voting Stock of NCI; (d) individuals who, as of the
Original Closing Date, constitute the Board of Directors of NCI (the "NCI
Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of NCI; provided, however, that any individual becoming a
director of NCI subsequent to the Original Closing Date whose election, or
nomination for election by NCI's shareholders was approved by a vote of at least
a majority of the directors then comprising the NCI Incumbent Board shall be
considered as though
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such individual were a member of the NCI Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or contest by or on behalf of
a Person other than the Board of Directors of NCI; or (e) the consummation of
any transaction the result of which is that any Person or group beneficially
owns more of the Voting Stock of NCI than is beneficially owned, in the
aggregate, by the Permitted Holders.
"Closing Date" means July 30, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any Person of any nature whatsoever
upon which a Lien is created or purported to be created by any Loan Document as
security for the Obligations or any portion thereof.
"Commitment" means, as to any Lender, the obligation of such Lender to
make or continue Loans hereunder in an aggregate principal amount up to but not
exceeding the amount set forth opposite the name of such Lender on the signature
pages hereto under the heading "Commitment" or, if such Lender is a party to an
Assignment and Acceptance, the amount of the "Commitment" set forth in the most
recent Assignment and Acceptance of such Lender, as the same may be reduced or
terminated pursuant to Section 2.13 or 10.2, and "Commitments" means such
obligations of all Lenders. As of the Effective Date, the aggregate principal
amount of the Commitments is $75,000,000.
"Commitment Percentage" means, as to any Lender and its Commitment, the
percentage equivalent of a fraction, the numerator of which is the amount of the
outstanding Commitment of such Lender (or, if such Commitment has terminated or
expired, the outstanding principal amount of the Loans of such Lender) and the
denominator of which is the aggregate amount of the outstanding Commitments of
all Lenders (or, if such Commitments have terminated or expired, the aggregate
outstanding principal amount of the Loans of all Lenders), as adjusted from time
to time in accordance with Section 12.8.
"Commitment Termination Date" means November 2, 2001.
"Communications Act" means the Communications Act of 1934, and any
successor federal statute, and the rules and regulations of the FCC thereunder,
all as amended and as the same may be in effect from time to time.
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"Consolidated Fixed Charges" means, as to any Person and its Consolidated
Subsidiaries and for any period, the sum of (a) Consolidated Interest Expense of
such Person and its Consolidated Subsidiaries paid or payable in cash during
such period, plus (b) all scheduled payments (as such scheduled payments are
reduced by application of any prepayments) of principal with respect to the
Loans and other outstanding Debt during such period, plus (c) taxes of such
Person and its Consolidated Subsidiaries paid or payable in cash during such
period, plus (d) the scheduled amount paid or payable by such Person and its
Consolidated Subsidiaries in cash during such period on account of Capital
Expenditures.
"Consolidated Interest Expense" means, as to any Person and its
Consolidated Subsidiaries and for any period, all interest on Debt of such
Person and its Consolidated Subsidiaries paid in cash during such period,
including the interest portion of payments under capital lease obligations.
"Consolidated Net Income" means, as to any Person and its Consolidated
Subsidiaries and for any period, the net income (or loss) of such Person and its
Consolidated Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary the financial attributes of which are or would be consolidated with
those of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
of the same Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 12.12(a).
"Contributed Capital" means, as to any Person and its Consolidated
Subsidiaries and as of any date of determination, the sum of (without
duplication) (a) equity contributions made to such Persons as of such date
(including equity contributed on or before the Effective Date), plus (b) the
amount of cash proceeds of Subordinated Debt received by such Persons as of such
date, minus (c) the aggregate amount of any dividends or distributions paid or
made by such Persons as of such date minus (d) the aggregate amount of cash
interest paid on Subordinated Debt of such Persons as of such date.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
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"Current Date" means (a) a date occurring no more than 30 days prior to
the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a) all
indebtedness, liabilities and obligations of such Person for borrowed money, (b)
all indebtedness, liabilities and obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than 90 days, (d)
all Capital Lease Obligations of such Person, (e) all Debt of others Guaranteed
by such Person, (f) all indebtedness, liabilities and obligations secured by a
Lien existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person or
are non-recourse to such Person, (g) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments, (h) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of Capital Stock of such Person, (i) all indebtedness, liabilities and
obligations of such Person under Interest Rate Protection Agreements, and (j)
all indebtedness, liabilities and obligations of such Person in respect of
unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all
times during which any Default has occurred and is continuing or in respect of
any other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period of such Default or during the
period commencing on the due date of such other amount until such other amount
is paid in full, respectively, equal to the lesser of (a) the sum of two percent
(2.00%) plus the Prime Rate as in effect from time to time plus the Applicable
Margin for Prime Rate Loans or (b) the Maximum Rate; provided, however, that if
such amount in default is principal of a Eurodollar Loan and the due date is a
day other than the last day of an Interest Period therefor, the "Default Rate"
for such principal shall be, for the period from and including the due date and
to but excluding the last day of the Interest Period therefor, the lesser of the
rate per annum equal to (i) the sum of two percent (2.00%) plus the interest
rate for such Eurodollar Loan for such Interest Period as provided in clause
(ii) of Section 2.4(a) hereof or (ii) the Maximum Rate and, thereafter, the rate
provided for above in this definition.
"Dollars" and "$" mean lawful money of the U.S.
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"D.L. Lines" means, at any time, the total number of Access Lines
providing digital subscriber line services.
"EBITDA" means, as to any Person and its Consolidated Subsidiaries and
for any period, without duplication, the sum of the following for such Person
and its Consolidated Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP: (a) Adjusted Net Income, plus (b) Consolidated
Interest Expense, plus (c) income and franchise taxes to the extent deducted in
determining Adjusted Net Income, plus (d) depreciation and amortization expense
and other non-cash, non-tax items to the extent deducted in determining Adjusted
Net Income, minus (e) non-cash income (or losses) to the extent included in
determining Adjusted Net Income.
"Effective Date" means the initial date, on or after the Closing Date,
upon which all conditions precedent to the effectiveness of this Agreement
specified in Section 6.1 have been satisfied (or waived by the Required
Lenders).
"Eligible Assignee" means (a) any Affiliate of a Lender, (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership or other entity) which has been approved by
the Administrative Agent as a Lender under this Agreement or (c) any other
entity approved by the Administrative Agent which is (or which is managed by a
manager which manages funds which are) primarily engaged in making, purchasing
or otherwise investing in commercial loans or extending, or investing in
extensions of, credit for its own account in the ordinary course of its
business; provided, however, that (i) Eligible Assignee shall not include any
Affiliate of the Borrower, (ii) Eligible Assignee shall not include any business
competitor of the Borrower except after the occurrence and during the
continuance of an Event of Default, and (iii) during any time when any
Commitment remains in effect, each entity referred to in clauses (b) or (c)
preceding must, in order to constitute an Eligible Assignee of a portion of such
outstanding Commitment, have capital surplus and undivided profits aggregating
at least $500,000,000 in amount.
"Eligible Third-Party Expenses" means (a) amounts paid to vendors of
equipment, including Nortel Networks, for the construction of the Network, (b)
Network site acquisition costs excluding any lease costs, and (c) working
capital expenses.
"Environmental Law" means any federal, state, provincial, local or
foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction issued,
promulgated, approved or entered thereunder, relating to pollution or the
protection, cleanup or restoration of the environment or natural resources, or
to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of Hazardous Materials, including, without limitation as
to U.S. laws, the Comprehensive Environmental Response, Compensation and
Liability
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Act of 1980, 42 U.S.C. section 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. section 6901 et seq., the Occupational
Safety and Health Act, 29 U.S.C. section 651 et seq., the Clean Air Act, 42
U.S.C. section 7401 et seq., the Clean Water Act, 33 U.S.C. section 1251 et
seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C.
section 11001 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. section 136 et seq., and the Toxic Substances Control Act, 15 U.S.C.
section 2601 et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon the
Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars in the approximate amount of the
proposed Eurodollar Loan at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If such rate ceases to be available from Telerate News
Service, the Eurodollar Rate shall be determined by the Administrative Agent in
good faith from another financial reporting service, which service shall be
reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 10.1.
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"Excess Cash Flow" means, as to any Person and its Consolidated
Subsidiaries and for any fiscal year, and without duplication, the remainder of
(a) EBITDA for such fiscal year minus (b) the sum of (i) taxes payable in cash
for such fiscal year, plus (ii) all principal and cash interest payments on Debt
made during such fiscal year whether optional, mandatory or scheduled payments,
plus (iii) Capital Expenditures (but only to the extent paid in cash and not
financed) made during such fiscal year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"FCC" means the Federal Communications Commission and any successor
agency.
"FCC Licenses" means all Licenses issued by the FCC.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published on such next succeeding Business Day, the Federal Funds
Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other
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Governmental Authority or any department, commission, board, court, agency or
any other instrumentality of any of them.
"Gross Margin Percentage" means, as to any Person and its Consolidated
Subsidiaries and for any period, the quotient of (a) the remainder of (i) Gross
Revenue for such period minus Network Costs, divided by (ii) Gross Revenue for
such period, expressed as a percentage.
"Gross Revenues" means, as to any Person and its Consolidated
Subsidiaries and for any period, gross revenues of such Person and its
Consolidated Subsidiaries determined on a consolidated basis in accordance with
GAAP for such period.
"Gross Up Lender" means as specified in Section 4.8.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other indebtedness,
liability or obligation as to the payment thereof or to protect the obligee
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum anticipated liability in respect thereof (assuming such Person is
required to perform thereunder).
"Guarantors" means each of NCH, NCC, NCS, NCRE, NCV, each other
Subsidiary of the Borrower at any time existing and each other Person which has
executed a Guaranty, and "Guarantor" means any of such Persons.
"Guaranty" means a guaranty agreement guaranteeing payment and
performance of the Obligations in form and substance satisfactory to the
Administrative Agent executed by a Guarantor in favor of the Administrative
Agent and the Lenders, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
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"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, including, without limitation,
asbestos, petroleum, underground storage tanks (whether empty or containing any
substance) and polychlorinated biphenyls.
"ILEC" means an incumbent local exchange carrier.
"Initial Assignment of Commitments and Loans" means as specified in
Section 12.8(j).
"Insurance Recovery" means, with respect to any Property of any Loan
Party and any single occurrence or related occurrences with respect thereto, the
receipt or constructive receipt by such Loan Party, or the payment by an
insurance company to the Administrative Agent, of proceeds of any such Property
or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
"Interest Period" means, with respect to any Eurodollar Loan, each period
commencing on the date such Loan is made or Converted from a Prime Rate Loan or
(if Continued) the last day of the next preceding Interest Period with respect
to such Loan, and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.9 hereof, except that each such Interest Period which
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Maturity Date shall end on the
Maturity Date; (c) no more than five Interest Periods for Eurodollar Loans shall
be in effect at the same time; (d) no Interest Period shall have a duration of
less than one month and, if the Interest Period for any Eurodollar Loans would
otherwise be a shorter
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period, such Loans shall not be available hereunder; and (e) no Interest Period
for a Loan may commence before, and end after, any principal payment date
unless, after giving effect thereto, the aggregate principal amount of the
Eurodollar Loans having Interest Periods that end after such principal payment
date shall be equal to or less than the amount of the applicable Loans scheduled
to be outstanding hereunder after such principal payment date.
"Interest Rate Protection Agreements" means, with respect to the
Borrower, an interest rate swap, cap or collar agreement or similar arrangement
between the Borrower and one or more Lenders providing for the transfer or
mitigation of interest rate risks either generally or under specified
contingencies.
"Investments" means as specified in Section 9.5.
"Lender" and "Lenders" means as specified in the initial paragraph of
this Agreement.
"License" means any permit, certificate, approval, order, license or
other authorization, including, without limitation, any FCC License.
"Lien" means, with respect to any Property, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, hypothecation or other
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Administrative Agent's Letter, the Supplemental Agreement, the "Loan
Documents" as such term is defined in the Original Credit Agreement (unless such
Loan Documents have been amended and restated pursuant hereto or pursuant to
other Loan Documents) and all other agreements, documents, instruments and
certificates now or hereafter executed and/or delivered pursuant to or in
connection with any of the foregoing, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Loan Party" means the Borrower, any Guarantor or any Person who grants a
Lien on any Property to secure the payment or performance of the Obligations or
any portion thereof, and "Loan Parties" means all of such Persons.
"Loans" means as specified in Section 2.1(a).
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"Master Purchase Agreement" means that certain Master Purchase Agreement,
dated as of November 2, 1998, by and among the Borrower and Nortel Networks, as
amended, supplemented or restated from time to time.
"Material Adverse Effect" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition, results of operations or
prospects of NCH and its Subsidiaries taken as a whole, (b) the business,
assets, financial condition, results of operations or prospects of the Borrower
individually or of the Borrower and its Subsidiaries taken as a whole, (c) the
validity or enforceability of any of the Loan Documents or the rights and
remedies of the Administrative Agent and/or the Lenders thereunder, (d) the
ability of any Loan Party to pay and perform its indebtedness, liabilities
and/or obligations under any of the Loan Documents, or (e) the value of
Collateral available to the Administrative Agent and the Lenders after giving
effect to Liens in favor of other Persons.
"Material Contracts" means, as to any Loan Party, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
for which the aggregate amount or value of services performed or to be performed
for or by, or funds or other Property transferred or to be transferred to or by,
any Loan Party to such agreement or contract, or by which any Loan Party or any
of its Properties is otherwise bound, during any fiscal year of the Borrower
exceeds $2,000,000 (or the equivalent amount in any currency) and any and all
amendments, modifications, supplements, renewals or restatements thereof.
"Maturity Date" means the earlier to occur of (a) November 2, 2006 or (b)
the fifth anniversary of the Commitment Termination Date.
"Maximum Financed Amount of Eligible Third-Party Expenses" means, as of
any date of determination, the lesser of (a) an amount equal to the aggregate
amount of Eligible Third-Party Expenses or (b) 50% of the sum of (i) the
aggregate amount paid by the Borrower to Nortel Networks to purchase Nortel
Networks Goods and Services for the Network plus (ii) the dollar amount of
irrevocable purchase orders for Nortel Networks Goods and Services for the
Network for delivery on or before the earlier to occur of 120 days after the
date of such purchase order or the Commitment Termination Date.
"Maximum Rate" means, with respect to any Lender, the maximum
non-usurious interest rate or an amount computed in reference to such rate (as
applicable), if any, that any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the particular Obligations
as to which such rate is to be determined, payable to such Lender pursuant to
this Agreement or any other Loan Document, under laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow.
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The Maximum Rate shall be calculated in a manner that takes into account any and
all fees, payments and other charges in respect of the Loan Documents that
constitute interest under applicable law. Each change in any interest rate
provided for herein based upon the Maximum Rate resulting from a change in the
Maximum Rate shall take effect without notice to the Borrower at the time of
such change in the Maximum Rate.
"Mortgage" means a mortgage, deed of trust or other appropriate
agreement, document or instrument evidencing or creating a Lien on real Property
(and any related personal Property) as security for the Obligations or any
portion thereof in form and substance satisfactory to the Administrative Agent
executed by any Loan Party in favor of the Administrative Agent for the benefit
of the Administrative Agent and the Lenders, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Mortgaged Properties" means Properties in which a Lien has been granted
or purported to be granted pursuant to a Mortgage.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from the Borrower or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"NCC" means Net2000 Communications Capital Equipment, Inc., a Delaware
corporation.
"NCH" means Net2000 Communications Holdings, Inc., a Delaware
corporation.
"NCI" means Net2000 Communications, Inc., a Delaware corporation.
"NCRE" means Net2000 Communications Real Estate, Inc., a Delaware
corporation and successor by merger to Net2000 Communications Real Estate, LLC.
"NCS" means Net2000 Communications Services, Inc., a Delaware
corporation.
"NCV" means Net2000 Communications of Virginia, LLC, a Virginia limited
liability company.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by the Borrower or any of its Subsidiaries from
such Asset Disposition, minus (b) the amount, if any, of all taxes paid or
payable by the Borrower or any of its Subsidiaries directly resulting from such
Asset Disposition (including the amount, if any, estimated by the Borrower in
good faith at the time of such Asset Disposition for taxes payable by the
Borrower or any of its Subsidiaries on or measured by net income or gain
resulting from such Asset Disposition), minus
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(c) the reasonable out-of-pocket costs and expenses incurred by the Borrower or
such Subsidiary in connection with such Asset Disposition (including reasonable
brokerage fees paid to a Person other than an Affiliate of the Borrower)
excluding any fees or expenses paid to an Affiliate of the Borrower, minus (d)
amounts applied to the repayment of indebtedness (other than the Obligations)
secured by any Permitted Lien (if any) on the Property subject to the Asset
Disposition. "Net Proceeds" with respect to any Asset Disposition shall also
include proceeds (after deducting any amounts specified in clauses (b), (c) and
(d) of the preceding sentence) of insurance with respect to any actual or
constructive loss of Property, an agreed or compromised loss of Property or the
taking of any Property under the power of eminent domain and condemnation awards
and awards in lieu of condemnation for the taking of Property under the power of
eminent domain.
"Network" means the Borrower's network for the provision of integrated
communications services, including long distance telephone service, local
telephone service, internet service and other data or voice services to be
constructed and operated in the U.S. as described in the Business Plan as
updated as referred to in Section 8.1(j).
"Network Costs" means, for any period, all direct costs, other than
depreciation and amortization, associated with the provision of
telecommunications services (including resold services, switching, transport,
peripheral equipment components and all facilities costs) to customers of the
Borrower and its Subsidiaries.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
"Nortel Networks Equipment" means all equipment manufactured, sold or
otherwise provided to the Borrower or any other Loan Party by Nortel Networks or
Nortel Networks Corporation, including, without limitation, all equipment sold
to the Borrower pursuant to the Master Purchase Agreement.
"Nortel Networks Goods and Services" means sales, installation and
commissioning of Nortel Networks Equipment and related software, and project
management, network design and services performed by Nortel Networks personnel.
"Nortel Networks Software" means any and all software sold or licensed by
Nortel Networks or Nortel Networks Corporation to the Borrower or any other Loan
Party, including, without limitation, all source code and object code and all
manuals and other documentation relating thereto and each copy thereof
regardless of the media in which they are stored.
"Notes" means the promissory notes, in the form of Exhibit B hereto, made
by the Borrower evidencing the Loans and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof and all substitutions
therefor (including promissory notes issued by the Borrower pursuant to Section
12.8), and "Note" means any of such promissory note.
"Notice of Borrowing" means as specified in Section 2.9.
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"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of the Borrower
or any other Loan Party to repay the Loans, to pay interest on the Loans
(including, without limitation, interest accruing after any, if any, bankruptcy,
insolvency, reorganization or other similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees) provided for in the
Loan Documents and (ii) the indebtedness constituting the Loans and such
interest, fees, indemnities, costs and expenses, and (b) indebtedness,
liabilities and obligations of the Borrower or any other Loan Party under any
and all Interest Rate Protection Agreements that it may enter into with any
Lender with the prior written consent of the Administrative Agent and the
Required Lenders.
"Original Closing Date" means the "Closing Date" as such term is defined
in the Original Credit Agreement.
"Original Credit Agreement" means as specified in Recital A.
"Original Revolving Loans" means the "Revolving Loans" as such term is
defined in the Original Credit Agreement.
"Original Term Loans" means the "Term Loans" as such term is defined in
the Original Credit Agreement.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.
"Permit" means any permit, certificate, approval, order, License,
right-of-way (whether an easement, contract or agreement in any form) or other
authorization.
"Permitted Holders" means (a) the Persons who are shareholders of NCI as
of the Original Closing Date, which shareholders are identified on Schedule
1.1(a) hereto and (b) any spouse, parent, sibling, child or grandchild of any of
the aforesaid individuals (in each case, whether such
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relationship arises from birth or adoption or through marriage) or any trust
established for the benefit of any such individuals or any spouse, parent,
sibling, child or grandchild of any such individuals (in each case whether such
relationship arises from birth, adoption or through marriage).
"Permitted Liens" mean:
(a) Liens disclosed on Schedule 1.1(b) hereto;
(b) Liens securing the Obligations in favor of the
Administrative Agent (for the benefit of the Administrative Agent and the
Lenders) pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, rights-of-way, zoning
restrictions or other restrictions on the use of real Property or
imperfections to title that do not (individually or in the aggregate)
materially affect the value of the Property encumbered thereby or
materially impair the ability of the Borrower or any of its Subsidiaries
to use such Property in its businesses, and none of which is violated in
any material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Property subject to such Liens, and for
which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are
not yet due and are incurred in the ordinary course of business or which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, and for which adequate reserves have been
established;
(f) Liens resulting from good faith deposits to secure payment
of worker's compensation or other social security programs or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, contracts (other than for payment of Debt) or leases, all in
the ordinary course of business;
(g) Purchase-money Liens on any Property acquired after the
Original Closing Date or the assumption after the Original Closing Date
of any Lien on Property existing at the time of such acquisition (and not
created in contemplation of such acquisition), or a Lien incurred after
the Original Closing Date in connection with any conditional sale or
other title retention agreement or Capital Lease Obligation; provided
that:
(i) any Property subject to the foregoing is acquired by
the Borrower or any of its Subsidiaries in the ordinary course of
its respective business and the Lien on the Property attaches
concurrently or within 90 days after the acquisition thereof;
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(ii) the Debt secured by any Lien so created, assumed or
existing shall not exceed the lesser of the cost or fair market
value at the time of acquisition of the Property covered thereby
(inclusive of the cost of engineering, furnishing and installation
services directly relating to such Property) and shall not be less
than 75% of the amortized value of the Property acquired with the
proceeds of such Debt;
(iii) each such Lien shall attach only to the Property so
acquired and the proceeds thereof; and
(iv) the Debt secured by all such Liens, when aggregated
with the Debt secured by all purchase-money Liens and all Liens in
connection with any conditional sale or other title retention
agreement or Capital Lease Obligation existing as of the Original
Closing Date or at any other time, shall not exceed $20,000,000 at
any time outstanding in the aggregate;
(h) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be extended
or spread to cover any additional indebtedness or Property; and
(i) Liens affecting the accounts of the Borrower and its
Subsidiaries securing only Debt permitted in accordance with clause (g)
of Section 9.1 (which Lien may have priority over the Lien securing the
Obligations in favor of the Administrative Agent);
provided, however, that (A) none of the Permitted Liens (except those in favor
of the Administrative Agent) may attach or relate to the Capital Stock of or any
other ownership interest in the Borrower or any of its Subsidiaries and (B)
except for the Liens disclosed on Schedule 1.1(b) which are expressly identified
as constituting purchase money Liens, none of the Permitted Liens referred to in
clause (a) preceding may have a priority equal or prior to the Liens in favor of
the Administrative Agent as security for the Obligations.
"Person" means any individual, corporation, trust, association, company,
partnership, joint venture, limited liability company, joint stock company,
Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any ERISA
Affiliate, including any Pension Plan.
"Prime Rate" means, at any time, the greater of (a) the rate of interest
per annum then most recently announced or established by the Reference Bank at
its principal office in New York City as its highest commercial prime or base
rate then in effect, or (b) the Federal Funds Rate then in effect plus one-half
of one percent (1/2%). The Prime Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers. Each change
in any interest rate provided for herein based upon the Prime Rate or the
Federal Funds Rate resulting from a
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change in the Prime Rate or the Federal Funds Rate, respectively, shall take
effect without notice to the Borrower at the time of such change in the Prime
Rate or the Federal Funds Rate, respectively.
"Prime Rate Loans" means Loans that bear interest at rates based upon the
Prime Rate.
"Principal Office" means the principal office of the Administrative Agent
in Richardson, Texas, presently located at 2221 Lakeside Blvd., Richardson,
Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Property" means property of all kinds, real, personal or mixed, tangible
or intangible (including, without limitation, all rights relating thereto),
whether owned or acquired on or after the Closing Date.
"Qualified Telecommunications Investment" means investments in, or
acquisitions of, Telecommunications Assets or Telecommunications Businesses by
the Borrower or its Subsidiary which are either (a) made using Capital Stock of
NCI in lieu of cash paid or Debt assumed or incurred, or (b) to the extent made
with cash paid or Debt assumed or incurred, are made only in an amount equal to
the positive difference, if any, between the amount of net cash proceeds of
equity and Subordinated Debt offerings received by NCI and contributed to the
Borrower as equity or Subordinated Debt since the Original Closing Date and
$130,000,000. No acquisition or investment will qualify as a Qualified
Telecommunications Investment unless the Loan Parties would have been in
compliance with the covenants contained in Section 9.16 of this Agreement as of
the end of the last two fiscal quarters, giving pro forma effect to the EBITDA
gains and losses and other financial attributes of the acquired company (or
portion thereof) or associated with the acquired assets, and the projections for
the Loan Parties, giving effect to the acquisition, would be in compliance with
the covenants contained in Section 9.16 of this Agreement as of the end of the
next two fiscal quarters.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be December 31, 1998.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of the
Borrower or any of its Subsidiaries in respect of services rendered by the
Borrower or any of its Subsidiaries.
"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 12.8(d).
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"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 12.8(h).
"Registration Rights Agreement" means that certain Exchange and
Registration Rights Agreement dated as of July 30, 1999, among NCI and Nortel
Networks.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Lender, any change after
the Closing Date in any U.S. federal or state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders including
such Lender of or under any U.S. federal or state or foreign laws or regulations
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
"Release" means, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, discharge, disposal, dispersement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA other than any such event for which the 30-day notice requirement has
been waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders holding
at least two-thirds (in Dollar amount) of the sum of (a) the aggregate
outstanding principal amount of the Loans, plus (b) the aggregate amount of the
outstanding Commitments.
"Required Payment" means as specified in Section 3.4.
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"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate or
the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to any Loan Party, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of NCH or the Borrower or any of their
Subsidiaries now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of NCH or the Borrower or any of their Subsidiaries now or
hereafter outstanding; (c) any payment or prepayment of principal of, premium,
if any, or interest on, or any redemption, conversion, exchange, purchase,
retirement or defeasance of, or payment with respect to, any Subordinated Debt;
(d) any loan, advance or payment to any officer, director or shareholder of NCH
or the Borrower or any of their Subsidiaries (other than a shareholder
consisting of NCH or the Borrower or a Wholly-Owned Subsidiary of NCH or the
Borrower), exclusive of reasonable compensation paid to officers or directors
paid in the ordinary course of business; and (e) any payment made to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of Capital Stock of NCH or the Borrower or any of
their Subsidiaries now or hereafter outstanding.
"Secured Debt" means, at any particular time, that portion of Total Debt
the payment of which is secured or assured by any Lien or negative pledge or
other similar preferential treatment.
"Securities Purchase Agreement" means that certain Note Purchase
Agreement dated as of July 30, 1999, between NCI and Nortel Networks.
"Security Agreements" means security agreements, pledge agreements,
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders, and any such agreement, document or
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instrument subsequently executed in accordance or connection with this Agreement
or any other Loan Document, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements and the Mortgages, as
they may be amended, modified, supplemented, renewed, extended or restated from
time to time, and any and all other agreements, deeds of trust, mortgages,
chattel mortgages, security agreements, pledges, guaranties, assignments of
proceeds, assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Senior Notes" means the $75,000,000 (face amount) Senior Discount Notes
issued by NCI pursuant to the Securities Purchase Agreement.
"Senior Notes Documents" means the Securities Purchase Agreement, the
Senior Notes and the Senior Notes Indenture.
"Senior Notes Indenture" means that certain Indenture dated as of July
30, 1999, between NCI and Allfirst Trust Company, National Association, as
trustee.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's Property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
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"Subordinated Debt" means unsecured Debt of NCH the payment of which is
structurally or contractually subordinated to the payment of the Loans on terms
satisfactory to the Administrative Agent and the Required Lenders and as to
which the payment of principal of (and premium, if any) and interest and other
payment obligations in respect of such Debt shall be subordinate to the prior
payment in full of the Obligations to at least the following extent: (a) no
payments of principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be permitted for so long as any Default in the payment
of principal (or premium, if any) or interest on the Obligations exists; and (b)
such Debt may not (i) provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase thereof
(including any redemption, retirement or repurchase which is contingent upon
events of circumstances but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in each case
prior to 6 months after the final stated maturity of the Loans or (ii) permit
redemption or other retirement (including pursuant to an offer to purchase made
by the obligor thereon) of such other Debt at the option of the holder thereof
prior to the final stated maturity of the Loans, other than a redemption or
other retirement at the option of the holder of such Debt (including pursuant to
an offer to purchase made by NCH or any of its Subsidiaries) which is
conditioned upon a change of control of NCH pursuant to provisions set forth in
the instruments evidencing such Debt.
"Subordinated Debt Documents" means any and all agreements, documents and
instruments now or hereafter evidencing or governing any Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors (or Persons performing similar functions) of
such corporation or entity (irrespective of whether or not at the time, in the
case of a corporation, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by such Person and one or more of
its Subsidiaries.
"Supplemental Agreement" means the Supplemental Agreement dated as of
November 2, 1998, among NCI, the Loan Parties and the Administrative Agent.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (a) transmitting, or
providing services relating to the transmission of, voice, data or video through
owned or leased transmission facilities, (b) constructing, creating, developing
or marketing communications related network equipment, software and other
devices for use in a telecommunications business or (c) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (a)
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or (b) above, provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors.
"Total Capitalization" means, as to any Person and its Consolidated
Subsidiaries and as of any date, the sum of (without duplication) (a) the Total
Debt of such Person and its Consolidated Subsidiaries as of such date plus (b)
the Contributed Capital of such Person and its Consolidated Subsidiaries as of
such date, determined on a consolidated basis in accordance with GAAP.
"Total Debt" means, as to any Person and its Consolidated Subsidiaries
and as of any date, the aggregate principal amount of all Debt of such Person
and its Consolidated Subsidiaries outstanding.
"Type" means any type of Loan (i.e., a Prime Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of New
York and/or any other jurisdiction, the laws of which may be applicable to or in
connection with the creation, perfection or priority of any Lien on any Property
created pursuant to any Security Document.
"U.S." means the United States of America.
"U.S. Person" means a citizen or resident of the U.S., a corporation,
partnership or other entity created or organized in or under any laws of the
U.S. or any estate or trust that is subject to U.S. Federal income taxation
regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other charge
or levy imposed by or on behalf of the U.S. or any taxing authority thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the Master
Purchase Agreement.
"Virtual Co-location" means as defined in 47 C.F.R. section 64.1401(e).
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only for so long as
no senior class of securities has such voting power by reason of any
contingency.
"Warrant Agreement" means that certain Warrant Agreement dated as of July
30, 1999, between NCI and Nortel Networks.
"Warrant Documents" means the Warrant Agreement and the Warrants.
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"Warrants" means the warrants issued by NCI to Nortel Networks pursuant
to the Warrant Agreement.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
of such Person all of whose outstanding Capital Stock (other than directors'
qualifying shares, if any) shall at the time be owned by such Person and/or one
or more of its Wholly-Owned Subsidiaries.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 12.11. Unless otherwise specified, all Article and
Section references pertain to this Agreement. Terms used herein that are defined
in the UCC, unless otherwise defined herein, shall have the meanings specified
in the UCC. All references in this Agreement to any agreement shall be deemed to
mean and refer to such agreement as it may be amended, modified or supplemented
from time to time if (but only if) such amendment, modification or supplement
has been approved by the Administrative Agent and the Required Lenders, is
expressly referred to in such reference or is otherwise expressly permitted by
the terms of this Agreement.
Section 1.3 Accounting Terms and Determinations.
(a) Except as may be expressly provided herein to the contrary, (i)
all accounting terms (whether or not specifically defined herein) shall be
construed in accordance with GAAP (subject to year end adjustments, if
applicable) consistent with such accounting principles applied in the
preparation of the audited financial statements referred to in Section 7.2(a),
(ii) all financial information delivered to the Administrative Agent pursuant to
Section 8.1 shall be prepared in accordance with GAAP (subject to year end
adjustments, if applicable) applied on a basis consistent with such accounting
principles applied in the preparation of the audited financial statements of the
applicable Person referred to in Section 7.2 or in accordance with Section 8.7,
and (iii) with respect to accounting terms or financial information defined or
described in reference to a Person and its Consolidated Subsidiaries, all such
terms and information shall be construed as applying to such Person and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP.
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
material variation between the application of GAAP employed in the preparation
of the next preceding annual or quarterly financial statements prepared in
accordance with the last sentence of Section 1.3(a) preceding as to which no
objection has been
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made by the Administrative Agent and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in this Agreement, the Borrower will not change the
last day of its fiscal year from December 31 or the last days of the first three
fiscal quarters of the Borrower in each of its fiscal years from March 31, June
30 and September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date and the Effective Date shall be deemed to
mean and refer to the Closing Date and the Effective Date, respectively, after
giving effect to all transactions which occur on or before such date.
Section 1.4 Financial Covenants and Reporting. All financial statements
and reports required to be delivered pursuant to this Agreement and the other
Loan Documents, and all financial covenants (if any) contained in this
Agreement, shall be prepared or determined (as applicable) in accordance with
GAAP (except as to the absence of footnotes in unaudited financial statements
and except as may be expressly provided to the contrary herein). If and to the
extent that such financial statements, reports or covenants are to be prepared
or determined on a consolidated basis, they shall be prepared or determined on a
consolidated basis for NCH and its Subsidiaries (including, without limitation,
the Borrower) and the Borrower and its Subsidiaries, as the case may be (except
as may be expressly provided to the contrary herein).
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Loans. Subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.13(a)), each Lender severally agrees
to make one or more loans to the Borrower from time to time from and including
the Effective Date to but excluding the Commitment Termination Date up to but
not exceeding the amount of such Lender's Commitment as then in effect. (Such
loans referred to in this Section 2.1(a) now or hereafter made by the Lenders to
the Borrower, including, without limitation, such loans which remain outstanding
after the Commitment Termination Date, are hereinafter collectively called the
"Loans".) The Borrower may not reborrow the Loans which have been repaid.
(b) Prior Loans. Certain of the Lenders made Original Revolving Loans
and Original Term Loans to the Borrower pursuant to Section 2.1(a) of the
Original Credit Agreement. As of the Effective Date, the aggregate unpaid
principal amount of such loans is $19,502,663.33, which amount shall be deemed
outstanding as Loans made under this Agreement.
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(c) Continuation and Conversion of Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow the Loans as Prime Rate
Loans or Eurodollar Loans and, until the Maturity Date, the Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other
Type.
(d) Lending Offices. Loans of each Type made by each Lender shall be
made and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
Section 2.2 Notes.
(a) Notes. The Loans made (and deemed made) by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit B hereto dated the Closing Date (or such later date on which such
Lender becomes a party to this Agreement), payable to the order of such Lender
in a principal amount equal to the sum of (i) the aggregate principal amount of
Loans of such Lender plus (ii) the aggregate principal amount of the unfunded
Commitment of such Lender as originally in effect and otherwise duly completed.
Each Lender is hereby authorized by the Borrower to endorse on the schedule (or
a continuation thereof) attached to the Note of such Lender, to the extent
applicable, the date, amount and Type of and the Interest Period for each
applicable Loan made by such Lender to the Borrower and the amount of each
payment or prepayment of principal of such Loan received by such Lender,
provided that any failure by such Lender to make any such endorsement shall not
affect the obligations of the Borrower under any such Note or this Agreement in
respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that
could become completely exempt from withholding of U.S. Taxes in respect of
payment of any Obligations due to such Lender hereunder relating to any of its
Loans if such Loans were in registered form for U.S. Federal income tax purposes
may request the Borrower (through the Administrative Agent), and the Borrower
agrees thereupon, to exchange such Lender's Note evidencing its Loans for a
promissory note registered as provided in Section 12.8(h) hereof (a "Registered
Note"). Registered Notes may not be exchanged for Notes that are not in
registered form.
Section 2.3 Repayment of Loans.
(a) Repayment of Loans. The Borrower shall pay to the Administrative
Agent for the account of each Lender the principal of each of the Loans
outstanding as of the Commitment Termination Date (and the principal of each of
the Loans outstanding as of the Commitment Termination Date shall be due and
payable) in 20 quarterly installments, commencing on the first Quarterly Date
after the Commitment Termination Date, and continuing on each Quarterly Date
thereafter through and including the Maturity Date, each of which installments
shall be in an amount equal to the percentage of the principal amount of the
Loans outstanding as of the Commitment Termination Date specified opposite such
installment in the following table:
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<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Percentage of the Aggregate Principal Amount of
Principal Installment each of the Loans Due and Payable
----------------------------------------------------------------------------------------------------
<S> <C>
1 3.75%
----------------------------------------------------------------------------------------------------
2 3.75%
----------------------------------------------------------------------------------------------------
3 3.75%
----------------------------------------------------------------------------------------------------
4 3.75%
----------------------------------------------------------------------------------------------------
5 3.75%
----------------------------------------------------------------------------------------------------
6 3.75%
----------------------------------------------------------------------------------------------------
7 3.75%
----------------------------------------------------------------------------------------------------
8 3.75%
----------------------------------------------------------------------------------------------------
9 5.00%
----------------------------------------------------------------------------------------------------
10 5.00%
----------------------------------------------------------------------------------------------------
11 5.00%
----------------------------------------------------------------------------------------------------
12 5.00%
----------------------------------------------------------------------------------------------------
13 6.25%
----------------------------------------------------------------------------------------------------
14 6.25%
----------------------------------------------------------------------------------------------------
15 6.25%
----------------------------------------------------------------------------------------------------
16 6.25%
----------------------------------------------------------------------------------------------------
17 6.25%
----------------------------------------------------------------------------------------------------
18 6.25%
----------------------------------------------------------------------------------------------------
19 6.25%
----------------------------------------------------------------------------------------------------
20 6.25%
----------------------------------------------------------------------------------------------------
</TABLE>
In addition, the Borrower shall pay to the Administrative Agent for the account
of each Lender all outstanding principal of the Loans (and all outstanding
principal of the Loans shall be due and payable) on the Maturity Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Administrative Agent
for the account of each Lender interest on the unpaid principal amount of each
Loan made by such Lender (or deemed made by such Lender with respect to a Loan
assigned to such Lender after the making of such Loan) to the Borrower for the
period commencing on the date of such Loan to but excluding the date such Loan
shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Prime Rate Loan, the
lesser of (A) the Prime Rate plus the Applicable Margin or (B) the
Maximum Rate; and
(ii) during the periods such Loan is a Eurodollar Loan, the
lesser of (A) the Adjusted Eurodollar Rate plus the Applicable Margin or
(B) the Maximum Rate.
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(b) Payment Dates. Accrued interest on the Loans shall be due and
payable as follows:
(i) in the case of Prime Rate Loans, on each Quarterly Date;
(ii) in the case of each Eurodollar Loan, on the last day of the
Interest Period with respect thereto and, in the case of an Interest
Period greater than three months, at three-month intervals after the
first day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or
optional) of any Loan or the Conversion of any Loan to a Loan of the
other Type (but only on the principal amount so paid, prepaid or
Converted); and
(iv) with respect to all Loans, on the Maturity Date.
In addition, accrued interest on the Original Revolving Loans and the Original
Term Loans which was not paid in full on or before the Effective Date shall be
due and payable on the last day of the "Interest Period" (as such term is
defined in the Original Credit Agreement) with respect thereto.
(c) Default Interest. Notwithstanding the foregoing, the Borrower
shall pay to the Administrative Agent for the account of each Lender interest at
the applicable Default Rate (i) at all times during which any Default has
occurred and is continuing, on any principal of any Loan outstanding, and (ii)
to the fullest extent permitted by law, any other amount payable by the Borrower
under this Agreement or any other Loan Document to or for the account of such
Lender which is not paid in full when due (whether at stated maturity, by
acceleration or otherwise) for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable at
the Default Rate shall be payable from time to time on demand by the
Administrative Agent.
Section 2.5 Borrowing Procedure. The Borrower shall give the
Administrative Agent notice of each borrowing hereunder in accordance with
Section 2.9. Not later than 1:00 p.m. (New York, New York time) on the date
specified for each borrowing hereunder, each Lender will make available the
amount of the Loan to be made by it on such date to the Administrative Agent, at
the Principal Office, in immediately available funds, for the account of the
Borrower. The amount of each borrowing hereunder so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available, for and on behalf of the Borrower, in immediately
available funds by no later than 1:00 p.m. (New York, New York time); provided,
however, that the Administrative Agent may, in its discretion, cause such
amounts to be made available directly to or for the benefit of the Person who is
to receive the proceeds of such Loan in accordance with Section 2.10 (e.g. the
Vendor) if and to the extent that proceeds of such borrowing are used to pay for
Nortel Networks Goods and Services. Notwithstanding anything to the contrary
contained in this Agreement, if and to the extent that Nortel Networks is a
Lender under this Agreement, the Borrower further hereby irrevocably agrees that
each Loan to be advanced by Nortel Networks to the Borrower
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in accordance with this Agreement (and only in accordance with this Agreement
and after the Administrative Agent's receipt of a Notice of Borrowing executed
by the Borrower) may (in the discretion of Nortel Networks and if and to the
extent that the proceeds of such Loan are to be paid to Nortel Networks) be
effectively disbursed on the date set forth in the Notice of Borrowing for such
disbursement to the Borrower by virtue of a credit in the amount of such Loan
given to the Borrower under the Master Purchase Agreement.
Section 2.6 Optional Prepayments, Conversions and Continuations of
Loans. Subject to Section 2.8, the Borrower shall have the right from time to
time to prepay the Loans in whole or in part, to Convert all or part of a Loan
of one Type into a Loan of another Type or to Continue Eurodollar Loans;
provided that: (a) the Borrower shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 2.9, (b)
Eurodollar Loans may only be Converted on the last day of the Interest Period
and any prepayment of Eurodollar Loans on any day other than the last day of the
Interest Period shall be subject to payment of the additional compensation
specified in Section 4.5, (c) except for Conversions of Eurodollar Loans into
Base Rate Loans, no Conversions or Continuations shall be made while a Default
has occurred and is continuing, and (d) optional prepayments of the Loans shall
be applied to the principal of the Loans pro rata to the then remaining
installments of such principal. No amounts prepaid pursuant to this Section 2.6
may be reborrowed.
Section 2.7 Mandatory Prepayments.
(a) Asset Dispositions, etc. The Borrower shall, within two Business
Days after it receives any Net Proceeds of any Asset Disposition, proceeds of
any Insurance Recovery or proceeds of condemnation awards aggregating in excess
of $1,000,000 during any period of 12 consecutive months or less (the amount of
such Net Proceeds or proceeds exceeding $1,000,000 received during any such
period are herein called the "Excess Proceeds Amount"), pay to the
Administrative Agent, as a prepayment of the Loans, an aggregate amount equal to
all of the Excess Proceeds Amount; provided, that no such prepayment will be
required if and to the extent that the Excess Proceeds Amount is fully
re-invested in productive assets used in the ordinary course of Borrower's or
its Subsidiary's (as applicable) business within 365 days of the receipt of such
proceeds; provided, further, however, that the Excess Proceeds Amount not so
re-invested within 60 days after the receipt thereof shall be deposited into a
cash collateral account held by the Administrative Agent pursuant to an
agreement in form and substance satisfactory to the Administrative Agent until
such time as such amount (exclusive of any interest accrued thereon) is either
re-invested within such 365 day period or applied to the Loans or other
Obligations as provided in this Section 2.7.
(b) Excess Cash Flow. The Borrower shall, commencing on March 31, 2002
and on each March 31st thereafter, pay (or cause to be paid) to the
Administrative Agent, as a prepayment of the Loans and other Obligations then
outstanding, an aggregate amount equal to 50% of Excess Cash Flow for the fiscal
year then most recently ended.
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(c) Application of Mandatory Prepayments. All prepayments pursuant to
Section 2.7(a) and Section 2.7(b) shall be applied to the principal of the Loans
pro rata to the then remaining installments of such principal and then to the
remaining outstanding Obligations in such order as the Administrative Agent may
determine. No prepayment shall be required to be made by the Borrower pursuant
to Section 2.7 until such date as the Borrower may make such prepayment without
incurring an additional cost or expense under Section 4.5(a) as a result of such
prepayment.
(d) No Reborrowing. No amounts of the Loans prepaid pursuant to this
Section 2.7 may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each
optional prepayment of principal of the Loans shall be in an amount at least
equal to $2,000,000 or an integral multiple of $100,000 in excess thereof
(borrowings, prepayments or Conversions of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder shall be deemed separate borrowings, prepayments and Conversions
for purposes of the foregoing, one for each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the Borrower to the
Administrative Agent of terminations or reductions of Commitments, of
borrowings, Conversions, Continuations and prepayments of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Administrative Agent not later than 1:00 p.m. (New York, New
York, time) on the applicable Business Day prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Notice Number of Business Days Prior
- ---------------------------------------------------------------------------------------
<S> <C>
Terminations or Reductions of Commitments 1
- ---------------------------------------------------------------------------------------
Borrowings of Loans which are Prime Rate Loans 2
- ---------------------------------------------------------------------------------------
Borrowings of Loans which are Eurodollar Loans 3
- ---------------------------------------------------------------------------------------
Prepayments of Loans 3
- ---------------------------------------------------------------------------------------
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C hereto,
appropriately completed as applicable. Each notice of borrowing (a "Notice of
Borrowing") (a) shall certify that all proceeds of the requested Loans are,
concurrently
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with the making of such Loans, being used by the Borrower for the purpose
specified in Section 2.10 and (b) shall be accompanied by such other evidence as
to use of the proceeds of such borrowing, as the Administrative Agent may
reasonably request from time to time. Each notice which includes reference to
the duration of an Interest Period shall specify the Loans to which such
Interest Period is to relate. The Administrative Agent shall promptly notify the
Lenders of the contents of each such notice. In the event the Borrower fails to
select the Type of Loan, or the duration of any Interest Period for any
Eurodollar Loan, within the time period and otherwise as provided in this
Section 2.9, such Loan (if outstanding as Eurodollar Loan) will be automatically
Converted into a Prime Rate Loan on the last day of preceding Interest Period
for such Loan or (if outstanding as a Prime Rate Loan) will remain as, or (if
not then outstanding) will be made as, a Prime Rate Loan. The Borrower may not
borrow any Eurodollar Loans, Convert any Loans into Eurodollar Loans or Continue
any Loans as Eurodollar Loans if the interest rate for such Eurodollar Loans
would exceed the Maximum Rate.
Section 2.10 Use of Proceeds.
(a) Loans. The Borrower agrees that all proceeds of the Loans shall be
used (i) to finance the purchase price for Nortel Networks Goods and Services
provided by Nortel Networks under the Master Purchase Agreement, excluding sales
and use taxes and freight charges, which Nortel Networks Goods and Services
shall be used in the construction and operation of the Network and (ii) to pay
(or reimburse the Borrower for its prior payment of) Eligible Third-Party
Expenses up to an amount not to exceed the Maximum Financed Amount of Eligible
Third-Party Expenses ,provided, however, that proceeds of Loans may not be used
to pay (or to reimburse the prior payment of) any Eligible Third-Party Expenses
initially incurred more than 90 days prior to the date of the making of such
Loans.
(b) Maximum Financed Amount of Eligible Third-Party Expenses. The
Maximum Financed Amount of Eligible Third-Party Expenses shall be determined by
the Administrative Agent in good faith as of the Closing Date and will be
redetermined in good faith by the Administrative Agent thereafter immediately
prior to the proposed borrowing date of any Loan, the proceeds of which (in
whole or in part) are proposed to be used to pay Eligible Third Party Expenses.
(c) Margin Stock. None of the proceeds of any Loan may be used to
acquire any security in any transaction that is subject to Section 13 or 14 of
the Exchange Act or to purchase or carry any margin stock (within the meaning of
Regulations T, U or X of the Board of Governors of the Federal Reserve System).
Section 2.11 Fees.
(a) Subject to Section 12.12, the Borrower shall, commencing on the
Effective Date and for all periods thereafter, pay to the Administrative Agent
for the account of each applicable Lender a commitment fee on the daily average
unused or unfunded amount of such Lender's Commitment, for the period from and
including the date on which such Lender (or its predecessor in interest with
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respect to a Commitment assigned to such Lender as to which a commitment fee has
not previously been paid during the applicable period) became a party hereto but
excluding the Commitment Termination Date, at the rate equal to the Applicable
Commitment Fee Rate based on a 360 day year and the actual number of days
elapsed, which accrued commitment fees shall be payable in arrears on each
Quarterly Date and on the Commitment Termination Date.
(b) Subject to Section 12.12, the Borrower agrees to pay to the
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein (provided, however, that all
references to the term "Closing Date" in the Administrative Agent's Letter shall
mean and refer to the Original Closing Date).
Section 2.12 Computations. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable unless, in the case of interest, such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a year
of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Commitments shall automatically terminate upon the earlier to
occur of the occurrence of any Change in Control.
(b) The Borrower shall have the right to terminate or reduce in part
the unused portion of the Commitments at any time and from time to time prior to
the Commitment Termination Date; provided, however, that no such termination or
reduction shall be effective unless the Borrower shall have given notice of each
such termination or reduction as provided in Section 2.9 and each partial
reduction of the Commitments shall be in an aggregate amount at least equal to
$2,000,000 or an integral multiple of $100,000 in excess thereof.
(c) The Commitments may not be reinstated after they have been
terminated or increased after they have been reduced.
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ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest,
fees and other amounts to be made by the Borrower under this Agreement and the
other Loan Documents shall be made to the Administrative Agent at the Principal
Office for the account of each Lender's Applicable Lending Office in Dollars and
in immediately available funds, without setoff, deduction or counterclaim, not
later than 1:00 p.m. (New York, New York time) on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be applied (and in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may apply such payment to the Obligations
in such order and manner as the Administrative Agent may elect, subject to
Section 3.2). Upon the occurrence and during the continuation of an Event of
Default, all proceeds of any Collateral, and all other funds of the Borrower in
the possession of the Administrative Agent or any Lender, may be applied by the
Administrative Agent to the Obligations in such order and manner as the
Administrative Agent may elect, subject to Section 3.2. Each payment received by
the Administrative Agent under this Agreement or any other Loan Document for the
account of a Lender shall be paid promptly to such Lender, in immediately
available funds, for the account of such Lender's Applicable Lending Office.
Whenever any payment under this Agreement or any other Loan Document shall be
stated to be due on a day that is not a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of the payment of interest and commitment
fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided
in this Agreement: (a) each Loan shall be made by the Lenders under Section 2.1,
each payment of commitment fees under Section 2.11(a) shall be made for the
account of the Lenders, and each termination or reduction of the Commitments
under Section 2.13 shall be applied to the Commitments of the Lenders, pro rata
according to the respective unused Commitments; (b) the making, Conversion and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 4.4) shall be made pro rata among the Lenders holding Loans of such
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment by the Borrower of principal of or interest on Loans of a
particular Type shall be made to the Administrative Agent for the account of the
Lenders holding Loans of such Type pro rata in accordance with the respective
unpaid principal amounts of such Loans held by such Lenders; and (d) Interest
Periods for Loans of a particular Type shall be allocated among the Lenders
holding Loans of such Type pro rata according to the respective principal
amounts held by such Lenders.
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Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment
of any principal of or interest on any of the Obligations due to such Lender
hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Lenders participations in the Obligations held by the other Lenders in
such amounts, and make such adjustments from time to time, as shall be equitable
to the end that all the Lenders shall share pro rata in accordance with the
unpaid principal and interest on the Obligations then due to each of them. To
such end, all of the Lenders shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if all or any portion of
such excess payment is thereafter rescinded or must otherwise be restored. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any Lender so purchasing a participation in the Obligations by the
other Lenders may exercise all rights of setoff, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness, liability or
obligation of the Borrower.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or the Borrower
(the "Payor") prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Lenders, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Administrative Agent,
the Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Administrative Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
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Section 3.5 Taxes.
(a) All payments by the Borrower of principal of and interest on the
Loans and of all fees and other amounts payable under the Loan Documents shall
be made free and clear of, and without withholding or deduction by reason of,
any present or future taxes, levies, duties, imposts, assessments or other
charges levied or imposed by any Governmental Authority (other than franchise
taxes and taxes on the overall net income of any Lender). If any such taxes,
levies, duties, imposts, assessments or other charges are so levied or imposed,
the Borrower will (i) make additional payments in such amounts so that every net
payment of principal of and interest on the Loans and of all other amounts
payable by it under the Loan Documents, after withholding or deduction for or on
account of any such present or future taxes, levies, duties, imposts,
assessments or other charges (including any tax imposed on or measured by net
income of a Lender attributable to payments made to or on behalf of a Lender
pursuant to this Section 3.5 and any penalties or interest attributable to such
payments), will not be less than the amount provided for herein or therein
absent such withholding or deduction (provided that the Borrower shall not have
any obligation to pay such additional amounts to any Lender to the extent that
such taxes, levies, duties, imposts, assessments or other charges are levied or
imposed by reason of the failure of such Lender to comply with the provisions of
Section 3.6), (ii) make such withholding or deduction and (iii) remit the full
amount deducted or withheld to the relevant Governmental Authority in accordance
with applicable law. Without limiting the generality of the foregoing, the
Borrower will, upon written request of any Lender, reimburse each such Lender
for the amount of (A) such taxes, levies, duties, imports, assessments or other
charges so levied or imposed by any Governmental Authority and paid by such
Lender as a result of payments made by the Borrower under or with respect to the
Loans other than such taxes, levies, duties, imports, assessments and other
charges previously withheld or deducted by the Borrower which have previously
resulted in the payment of the required additional amount to such Lender, and
(B) such taxes, levies, duties, assessments and other charges so levied or
imposed with respect to any Lender reimbursement under the foregoing clause (A),
so that the net amount received by such Lender (net of payments made under or
with respect to the Loans) after such reimbursement will not be less than the
net amount such Lender would have received if such taxes, levies, duties,
assessments and other charges on such reimbursement had not been levied or
imposed. The Borrower shall furnish promptly to the Administrative Agent for
distribution to each affected Lender, as the case may be, upon request of such
Lender, official receipts evidencing any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each
Lender (without duplication) against, and reimburse the Administrative Agent and
each Lender for, all present and future taxes, levies, duties, imposts,
assessments or other charges (including interest and penalties) levied or
collected (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on the overall net income of
the Administrative Agent or such Lender or any lending office of the
Administrative Agent or such Lender by any jurisdiction in which the
Administrative Agent or such Lender or any such lending office is located, on or
in respect of this Agreement, any of the Loan Documents or the Obligations or
any portion thereof (the
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"reimbursable taxes"). Any such indemnification shall be on an after-tax basis,
taking into account any such reimbursable taxes imposed on the amounts paid as
indemnity.
(c) Without prejudice to the survival of any other term or provision
of this Agreement, the obligations of the Borrower under this Section 3.5 shall
survive the payment of the Loans and the other Obligations and termination of
the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Effective Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Borrower and the Administrative Agent two duly
completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8 or
other equivalent documents, as appropriate, certifying in any case that such
Lender is entitled to receive payments from the Borrower under any Loan Document
without deduction or withholding of any U.S. federal income taxes. Each Lender
which so delivers a Form 1001, 4224 or W-8 or other equivalent documents, as
appropriate, further undertakes to deliver to the Borrower and the
Administrative Agent two additional copies of such form (or a successor form) on
or before the date such form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent form so delivered by it, and
such amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Administrative Agent, in each case certifying
that such Lender is entitled to receive payments from the Borrower under any
Loan Document without deduction or withholding of any U.S. federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises the Borrower and the Administrative Agent
that it is not capable of receiving such payments without any deduction or
withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to
the contrary contained in this Agreement or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Loans or
any other amount of the Obligations, or any portion thereof, is rescinded,
voided or must otherwise be refunded by the Administrative Agent or any Lender
upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise
for any reason whatsoever, then each of (a) the Obligations, (b) the Loan
Documents (including, without limitation, this Agreement, the Notes and the
Security Documents), (c) the indebtedness, liabilities and obligations of the
Borrower and any other Loan Parties and (d) all Liens for the benefit of the
Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be automatically reinstated and become automatically effective
and in full force and effect, all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.
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Section 3.8 No Force Majeure, Disputes. The Borrower's obligation to
pay all amounts due under the Loans and the other Obligations shall not be
affected by (a) any set-off, counterclaim, recoupment, deduction, abatement,
suspension, diminution, reduction, defense or other right which the Borrower may
have against the Vendor for any reason whatsoever arising under or pursuant to
the Master Purchase Agreement or otherwise relating to the purchase of goods or
services from the Vendor, (b) any defect in the condition, design, operation or
fitness for use of, or any damage to or loss or destruction of, any equipment or
material or service provided by the Vendor, (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or affecting
any of its Properties, (d) any action of any Governmental Authority or any
damage to or destruction of or any taking of the Borrower's Property or any part
thereof, (e) any change, waiver, extension, indulgence or failure to perform or
comply with, or other action or omission herein or in the other Loan Documents
(except for express written modifications to this Agreement or other Loan
Documents as and in the manner permitted under this Agreement or the other Loan
Documents), (f) any dissolution of the Borrower, (g) any inability or illegality
with respect to the use or ownership of the Borrower's Property, (h) any failure
to obtain, or expiration, suspension or other termination of, or interruption
to, any required licenses, permits, consents, authorizations, approvals or other
legal requirements, (i) the invalidity or unenforceability of any of the Loan
Documents or any other infirmity therein or any lack of power or authority of
the Administrative Agent or any Lender or the Borrower, or (j) any other event
or circumstance whatsoever, whether or not similar to any of the foregoing and
whether or not the Borrower shall have notice or knowledge of any of the
foregoing, it being the intention of the Administrative Agent and the Lenders
and the Borrower that the Obligations of the Borrower shall be absolute and
unconditional and shall be separate and independent covenants and agreements and
shall continue unaffected unless the requirements to pay or perform the same
shall have been terminated pursuant to an express provision thereof or of any of
the other Loan Documents.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the costs incurred by such Lender
which such Lender determines are attributable to its making or maintaining of
any Eurodollar Loans or its obligation to make any of such Loans, or any
reduction in any amount receivable by such Lender hereunder in respect of any
such Loans or obligations (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Lender under this Agreement or its Notes in respect of any of such
Loans (other than taxes imposed on the overall net income of such Lender
or its Applicable Lending Office for any of such Loans
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by the jurisdiction in which such Lender has its principal office or such
Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any extensions
of credit or other assets of, or any deposits with or other liabilities
or commitments of, such Lender (including any of such Loans or any
deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof, but excluding the Reserve Requirement to the extent it is
included in the calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or the
Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and (if
so requested by the Borrower) will designate a different Applicable Lending
Office for the Eurodollar Loans of such Lender if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, violate any law, rule or regulation or be in any
way disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the U.S. Each
Lender will furnish the Borrower with a certificate setting forth the basis and
the amount of each request of such Lender for compensation under this Section
4.1(a). If any Lender requests compensation from the Borrower under this Section
4.1(a), the Borrower may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender to make or Continue
making, or Convert Prime Rate Loans into, Eurodollar Loans until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the
provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Lender to make or Continue making, or Convert Prime Rate Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of
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making or maintaining Loans or on amounts receivable by it in respect of Loans
and of the additional amounts required to compensate such Lender in respect of
any Additional Costs, shall be conclusive in the absence of manifest error,
provided that such determinations and allocations are made on a reasonable
basis. Notwithstanding anything to the contrary contained herein, the Borrower
shall not be required to make any payment of Additional Costs to any Lender
pursuant to this Section 4.1 with respect to Additional Costs relating to any
period of time which is more than 120 days prior to such Lender's request for
such Additional Costs, provided that the foregoing provisions of this sentence
shall not apply to Additional Costs attributable to any Regulatory Change which
takes effect retroactively.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the relative
maturities for purposes of determining the rate of interest for such Loans as
provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the rate
of interest for such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Prime Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Prime Rate Loans in accordance with the terms
of this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Prime Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
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Section 4.4 Treatment of Affected Loans. If the obligation of any
Lender to make or Continue, or to Convert Prime Rate Loans into, Eurodollar
Loans is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into Prime Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 4.1(b) or 4.3 hereof, on such
earlier date as such Lender may specify to the Borrower with a copy to the
Administrative Agent) and, unless and until such Lender gives notice as provided
below that the circumstances specified in Section 4.1 or 4.3 hereof which gave
rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Prime
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made as or Converted into Prime Rate Loans
and all Loans of such Lender which would otherwise be Converted into Eurodollar
Loans shall be Converted instead into (or shall remain as) Prime Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender
agrees to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Loans are outstanding, such Lender's Prime Rate Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 10.2) on a date other than the last day of an Interest
Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to be
satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such
borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
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Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender
shall have determined that the adoption or implementation of any applicable law,
rule or regulation regarding capital adequacy (including, without limitation,
any law, rule or regulation implementing the Basle Accord), or any change
therein, or any change in the interpretation or administration thereof by any
central bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, within ten Business Days after demand by
such Lender (with a copy to the Administrative Agent), the Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender (or
its parent) for such reduction. A certificate of such Lender claiming
compensation under this Section 4.6 and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Lender may use any reasonable averaging
and attribution methods. Notwithstanding anything to the contrary contained
herein, the Borrower shall not be required to make any payment of additional
amounts to any Lender pursuant to this Section 4.6 with respect to additional
amounts relating to any period of time which is more than 120 days prior to such
Lender's request for such additional amounts, provided that the foregoing
provisions of this sentence shall not apply to additional amounts attributable
to any Regulatory Change which takes effect retroactively.
Section 4.7 Additional Interest on Eurodollar Loans. Without
duplication of Section 2.4 or amounts directly included in the definition of the
term "Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender
from time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower
shall not be obligated to make any such payment of additional interest until the
first Business Day after the date when the Borrower has been informed (i) that
such Lender is subject to a Reserve Requirement and (ii) of the amount of such
Reserve Requirement (after which time the Borrower shall be obligated to make
all such payments of additional interest, including, without limitation, such
payment of additional interest that otherwise would have been payable by the
Borrower on or prior to such time had the Borrower been earlier informed).
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Section 4.8 Replacement of Lenders. If at any time a Lender, other
than Nortel Networks, becomes a Gross Up Lender (as defined in this Section
4.8), the Borrower shall have the right to replace such Lender with another
Person; provided that (a) such other Person shall be an Eligible Assignee and
such other Person shall execute an Assignment and Acceptance, (b) neither the
Administrative Agent nor any Lender shall have any obligation to the Borrower to
find such other Person, (c) in the event of a replacement of a Gross Up Lender,
in order for the Borrower to be entitled to replace such Lender, such
replacement must take place no later than 90 days after the date the Gross Up
Lender shall notify the Borrower and the Administrative Agent of its desire to
be paid any amounts pursuant to Section 3.5, 4.1 or 4.6, and (d) if the Borrower
replaces one Gross Up Lender, it must replace all Gross Up Lenders or replace
all Gross Up Lenders on a pro rata basis. Each Lender, other than Nortel
Networks, agrees to its replacement at the option of the Borrower pursuant to
this Section 4.8 and in accordance with Section 12.8; provided that the
successor Lender shall purchase without recourse such Lender's interest in the
Obligations of the Borrower to such Lender for cash in an aggregate amount equal
to the aggregate unpaid principal thereof, all unpaid interest accrued thereon,
all unpaid commitment fees accrued for the account of such Lender, any breakage
costs incurred by the selling Lender because of the prepayment of any Eurodollar
Loans, all other fees (if any) applicable thereto and all other amounts
(including any amounts under this Article 4) then owing to such Lender hereunder
or under any other Loan Document and the Loan Parties shall execute a release
addressed to such Lender releasing such Lender from all claims arising in
connection with the Loan Documents. Any Lender who requests a payment pursuant
to Section 3.5, 4.1 or 4.6 shall be deemed a "Gross Up Lender".
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, the Borrower will, and will cause NCH and each
of the Subsidiaries of the Borrower to, grant to the Administrative Agent for
the benefit of the Administrative Agent and the Lenders a perfected, first
priority Lien on all of its right, title and interest in and to the Collateral,
whether now owned or hereafter acquired, pursuant to the Security Documents,
including, without limitation, the following:
(a) all Capital Stock of the Borrower and its Subsidiaries owned by
NCH, the Borrower or any Subsidiary of the Borrower;
(b) all of the Property (as such Property is more specifically
described in the Security Documents) of the Borrower, NCH and each of the
Subsidiaries of the Borrower, including, without limitation, the following:
Investments (including certificates of deposit); accounts; inventory (including,
without limitation, work in process); equipment; deposit accounts (including
cash collateral accounts), contract rights (including, without limitation, all
contracts relating to the construction or operation of the Network, including
rights of way, easements, leases and all related
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contracts); customer deposits in connection with purchase orders; general
intangibles; Mortgaged Properties; instruments; chattel paper; Permits;
Intellectual Property; and intercompany Debt;
(c) all cash and non-cash proceeds and products of any of the
foregoing; and
(d) all real Properties and interests therein (if any) in which the
Administrative Agent is required to have been or to be granted a Lien in
accordance with Section 5.4 of the Original Credit Agreement or Section 5.4
hereof.
Section 5.2 Guaranties. The Borrower shall cause NCH and each of the
Subsidiaries of the Borrower (whether owned as of the Closing Date or thereafter
organized or created) to Guarantee the payment and performance of the
Obligations pursuant to the Guaranties.
Section 5.3 New Subsidiaries; Additional Capital Stock.
Contemporaneously with the creation or acquisition of any Subsidiary of the
Borrower after the Closing Date, the Borrower shall:
(a) grant or cause to be granted to the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority security interest
in all Capital Stock of such Subsidiary owned by the Borrower or any Subsidiary
of the Borrower (to the extent such Capital Stock was not previously pledged to
the Administrative Agent);
(b) cause each such Subsidiary to Guarantee the payment and
performance of the Obligations by executing and delivering to the Administrative
Agent a Guaranty or a joinder therein acceptable to the Administrative Agent;
and
(c) cause each such Subsidiary to execute and deliver to the
Administrative Agent a Security Agreement and such other Security Documents, in
form and substance acceptable to the Administrative Agent, as the Administrative
Agent may request to grant the Administrative Agent, for the benefit of itself
and the Lenders, a perfected, first priority Lien on all Property of such
Subsidiary.
Contemporaneously with the issuance of any additional Capital Stock of the
Borrower or any of the Subsidiaries of the Borrower after the Closing Date, the
Borrower shall, and shall cause NCH and each of the Subsidiaries of the Borrower
to, grant or cause to be granted to the Administrative Agent, for the benefit of
the Administrative Agent and the Lenders, a perfected, first priority security
interest in all Capital Stock or other ownership interests in the Borrower or
such Subsidiary owned by NCH, the Borrower or any Subsidiary of the Borrower (to
the extent such Capital Stock or other ownership interests are already not so
pledged to the Administrative Agent). The Borrower covenants that none of the
Capital Stock to be pledged in accordance with this Section 5.3 shall be subject
to any transfer restriction, shareholders' agreement or other restriction except
for such restrictions under applicable securities laws, such restrictions
existing as of the Closing Date which have been disclosed to the Administrative
Agent in the Security Documents and such restrictions, if any, as may be
reasonably acceptable to the Administrative Agent. In connection with and in
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addition to the foregoing, the Borrower shall, and shall cause NCH and each of
the Subsidiaries of the Borrower and other appropriate Persons (as applicable)
to, execute and/or deliver such further agreements, documents and instruments
(including, without limitation, stock certificates, stock powers and financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Section 5.3.
Section 5.4 New Mortgaged Properties; Landlord Waivers. The Borrower
shall, and shall cause each of the other Loan Parties to, contemporaneously with
the acquisition of any fee real Property, execute, acknowledge and deliver to
the Administrative Agent a Mortgage or an amendment or modification to an
existing Mortgage covering all fee real Property acquired by any such Loan Party
subsequent to the Closing Date, together with evidence satisfactory to the
Administrative Agent and its counsel that the Mortgage creates a valid, first
priority Lien on the fee estate, in favor of the Administrative Agent for the
benefit of the Administrative Agent and the Lenders. Following the date of each
such acquisition of Property, if reasonably requested by the Administrative
Agent, the Borrower shall, and shall cause each of such Loan Parties with an
interest in such Property to, provide the Administrative Agent with a current
environmental assessment of such Property in form and substance reasonably
satisfactory to the Administrative Agent. In addition, with respect to each
lease of real Property executed by any Loan Party relating to a real Property
location where inventory or equipment of a Loan Party having an aggregate fair
market value in excess of $1,000,000 is or will be located, the Borrower will,
and will cause each Loan Party to, obtain waivers of landlord's Liens from each
lessor and other agreements from such lessor and its lenders necessary or
appropriate to ensure Administrative Agent's perfected, first priority Lien on
the Collateral or Property affected thereby, the Administrative Agent's access
to such Collateral or Property and the right of the Administrative Agent, the
Lenders or their designee to succeed to the rights of the Loan Party that is the
lessee under the lease, in each case in form and substance reasonably
satisfactory to the Administrative Agent.
Section 5.5 Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower (any such notice being hereby expressly waived by
the Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final excluding any trust accounts) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement, such Lender's Note
or any other Loan Document, irrespective of whether or not the Administrative
Agent or such Lender shall have made any demand under this Agreement, such
Lender's Note or any such other Loan Document and although such Obligations may
be unmatured. Each Lender agrees promptly to notify the Borrower (with a copy to
the Administrative Agent) after any such setoff and application, provided that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights and remedies of each Lender hereunder are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which such Lender may have.
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ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The effectiveness of this
Agreement and the obligation of each Lender to make its initial Loan under this
Agreement (other than the loans made pursuant to the Original Credit Agreement
which are deemed outstanding hereunder as provided in Section 2.1(b)) are
subject to the receipt by the Administrative Agent, on or before the Effective
Date, of all of the following in form and substance satisfactory to the
Administrative Agent and, in the case of actions to be taken, the taking of the
following required actions and evidence that such actions have been taken to the
satisfaction of the Administrative Agent:
(a) Resolutions. Resolutions of the Board of Directors certified by
the Secretary or an Assistant Secretary of each Loan Party which authorize the
execution, delivery and performance by the Borrower of the Loan Documents to
which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary (or other analogous officer) of each
Loan Party certifying as to the name of each officer or other representative of
the Borrower (i) who is authorized to sign the Loan Documents to which it is or
is to be a party (including any certificates contemplated therein), together
with specimen signatures of each such officer or other representative, and (ii)
who will, until replaced by other officers or representatives duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with the
Loan Documents and the transactions contemplated thereby;
(c) Articles or Certificates of Incorporation. The articles or
certificate of incorporation or other analogous constitutional documents of each
Loan Party certified by the Secretary of State or other applicable Governmental
Authority of the state of incorporation of such corporation and dated as of a
recent date;
(d) Bylaws. The bylaws or other analogous constitutional documents of
each Loan Party certified by its Secretary or an Assistant Secretary (or other
analogous officer);
(e) Governmental Certificates. Certificates of appropriate officials
as to the existence and good standing of each of the Loan Parties in its
jurisdiction of incorporation or organization and in all jurisdictions in which
such Loan Party is qualified or is required to qualify to do business as a
foreign entity, each such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
payable to the order of each Lender with respect to its Commitment);
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(g) Mortgages. If and to the extent required by this Agreement, the
Borrower and its Subsidiaries shall execute Mortgages in favor of the
Administrative Agent for the benefit of the Lenders covering all real property
owned by the Borrower and its Subsidiaries, and with respect to each tract of
real property owned by the Borrower and its Subsidiaries shall provide to the
Administrative Agent a mortgagee policy of title insurance insuring the first
Lien status of each such Mortgage, a current survey certified to the
Administrative Agent and the Lenders, an appraisal complying with all applicable
regulatory requirements, and an environmental survey acceptable to the
Administrative Agent.
(h) Other Security Documents. Security Documents executed by each of
the Loan Parties pertaining to the Collateral (one such Security Agreement
executed by each such Loan Party) together with all related financing statements
and other filings, consents to collateral assignments from all parties to all
Material Contracts included as part of the Collateral in form and substance
acceptable to the Administrative Agent, delivery of all pledged Capital Stock
and instruments together with appropriate stock powers and endorsements and,
with respect to each existing lease of real Property by any Loan Party relating
to a real Property location where inventory or equipment of a Loan Party having
an aggregate fair market value in excess of $1,000,000 is or will be located,
waivers of landlord's Liens from each lessor and other agreements from such
lessor and its lenders necessary or appropriate to ensure Administrative Agent's
perfected, first priority Lien on the Collateral or Property affected thereby,
the Administrative Agent's access to such Collateral or Property and the right
of the Administrative Agent, the Lenders or their designee to succeed to the
rights of the Loan Party that is the lessee under the lease, in each case in
form and substance reasonably satisfactory to the Administrative Agent;
(i) Insurance Certificates and Policies. Certificates evidencing all
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;
(j) Lien Searches. Lien searches in the name of each of the Loan
Parties (and in all names under which any of them has done business within the
last five years) in each jurisdiction where such Loan Party maintains an office
or has Property, showing no financing statements or other Lien instruments of
record affecting the Collateral except for Permitted Liens;
(k) Master Purchase Agreement. The Master Purchase Agreement shall
have been executed and delivered by all parties thereto, and the Administrative
Agent shall have received a photocopy of the Master Purchase Agreement as so
executed and delivered, certified by a Responsible Officer of the Borrower as
being a true and correct copy of such document as of the Effective Date;
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(l) Preferred Facility. The Agreement of Purchase for the issuance and
sale by NCI of $30,000,000 of convertible preferred stock to Nortel Networks
shall have been executed; and NCI shall have issued the convertible preferred
stock for $30,000,000 pursuant to and in accordance with the terms of the
Agreement of Purchase and NCH (as a capital contribution from and through NCI)
shall have received net proceeds of $30,000,000 in connection with such
issuance;
(m) Capital Contribution. NCI shall have contributed a minimum of
$50,500,000 to the Borrower for constructing the Network and working capital
purposes;
(n) Payment of Fees and Expenses. The Borrower shall have paid all
fees due on or before the Effective Date as specified in this Agreement or in
the Administrative Agent's Letter and all fees, costs and expenses of or
incurred by the Administrative Agent and its counsel to the extent billed on or
before the Effective Date and payable pursuant to this Agreement;
(o) Compliance with Laws. As of the Effective Date, the Borrower and
the other Loan Parties shall have complied in all material respects with all
Governmental Requirements necessary to consummate the transactions contemplated
by this Agreement and the other Loan Documents;
(p) No Prohibitions. No Governmental Requirement shall prohibit the
consummation of the transactions contemplated by this Agreement or any other
Loan Document, and no order, judgment or decree of any Governmental Authority or
arbitrator shall, and no litigation or other proceeding shall be pending or to
the Borrower's knowledge, threatened which would, enjoin, prohibit, restrain or
otherwise adversely affect in any material manner the consummation of the
transactions contemplated by this Agreement and the other Loan Documents or
otherwise have a Material Adverse Effect;
(q) Financial Statements. Copies of each of the financial statements
referred to in Section 7.2;
(r) Opinions of Counsel. A favorable legal opinion of Piper & Marbury,
L.L.P., counsel for the Loan Parties, in form and substance satisfactory to the
Administrative Agent, with respect to the Loan Parties and with respect to the
Loan Documents and a favorable legal opinion of regulatory counsel to the
Borrower and its Subsidiaries in form and substance satisfactory to the
Administrative Agent;
(s) Legal Matters and Loan Documents. All matters of a legal nature
relating to the Borrower and the Loan Documents shall be reasonably satisfactory
to the Administrative Agent and its counsel, and the Administrative Agent shall
have received all such other agreements, documents and instruments, each in form
and substance and executed and delivered by all parties, as the Administrative
Agent may have reasonably requested to receive;
(t) Business Plan. A copy of the Business Plan in form and substance
satisfactory to the Administrative Agent;
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(u) Consents. To the extent not referred to in clause (h) preceding,
copies of all material consents necessary for the execution, delivery and
performance by the Loan Parties of the Loan Documents to which it is a party,
including, without limitation, any consents or waivers in connection with the
Master Purchase Agreement as the Administrative Agent may require and the grant
of a security interest in each Material Contract of each Loan Party (other than
agreements relating to other Debt of the Loan Parties), which consents shall be
certified by a Responsible Officer of the Borrower as true and correct copies of
such consents as of the Effective Date;
(v) Permits. Copies of all material Permits affecting the Borrower or
any of its Subsidiaries in connection with its businesses or any of the
Properties owned or leased by it and in connection with its businesses to be
conducted and Properties to be owned or leased as contemplated by the Business
Plan and evidence satisfactory to the Administrative Agent that the Borrower and
its Subsidiaries are able to conduct their businesses conducted and to be
conducted as contemplated by the Business Plan with the use of such Permits in
full force and effect; and the Administrative Agent shall be satisfied that (i)
the Borrower has the exclusive, unrestricted right to use each of such Permits
pursuant to license agreements or other agreements, documents or instruments in
form and substance reasonably satisfactory to the Administrative Agent and (ii)
the Borrower has complied with all initial and on-going conditions of the
issuance and use of all such Permits;
(w) Regulatory Approvals. Evidence satisfactory to the Administrative
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the Loan
Documents have been made and obtained, as applicable;
(x) No Material Adverse Change. As of the Effective Date, (i) no
material adverse change shall have occurred with respect to the financial
condition, results of operations, businesses, operations, capitalization,
indebtedness, liabilities, obligations, profitability or prospects or Properties
or of the general affairs or management of the Borrower and its Subsidiaries,
taken as a whole, or of the Borrower, in each case since December 31, 1998, and
(ii) the Administrative Agent shall be satisfied that the financial performance
of the Borrower and its Subsidiaries and of the Borrower to the Effective Date
is not materially different from the financial projections for such Person(s)
through the Effective Date that were previously submitted to the Administrative
Agent;
(y) Accountant's Letter. A letter from NCI authorizing the independent
public accountants of NCI and its Subsidiaries (including, without limitation,
NCH and the Borrower) to communicate with the Administrative Agent and the
Lenders;
(z) Solvency Certificate. A certificate as to the solvency of each of
NCH, the Borrower and its Subsidiaries, together with contribution agreements
between and among NCH, the Borrower and its Subsidiaries;
(aa) Senior Notes, etc. The Senior Notes Documents (other than the
Senior Notes) shall have been executed and delivered, the Warrants shall have
been issued pursuant to, and shall be
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governed by, the Warrant Documents, and the Registration Rights Agreement shall
have been executed by all parties thereto, all of which Senior Notes Documents,
Warrant Documents and Registration Rights Agreement shall be in form and
substance approved by Nortel Networks;
(bb) Prepayment of Loans, etc. under the Original Credit Agreement. The
Borrower shall have paid in full all interest and fees accrued to the Effective
Date and not previously paid with respect to any loans or commitments under the
Original Credit Agreement, other than accrued interest with respect to the
Original Revolving Loans and the Original Term Loans which constitute
"Eurodollar Loans" as such term is defined in the Original Credit Agreement and
as to which interest is, in accordance with the Original Credit Agreement and
the last sentence of Section 2.4(b), due and payable after the Effective Date;
and
(cc) Supplemental Agreement. The Borrower shall have complied with all
terms and provisions of the Supplemental Agreement.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient counterparts of each agreement, document or instrument to be
received by the Administrative Agent under this Section 6.1 to permit the
Administrative Agent to distribute a copy of the same to each of the Lenders.
After the request of the Borrower, the Administrative Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions precedent
set forth in this Section 6.1. The Administrative Agent and the Lenders
acknowledge that certain of the conditions precedent referred to in this Section
6.1 were previously satisfied in connection with the Original Credit Agreement
(including the conditions precedent specified in clauses (k), (l), (m), (t) and
(y) preceding).
Section 6.2 All Extensions of Credit. The obligation of each Lender to
make any Loan (including the initial Loan) under this Agreement is subject to
the satisfaction of each of the conditions precedent set forth in Section 6.1
and each of the following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material
Adverse Effect shall have occurred and be continuing, or would result from such
Loan;
(b) Representations and Warranties. All of the representations and
warranties of the Borrower contained in this Agreement and in the other Loan
Documents shall be true and correct on and as of the date of such Loan with the
same force and effect as if such representations and warranties had been made on
and as of such date unless they relate solely to an earlier date;
(c) Debt Ratio. After giving effect to the requested Advance, the
ratio of Secured Debt to Contributed Capital for NCH and its Consolidated
Subsidiaries does not exceed (i) .62 to .38 for the first $75,750,000 of Secured
Debt; and (ii) .80 to .20 with respect to Secured Debt in excess of $75,750,000,
excluding for purposes of computing compliance with the ratio referred to in
clause (ii), $50,500,000 of Contributed Capital, such that the aggregate ratio
never exceeds .70 to .30;
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(d) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10, and the Borrower shall have
delivered to the Administrative Agent a current calculation (in reasonable
detail) of the Maximum Financed Amount of Eligible Third-Party Expenses (if any
of the proceeds of the requested Loans are to used to pay any Eligible
Third-Party Expenses) and such further evidence thereof (if any) as the
Administrative Agent may reasonably request;
(e) Master Purchase Agreement. The Master Purchase Agreement shall not
have been terminated by the Borrower; and
(f) Additional Documentation. The Administrative Agent shall have
received such additional approvals, agreements, documents and instruments as the
Administrative Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently with
the Effective Date (with respect to the conditions precedent set forth in
Section 6.1), and concurrently with the date of the making of each other Loan,
execute and deliver to the Administrative Agent a certificate in form and
substance satisfactory to the Administrative Agent certifying as to the
satisfaction of each of the conditions precedent set forth in this Article 6
which are required to be satisfied on or before such date (without regard to
whether such matters are, in fact, satisfactory to the Administrative Agent to
the extent that such satisfaction is required hereunder).
ARTICLE 7
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and the
Lenders that the following statements are and, after giving effect to the
funding of the initial Loans on the Effective Date, will be true, correct and
complete:
Section 7.1 Existence. Each of the Loan Parties (a) is a corporation
(or other entity) duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation (or organization), (b) has all
requisite power and authority to own its Properties and carry on its business as
now conducted, and (c) is qualified to do business in all jurisdictions in which
the nature of its business makes such qualification necessary and where failure
to so qualify would have a Material Adverse Effect. Each of the Loan Parties has
the power and authority and
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legal right to execute, deliver and perform its obligations under the Loan
Documents to which it is or may become a party.
Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the
Lenders audited financial statements of NCI and its Consolidated Subsidiaries as
of and for the fiscal year ended December 31, 1998 and financial statements of
NCI and its Consolidated Subsidiaries as of and for the fiscal quarter ended
March 31, 1999. All financial statements required to be delivered to the
Administrative Agent in accordance with this Agreement (including, without
limitation, those referred to in the immediately preceding sentence) are or will
be when delivered (as applicable) true and correct, have been or will be (as
applicable) prepared in accordance with GAAP and fairly and accurately present
or will fairly and accurately present (as applicable), on a consolidated and
consolidating (where applicable) basis, the financial condition of NCI and the
Borrower and their respective Consolidated Subsidiaries (as applicable) of the
respective dates indicated therein and the results of operations for the
respective periods indicated therein. There has not been, as of the Effective
Date, any material adverse change in the financial condition, results of
operations, businesses, operations or Properties of the Borrower and its
Subsidiaries, taken as a whole, or of the Borrower on an individual basis, since
December 31, 1998.
(b) The Business Plan represents, as of the Effective Date, the good
faith estimate of the Borrower and its senior management concerning the probable
financial condition and performance of the Borrower and its Subsidiaries for the
time period covered thereunder based upon the assumptions believed to be
reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite corporate action and do not
and will not (a) violate or conflict with, or result in a breach of, or require
any consent under (i) the articles or certificates of incorporation or bylaws or
other constitutional documents of such Loan Party, (ii) any Governmental
Requirement (including, without limitation, the Communications Act, any rule or
regulation of the FCC or any rule or regulation of any federal or state public
utility commission or other Governmental Authority) or any order, writ,
injunction or decree of any Governmental Authority or arbitrator, or (iii) any
material agreement, document or instrument to which any Loan Party is a party or
by which any Loan Party or any of its Property is bound or subject, or (b)
constitute a default under any such material agreement, document or instrument,
or result in the creation or imposition of any Lien (except a Lien in favor of
the Administrative Agent for and on behalf of the Lenders under the Security
Documents as provided in Article 5) upon any of the revenues or Property of any
Loan Party.
Section 7.4 Operation of Business. Each of the Loan Parties (a)
possesses all material Permits (including, without limitation, rights-of-way),
franchises, and authorizations necessary or appropriate to conduct its
businesses substantially as now conducted and as to be conducted as
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contemplated by the Business Plan, and (b) has complied with all initial and
on-going conditions to the issuance and use of all such Permits, franchises,
licenses and authorizations, except where failure to comply could not reasonably
be expected to have a Material Adverse Effect. None of such Persons is in
violation of any such material Permits, franchises, licenses or authorizations
which could be expected to result in any termination or cessation thereof. All
of such material Permits, franchises, licenses and authorizations required by
any Governmental Requirement (including, without limitation, the Communications
Act, any rule or regulation of the FCC or any state public utility commission)
or issued by any Governmental Authority as of the Effective Date are summarized
by category or type, as relevant to the operation of the Borrower, on Schedule
7.4. As of the Effective Date, there is not pending before the FCC or any other
Governmental Authority any action to cancel, revoke or terminate any License of
any Loan Party relating to any Telecommunications Assets or Telecommunications
Business. The Borrower and its Subsidiaries are entitled to elect to obtain
interconnection rights without negotiation or arbitration with any ILEC by
opting to accept the terms of any interconnection agreement which has been
approved and is on file with the telecommunications regulatory commission in the
jurisdiction in which such Loan Party desires to obtain interconnection rights.
Section 7.5 Intellectual Property. The Intellectual Property owned or
used by each Loan Party in the operation of its business is set forth on
Schedule 7.5. Each of the Loan Parties owns or possesses (or will be licensed or
have the full right to use) all Intellectual Property which is necessary or
appropriate for the operation of its businesses as presently conducted and as
proposed to be conducted, without any known conflict with the rights of others.
The consummation of the transactions contemplated by this Agreement and the
other Loan Documents will not materially alter or impair, individually or in the
aggregate, any of such rights of such Persons. No product or service of any of
the Loan Parties infringes upon any Intellectual Property of any other Person,
and no claim or litigation is pending or, to the knowledge of the Borrower,
threatened against any such Person contesting its right to sell or otherwise use
any product or material or service which could reasonably be expected to have a
Material Adverse Effect. There is no violation by any Loan Party of any right of
such Person with respect to any material Intellectual Property owned or used by
such Person.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of the Borrower, threatened against or
affecting any Loan Party, or that relates to any of the Loan Documents as of the
Effective Date, is disclosed on Schedule 7.6. None of such actions, suits,
investigations or proceedings could, if adversely determined, reasonably be
expected to have a Material Adverse Effect. Except as may be disclosed on
Schedule 7.6, as of the Effective Date, there are no outstanding judgments
against any Loan Party. No Loan Party has received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed to any
liability or disadvantage that could reasonably be expected to have a Material
Adverse Effect.
Section 7.7 Rights in Properties; Liens. Except as disclosed on
Schedule 7.7, none of the Loan Parties owns any right, title or interest in any
real Property. Each of the Loan Parties has good and marketable title to or,
with respect to leasehold interests, valid leasehold interests in all of
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its material Properties and assets, real and personal, including the material
Properties, assets and leasehold interests reflected in the financial statements
described in Section 7.2(a), except where failure to have good and marketable
title or valid leasehold interests could not reasonably be expected to have a
Material Adverse Effect, and none of the Properties or leasehold interests of
any Loan Party is subject to any Lien, except Permitted Liens. No Loan Party has
granted or voluntarily allowed or permitted to exist any Lien to or in favor of
any Person (other than the Administrative Agent for and on behalf of the Lenders
as security for the Obligations) which attaches or relates to any of the
Collateral and the Liens on the Collateral in favor of the Administrative Agent
are perfected, first priority Liens subject only to Permitted Liens which are
expressly permitted to be equal or prior to the Liens of the Administrative
Agent in the definition of the term "Permitted Liens".
Section 7.8 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Loan Parties that is a party
thereto, and such Loan Documents constitute the legal, valid and binding
obligations of such Persons, enforceable against each such Person in accordance
with their respective terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental Authority or third
party is or will be necessary for the execution, delivery or performance by any
Loan Party of any of the Loan Documents or any of the Material Contracts to
which it is or will be a party or for the validity or enforceability thereof,
except for such consents, approvals and filings as have been validly obtained or
made and are in full force and effect. The consummation of the transactions
contemplated by the Loan Documents and the Material Contracts does not require
the consent or approval of any other Person, except such consents and approvals
(a) as have been validly obtained and are in full force and effect or (b) as to
which the failure to obtain is not, individually or in the aggregate, material.
No Loan Party has failed to obtain any material consent, approval, license,
Permit, franchise or other authorization of any Governmental Authority
(including the FCC) necessary for the ownership or use of any of its Properties,
conduct of its business and performance of the Business Plan.
Section 7.10 Debt. As of the Effective Date, the Borrower does not have
any Debt other than (a) the Obligations, and (b) the Debt disclosed on Schedule
7.10 hereto.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax
returns (federal, state and local) and reports required to be filed including
all income, franchise, employment, Property and sales tax returns, and (b) all
other material tax returns and reports required to be filed except where failure
to file could not reasonably be expected to have a Material Adverse Effect, and
has paid all federal and other material taxes (shown on such returns or reports
to be due and payable), assessments, fees and other governmental charges levied
or imposed upon it or its Properties, income or assets otherwise due and payable
before they become delinquent, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP and no notice of Lien has been filed or
recorded or, as to such
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Subsidiaries only, except where failure to pay could not reasonably be expected
to have a Material Adverse Effect. There is no proposed tax assessment against
any Loan Party which could, if the assessment were made, reasonably be expected
to have a Material Adverse Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.13 ERISA. None of the Loan Parties or any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan other
than the Pension Plans identified on Schedule 7.13. Each Plan of the Loan
Parties is in compliance in all material respects with all applicable provisions
of ERISA and the Code. Neither a Reportable Event nor a Prohibited Transaction
has occurred within the last 60 months with respect to any Plan that could
reasonably be expected have a Material Adverse Effect. No notice of intent to
terminate a Pension Plan has been filed, nor has any Pension Plan been
terminated. No circumstances exist which constitute grounds entitling the PBGC
to institute proceedings to terminate, or appoint a trustee to administer, a
Pension Plan, nor has the PBGC instituted any such proceedings. None of the
Borrower, its Subsidiaries nor any ERISA Affiliate has completely or partially
withdrawn from a Multiemployer Plan. Each of the Borrower, its Subsidiaries and
NCH and each ERISA Affiliate have met their minimum funding requirements under
ERISA and the Code or with respect to all of their Pension Plans subject to such
requirements, and, as of the Effective Date except as specified on Schedule
7.13, the present value of all vested benefits under each funded Plan (exclusive
of any Multiemployer Plan) does not and will not exceed the fair market value of
all such Plan assets allocable to such benefits, as determined on the most
recent valuation date of such Plan and in accordance with ERISA. Neither the
Borrower nor any of its Subsidiaries nor any ERISA Affiliate has incurred any
liability to the PBGC under ERISA. No litigation is pending or, to the
Borrower's knowledge, threatened concerning or involving any Plan that could
reasonably be expected to have a Material Adverse Effect. There are no unfunded
or unreserved liabilities (on either a going-concern basis or a wind-up basis)
relating to any Plan that could, individually or in the aggregate, have a
Material Adverse Effect if the Borrower were required to fund or reserve such
liability in full. As of the Effective Date, no funding waivers have been or
will have been requested or granted under Section 412 of the Code with respect
to any Plan. No unfunded or unreserved liability for benefits under any Plan or
Plans (exclusive of any Multiemployer Plans) exceeds $1,000,000, with respect to
any such Plan, or $2,000,000 with respect to all such Plans, in the aggregate as
of the Effective Date, on either a going-concern basis or a wind-up basis.
Section 7.14 Disclosure. No written statement, information, report,
representation or warranty made by any Loan Party in any Loan Document or
furnished to the Administrative Agent or any Lender by or on behalf of any Loan
Party in connection with the Loan Documents or any transaction contemplated
hereby or thereby contains any untrue statement of a material fact or omits
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to state any material fact necessary to make the statements herein or therein,
in light of the circumstances in which made, taken as a whole, not misleading.
There is no fact known to the Borrower which has had a Material Adverse Effect,
and there is no fact known to the Borrower which might in the future have a
Material Adverse Effect except as may have been disclosed in writing to the
Administrative Agent.
Section 7.15 Subsidiaries. Schedule 7.15 attached hereto contains, as of
the Effective Date, complete and accurate information regarding (a) the
identities of each of the Subsidiaries of NCI, NCH and the Borrower, (b) the
number of issued and outstanding shares (or other units) of each class of
Capital Stock issued by each of such Subsidiaries and the identities of, and
number and percentage of each of such shares (or other units) held by, the
owner(s) (both of record and beneficially) of such Capital Stock, and (c) the
jurisdiction of incorporation or other organization of each such Subsidiary.
Section 7.16 Compliance with Laws. None of the Borrower, its
Subsidiaries or NCH is in violation of any Governmental Requirement, except for
instances of non-compliance that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 7.17 Investment Company Act. None of the Borrower, its
Subsidiaries or NCH is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. None of the Borrower,
its Subsidiaries or NCH is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of
the following representations and warranties that could not have, individually
or in the aggregate, a Material Adverse Effect:
(i) The Borrower, each of its Subsidiaries and NCH and all of
their respective Properties and operations are in full compliance with
all Environmental Laws. The Borrower is not aware of, and neither the
Borrower nor any of its Subsidiaries has received written notice of, any
past, present or future conditions, events, activities, practices or
incidents which may interfere with or prevent the compliance or continued
compliance by the Borrower and its Subsidiaries with all Environmental
Laws;
(ii) The Borrower, each of its Subsidiaries and NCH has obtained
all Permits that are required under applicable Environmental Laws, and
all such Permits are in good standing and all such Persons are in
compliance with all of the terms and conditions thereof;
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(iii) No Hazardous Materials exist on, about or within or have
been (to the knowledge of the Borrower) or are being used, generated,
stored, transported, disposed of on or Released from any of the
Properties of the Borrower, any of its Subsidiaries or NCH except in
compliance with applicable Environmental Laws. The use which the
Borrower, its Subsidiaries or NCH makes and intends to make its
respective Properties will not result in the use, generation, storage,
transportation, accumulation, disposal or Release of any Hazardous
Material on, in or from any of their currently owned Properties except in
compliance with applicable Environmental Laws; and
(iv) There are no conditions or circumstances associated with
the currently owned or leased Properties or operations of the Borrower,
any of its Subsidiaries or NCH that could reasonably be expected to give
rise to any Environmental Liabilities or claims resulting in any
Environmental Liabilities.
(v) None of the Loan Parties nor any of their respective
currently or previously owned or leased Properties or operations are
subject to any outstanding or, to the knowledge of the Borrower,
threatened order from or agreement with any Governmental Authority or
other Person or subject to any judicial or administrative proceeding with
respect to (A) any failure to comply with Environmental Laws, (B) any
Remedial Action, or (C) any Environmental Liabilities;
(vi) None of the Loan Parties is subject to, or has received
written notice of any claim from any Person alleging that it is or will
be subject to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the Clean
Water Act or other applicable Environmental Law for temporary storage of
Hazardous Materials generated on-site prior to their disposal off-site)
or disposal facility requiring a permit under the Resource Conservation
and Recovery Act, 42 U.S.C. section 6901 et seq., regulations thereunder
or any comparable provision of state law. The Loan Parties are in
compliance with all applicable financial responsibility requirements of
all Environmental Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.
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Section 7.20 Year 2000 Compliance. The Borrower has (a) initiated a
review and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers and vendors) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Borrower or any of its Subsidiaries (or its
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (b) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (c) to date, implemented that plan in
accordance with that timetable. The Borrower reasonably believes that all
computer applications that are material to its or any of its Subsidiaries'
business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "Year 2000 compliant"), except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor
the Properties of any of the Loan Parties are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a
complete list, as of the Effective Date, of all Material Contracts of the Loan
Parties, other than the Loan Documents. All of the Material Contracts are in
full force and effect and neither the Borrower nor any of its Subsidiaries is in
default under any Material Contract and, to the knowledge of the Borrower after
due inquiry, no other Person that is a party thereto is in default under any of
the Material Contracts. None of the Material Contracts prohibits the
transactions contemplated under the Loan Documents. Except as may be provided on
Schedule 7.22, (a) each of such Material Contracts has been transferred or
assigned to, or is currently in the name of, a Loan Party and (b) each of such
Material Contracts (other than agreements relating to other Debt of the Loan
Parties) is assignable to the Administrative Agent as collateral and is
assignable by the Administrative Agent to a transferee if an Event of Default
were to occur. The Borrower has delivered to the Administrative Agent a complete
and current copy of each Material Contract (other than purchase orders entered
into in the ordinary course of business) existing on the Effective Date.
Section 7.23 Bank Accounts. As of the Effective Date, Schedule 7.23 sets
forth the account numbers and location of all bank accounts (including lock box
and special deposit accounts) of the Borrower and its Subsidiaries.
Section 7.24 Outstanding Securities. As of the Effective Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended, or
any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of the Loan Parties have been offered, issued,
sold and delivered in compliance with all applicable Governmental Requirements.
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Section 7.25 Solvency. Each of the Loan Parties, as a separate entity,
is Solvent, both before and after giving effect to the Loans.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26, as
of the Effective Date (a) none of the Loan Parties nor any of their employees is
subject to any collective bargaining agreement, and (b) no petition for
certification or union election is pending with respect to the employees of the
Loan Parties, and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any such Person.
There are no strikes, slowdowns, work stoppages or controversies pending or, to
the best knowledge of the Borrower after due inquiry, threatened against, any of
the Loan Parties or its respective employees which could have, either
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedule 7.26, as of the Effective Date, none of the Loan Parties is subject
to an employment contract.
Section 7.27 Insurance. Schedule 7.27 sets forth a complete and accurate
description of all policies of insurance that will be in effect as of the
Effective Date for the Loan Parties and their Properties. To the extent such
policies have not been replaced, no notice of cancellation has been received for
such policies and the Borrower and the owner and holder of each such policy are
in compliance with all of the terms and conditions of such policies.
Section 7.28 Common Enterprise. NCH and its Subsidiaries (including,
without limitation, the Borrower) are members of an affiliated group with each
other such Person and are collectively engaged in a common enterprise with one
another. Each of the Loan Parties expects to derive substantial benefit (and may
reasonably be expected to derive substantial benefit), directly and indirectly,
from the Loans contemplated by this Agreement, both in its separate capacity and
as a member of an affiliated and integrated group.
ARTICLE 8
Affirmative Covenants
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish to the
Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available, and in any
event within 90 days after the end of each fiscal year of the Borrower,
beginning with the fiscal year ending December 31, 1999, (i) either a copy of
the form 10-K (including all financial statements contained therein) filed by
NCI as of the end of and for such fiscal year then ended, together with
consolidating schedules for each of NCI and its Subsidiaries with respect to the
financial statements contained therein, or
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a copy of the annual audit report of NCI and its Subsidiaries (including,
without limitation, the Borrower) as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such fiscal year, together with unaudited consolidating schedules for
NCI and its Subsidiaries with respect to each of such financial statements, and
(ii) a copy of the annual audit report of NCH and its Subsidiaries (including,
without limitation, the Borrower) as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such fiscal year, together with unaudited consolidating schedules for
NCH and its Subsidiaries with respect to each of such financial statements, in
each case (other than with respect to the consolidating schedules) setting forth
in comparative form the figures for the previous fiscal year, and accompanied by
the opinion of independent certified public accountants of recognized standing
reasonably acceptable to the Administrative Agent, which opinion shall state
that such consolidated financial statements present fairly the financial
position and results of operations for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years and which opinion shall not
be qualified or limited because of a restricted or limited examination by such
accountant of any material portion of such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the end of each of the quarters of each fiscal year
of the Borrower, beginning with the fiscal quarter ending June 30, 1999, (i)
either a copy of the form 10-Q (including all financial statements contained
therein) filed by NCI as of the end of and for such fiscal quarter then ended,
together with consolidating schedules for each of NCI and its Subsidiaries with
respect to each of the financial statements contained therein, or a copy of the
unaudited consolidated balance sheet of NCI and its Subsidiaries as at the end
of such quarter and the related consolidated statements of income or operations,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, together with unaudited
consolidating schedules for NCI and its Subsidiaries with respect to each of
such financial statements, and (ii) a copy of the unaudited consolidated balance
sheet of NCH and its Subsidiaries as at the end of such quarter and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for the period commencing on the first day and ending on the last day of
such quarter, together with unaudited consolidating schedules for NCH and its
Subsidiaries with respect to each of such financial statements, in each case
(other than with respect to the consolidating schedules) setting forth in
comparative form the quarterly operating budget figures for the corresponding
period of the preceding fiscal year, and certified by an appropriate Responsible
Officer of the Borrower as fairly presenting, in accordance with GAAP, the
financial position and the results of operations of the Borrower and its
Subsidiaries (except for year-end adjustments and financial statement footnotes
required by GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in Sections 8.1(a) and 8.1(b), a Compliance
Certificate of a Responsible Officer of the Borrower substantially in the form
of Exhibit D hereto, appropriately completed, stating that, to the best of such
officer's knowledge, no Default has occurred and is continuing or, if a Default
has occurred and is continuing, stating the nature thereof and the action that
has been taken and is proposed to be taken with respect thereto;
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(d) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any Governmental Authority
or arbitrator affecting any Loan Party which, if determined adversely to the
Borrower or any such Subsidiary, could reasonably be expected to have a Material
Adverse Effect;
(e) Notice of Default, etc.. As soon as possible and in any event
immediately upon (i) the Borrower's knowledge of the occurrence of any Default,
a written notice setting forth the details of such Default and the action that
the Borrower has taken and, if and to the extent known, proposes to take with
respect thereto and (ii) the failure of any Loan Party to make any required
payment of principal, premium (if any), interest or other payment of or with
respect to any Subordinated Debt, a written notice setting forth the details
thereof and the action that such Loan Party has taken or proposes to take with
respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
copies of all reports, including annual reports, and notices which the Borrower
or any of its ERISA Affiliates files with or receives from the PBGC or the U.S.
Department of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential liability; and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the PBGC, or
the Borrower or any ERISA Affiliate has instituted or will institute proceedings
under ERISA to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the Borrower setting forth the details
as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that the Borrower has taken and proposes to take with
respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if
any) financial statement, report, notice or proxy statement sent by NCI to its
stockholders or other security holders generally and one copy of each (if any)
regular, periodic or special report (including, without limitation, reports on
forms 10-K, 10-Q and 8-K), registration statement or prospectus filed by NCI
with any securities exchange or the Securities and Exchange Commission or any
successor agency;
(h) Insurance. Within 60 days prior to the end of each fiscal year of
the Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage maintained by
the Loan Parties as of the date of such report and all material insurance
coverage planned to be maintained by such Persons in the subsequent fiscal year;
(i) Plan Information. From time to time, as reasonably requested by
the Administrative Agent or any Lender, such books, records and other documents
relating to any Pension Plan as the Administrative Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, or a transfer of
assets of a Pension Plan covering employees of the Borrower or any ERISA
Affiliate, written notification thereof; promptly upon NCI's or the Borrower's
receipt thereof, a copy of any
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determination letter or advisory opinion regarding any Pension Plan received
from any Governmental Authority and any amendment or modification thereto as may
be necessary as a condition to obtaining a favorable determination letter or
advisory opinion; and promptly upon the occurrence thereof, written notification
of any action requested by any Governmental Authority to be taken as a condition
to any such determination letter or advisory opinion;
(j) Business Plan, etc. Not later than the earlier to occur of (i)
three days after approval of such update by the Board of Directors of the
Borrower or (ii) January 31st of each year, an update of the Business Plan in
reasonable detail generally consistent with the form and substance of the
Business Plan provided to the Administrative Agent on or before the Effective
Date, which update shall reflect the corresponding information for the prior
year, and, promptly upon the Borrower's preparation thereof, any proposed
amendment, modification or supplement to the Business Plan;
(k) Management Letters. Promptly upon each receipt thereof by any Loan
Party, a copy of any management letter or other written report submitted to such
Loan Party by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of any such Person;
(l) Reports to Other Creditors. Promptly after the furnishing thereof,
a copy of any financial or other material statement or report furnished by any
Loan Party to any other party pursuant to the terms of any indenture, loan,
stock purchase or credit or similar agreement and not otherwise required to be
furnished to the Administrative Agent and the Lenders pursuant to any other
clause of this Section 8.1;
(m) Notice of Material Adverse Effect. Within two Business Days after
the Borrower becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect;
(n) Environmental Assessments and Notices. Promptly after the receipt
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any Property of any Loan Party and
each notice sent by any Governmental Authority relating to any failure or
alleged failure to comply with any Environmental Law or any liability with
respect thereto;
(o) Notices Under Material Contracts. Promptly after the receipt
thereof by the Borrower or any Subsidiary of the Borrower and promptly after the
delivery thereof by the Borrower or any Subsidiary of the Borrower, a copy of
each written notice delivered under any Material Contract, which notice (i)
relates to any alleged default under or noncompliance with or proposed
termination of such Material Contract or (ii) otherwise relates to any matter
under any Material Contract which could reasonably be expected to have a
Material Adverse Effect; and
(p) General Information. Promptly, such other business, financial,
corporate affairs and other similar information concerning the Borrower and/or
the Collateral as the Administrative Agent or any Lender may from time to time
reasonably request.
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Section 8.2 Maintenance of Existence; Conduct of Business. Except as
expressly permitted in connection with mergers undertaken in accordance with
Section 9.3, the Borrower will, and will cause its Subsidiaries to, preserve and
maintain its corporate existence and all of its leases, privileges, licenses,
Permits, franchises, qualifications, Intellectual Property, intangible Property
and rights that are necessary in the ordinary conduct of its business except to
the extent that failure to so preserve and maintain such could not reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, each of the Loan Parties has entered into, or will timely enter
into, such long-distance carrier and interconnection agreements as are, at any
time of determination, then necessary to the conduct of its business in
accordance with the Business Plan except to the extent that the failure to do so
could not reasonably be expected to cause a Material Adverse Effect. The
Borrower will, and will cause its Subsidiaries to, conduct its business in an
orderly and efficient manner in accordance with good business practices and the
Business Plan.
Section 8.3 Maintenance of Properties and Permits. The Borrower will,
and will cause its Subsidiaries to, maintain, keep and preserve all of its
Properties and Permits (including, without limitation, rights-of-way) necessary
in the proper conduct of its businesses in good repair, working order and
condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals and replacements and improvements thereof; provided, however, that the
failure of NCV to hold certificates of public convenience and necessity required
to provide resale and facilities based local and long distance
telecommunications services in Maryland shall not be deemed to violate this
Section 8.3 if, but only if, all of such Licenses are granted by the appropriate
Governmental Authorities of the State of Maryland on or before October 31, 1999,
and are at all times thereafter maintained, kept and preserved in full force and
effect.
Section 8.4 Taxes and Claims. The Borrower will, and will cause its
Subsidiaries to, pay or discharge before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property;
provided, however, that neither the Borrower nor any of its Subsidiaries shall
be required to pay or discharge any tax, levy, assessment or governmental
charge, or claim for labor, material or supplies, whose amount, applicability or
validity is being contested in good faith by appropriate proceedings being
diligently pursued and for which adequate reserves have been established under
GAAP.
Section 8.5 Insurance.
(a) The Borrower will, and will cause each of the other Loan Parties
to, keep insured by financially sound and reputable insurers all Property of a
character usually insured by responsible corporations engaged in the same or a
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such corporations or entities and
carry such other insurance as is usually carried by such corporations or
entities, provided that in any event the Borrower and the other Loan Parties
will maintain:
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(i) Property Insurance. Insurance against loss or damage
covering substantially all of the tangible real and personal Property
(including, without limitation, the Network and related equipment) and
improvements of such Person by reason of any Peril (as defined below) in
such amounts (subject to any deductibles as shall be satisfactory to the
Administrative Agent) as shall be reasonable and customary and sufficient
to avoid the insured named therein from becoming a co-insurer of any loss
under such policy, but in any event in such amounts as are reasonably
available as determined by the Borrower's independent insurance broker
reasonably acceptable to the Administrative Agent.
(ii) Automobile Liability Insurance for Bodily Injury and
Property Damage. Insurance in respect of all vehicles (whether owned,
hired or rented by such Person) at any time located at, or used in
connection with, its Properties or operations against liabilities for
bodily injury and Property damage in such amounts as are then customary
for vehicles used in connection with similar Properties and businesses,
but in any event to the extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance
against claims for bodily injury, death or Property damage occurring on,
in or about the Property (and adjoining streets, sidewalks and waterways)
of such Person, in such amounts as are then customary for Property
similar in use in the jurisdictions where such Properties are located.
(iv) Worker's Compensation Insurance. Worker's compensation
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Borrower shall purchase
and maintain in effect all-risk, property and casualty insurance (including
casualty insurance covering earthquake and flood damage) reasonably acceptable
and in amounts reasonably acceptable to the Administrative Agent covering all
Nortel Networks Equipment and other equipment related to the Network and
liability insurance covering the operations of the Borrower and its
Subsidiaries. Such insurance shall be written by financially responsible
companies selected by the Borrower and having an A.M. Best Rating of "A-" or
better and being in a financial size category of "VI" or larger, or by other
companies reasonably acceptable to the Administrative Agent. Each policy
referred to in this Section 8.5 shall name the Administrative Agent (for the
benefit of itself and the other Lenders) as loss payee (with respect to casualty
insurance policies) and additional insured (with respect to liability insurance
policies) and shall provide that it will not be canceled, amended or reduced
except after not less than 30 days' prior written notice to the Administrative
Agent and shall also provide that the interests of the Administrative Agent and
the Lenders shall not be invalidated or reduced by any act, omission or
negligence of any Loan Party. The Borrower will advise the Administrative Agent
promptly of any policy cancellation, reduction or amendment. For purposes
hereof, the term "Peril" shall mean, collectively, fire, lightning, flood,
windstorm, hail, explosion, riot and civil commotion, vandalism and malicious
mischief, damage from aircraft, vehicles and smoke and other
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perils covered by the "all-risk" endorsement then in use in the jurisdictions
where the Properties of the Loan Parties are located.
(b) The Borrower will cause each Insurance Recovery (other than any
portion of an Insurance Recovery payable to a landlord to repair or replace
Property leased by the Borrower or any of its Subsidiaries) payable by any
insurance company to be deposited promptly with the Administrative Agent as
security for the Obligations if a Default has then occurred and is continuing,
and will promptly pay all Insurance Recoveries to the Administrative Agent for
application against the Obligations if and to the extent required in accordance
with Section 2.7(a).
(c) If a Default shall have occurred and be continuing, the Borrower
will cause all proceeds of insurance paid on account of the loss of or damage to
any Property of any Loan Party and all awards of compensation for any Property
of any Loan Party taken by condemnation or eminent domain to be promptly paid
directly to the Administrative Agent to be applied against or held as security
for the Obligations, at the election of the Administrative Agent and the
Required Lenders.
Section 8.6 Inspection Rights. The Borrower will, and will cause each
of the Loan Parties to, permit representatives and agents of the Administrative
Agent and each Lender, during normal business hours and upon reasonable notice
to the Borrower, to examine, copy and make extracts from its books and records,
to visit and inspect its Properties and to discuss its business, operations and
financial condition with its officers and independent certified public
accountants. The Borrower will authorize, and will cause each of the Loan
Parties to authorize, its accountants in writing (with a copy to the
Administrative Agent) to comply with this Section 8.6. The Administrative Agent
or its representatives may, at any time and from time to time at the Borrower's
expense, conduct field exams for such purposes as the Administrative Agent may
reasonably request, provided, however, that, prior to the occurrence of a
Default, no more than two such field exams during any fiscal year shall be at
the Borrowers expense.
Section 8.7 Keeping Books and Records. The Borrower will, and will
cause each of the Loan Parties to, maintain appropriate books of record and
account in accordance with GAAP consistently applied in which true, full and
correct entries will be made of all their respective dealings and business
affairs. If any changes in accounting principles from those used in the
preparation of the financial statements referenced in Section 8.1 are hereafter
required or permitted by GAAP and are adopted by the Borrower with the
concurrence of its independent certified public accountants and such changes in
GAAP result in a change in the method of calculation or the interpretation of
any of the covenants, standards or terms contained in this Agreement, the
Borrower and the Required Lenders agree to amend any such affected terms and
provisions so as to reflect such changes in GAAP with the result that the
criteria for evaluating the financial condition or performance of the Loan
Parties shall be the same after such changes in GAAP as if such changes in GAAP
had not been made.
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Section 8.8 Compliance with Laws. The Borrower will, and will cause
each of the Loan Parties to, comply with all applicable Governmental
Requirements, except for instances of noncompliance that could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 8.9 Compliance with Agreements. The Borrower will, and will
cause each of the Loan Parties to, comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, except for
instances of noncompliance that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
Section 8.10 Further Assurances. The Borrower will execute and deliver
and will cause each of the Loan Parties to execute and deliver such further
agreements, documents and instruments (including, without limitation, financing
statements and amendments to financing statements specifying each item of the
Collateral and the serial number therefor) and take such further action as may
be requested by the Administrative Agent to carry out the terms and provisions
and purposes of this Agreement and the other Loan Documents, to evidence the
Obligations and to create, preserve, maintain and perfect the Liens of the
Administrative Agent for the benefit of itself and the Lenders in and to the
Collateral and the required priority of such Liens.
Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Interest Rate Protection. The Borrower shall, commencing on
or before the earlier to occur of (a) the date upon which the initial Loans are
to be advanced under this Agreement, or (b) September 30, 1999, maintain in full
force and effect through the Maturity Date one or more Interest Rate Protection
Agreements reasonably satisfactory to the Administrative Agent with one or more
counterparties reasonably acceptable to the Administrative Agent rated in one of
the two of the highest rating categories of Standard & Poors Corporation or
Moody's Investors Services, Inc. and otherwise reasonably acceptable to the
Administrative Agent that enable the Borrower to fix or place a limit upon a
rate of interest with respect to not less than an aggregate notional amount (not
less than zero) equal to fifty percent (50%) of Total Debt minus the amount of
such Total Debt with a fixed interest rate.
Section 8.13 Miscellaneous Business Covenants.
(a) Non-Consolidation. The Borrower will, and will cause each other
Loan Party to: (i) maintain entity records and books of account separate from
those of any other entity which is an Affiliate of such Loan Party; (ii) not
commingle its funds or assets with those of any other entity which is an
Affiliate of such Loan Party, provided, that compliance with Section 8.13(b)
shall not constitute a commingling of funds or assets for purposes of this
clause (ii); and (iii) provide that its board of directors or other analogous
governing body will hold all appropriate meetings to authorize
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and approve such Person's entity actions, which meetings will be separate from
those of other Loan Parties.
(b) Unified Cash Management System. The Borrower will, and will cause
NCH and each of its Subsidiaries to, on and after November 30, 1999, maintain a
unified cash management system and the Borrower will ensure, and will cause NCH
and each of its Subsidiaries to ensure, that all cash proceeds (including,
without limitation, proceeds of all Collateral) are (i) deposited directly, as
received, into a collection account of the Borrower or NCH or such Subsidiary
(as applicable) and (ii) on a daily basis after such deposit, transferred into a
concentration account of the Borrower or NCH or such Subsidiary (as applicable).
In addition, on and after the Effective Date, the Borrower will cause NCH, on a
daily basis, to transfer all cash balances of NCH in excess of $5,000,000 in the
aggregate to a concentration account of the Borrower or any one or more of its
Subsidiaries. The Borrower will, and shall cause NCH and each of its
Subsidiaries to, maintain in effect an agreement governing each of its
collection accounts and concentration accounts in a form approved by the
Administrative Agent with a depository bank satisfactory to the Administrative
Agent.
(c) Ownership of Telecommunications Assets. The Borrower will cause,
and by its execution of a Guaranty NCH agrees to cause, all Telecommunications
Assets of NCH and its Subsidiaries which are contemplated by or material to the
Business Plan to be owned by the Borrower and or its Subsidiaries.
(d) Syndication of Credit Facilities. The Borrower and NCH shall
provide prompt assistance to the Administrative Agent and the Lenders in
connection with their respective efforts in syndicating the Loans. Such
assistance will include making senior officers of the Borrower and NCH available
for meetings with potential Lenders, providing, in a timely manner, such
assistance as may be reasonably requested by the Administrative Agent or its
advisors, including providing information to and responding to inquiries from
prospective Lenders with respect to the business, operations, Business Plan,
results and other matters relating to the business of NCH, the Borrower and the
other Guarantors.
Section 8.14 Year 2000 Compliance. The Borrower will promptly notify the
Agent in the event the Borrower discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
compliant on a timely basis, except to the extent that such failure could not
reasonably be expected to have a Material Adverse Effect.
Section 8.15 Trade Accounts Payable. The Borrower will, and will cause
the other Loan Parties to, pay all trade accounts payable before the same become
more than 90 days past due, except (a) trade accounts payable contested in good
faith or (b) trade accounts payable in an aggregate amount not to exceed
$100,000 at any time outstanding and with respect to which no proceeding to
enforce collection has been commenced or, to the knowledge of the Borrower,
threatened.
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Section 8.16 Delivery of Certain Amendments and Material Contracts. The
Borrower will, and will cause each other Loan Party to, promptly deliver to the
Administrative Agent any amendment, modification or supplement to (a) the
articles of incorporation, articles of organization, bylaws, regulations or
other constitutional documents of the Borrower or any other Loan Party, and (b)
any Material Contract to which it is a party or any License or Permit which it
possesses. The Borrower will, and will cause each of its Subsidiaries to, (i)
deliver to the Administrative Agent, promptly after such Material Contract comes
into existence, a true and correct copy of each Material Contract which is not
identified on Schedule 7.22, and (ii) use its best efforts to ensure that such
Material Contract is assignable to the Administrative Agent as collateral and is
assignable by the Administrative Agent to a transferee if an Event of Default
were to occur.
Section 8.17 Contribution to Equity Capital of NCH and the Borrower. All
net proceeds of the issuance of the Senior Notes shall be contributed by NCI as
equity to the capital of NCH and shall be contributed by NCH as equity to the
capital of the Borrower, in each case promptly upon receipt of such proceeds.
ARTICLE 9
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Debt. The Borrower will not, and will not permit NCH or any
Subsidiary of the Borrower to, incur, create, assume or permit to exist any
Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
(b) Subordinated Debt of NCH;
(c) intercompany Debt between or among the Borrower and any of its
Wholly-Owned Subsidiaries incurred in the ordinary course of business
(including, without limitation, Debt owed by the Wholly-Owned Subsidiaries of
the Borrower to the Borrower in connection with loans of proceeds of the Loans
made by the Borrower to such Subsidiaries, the proceeds of which loans are used
for the purposes permitted by Section 2.10), subject to the following
requirements: any and all of the Debt permitted pursuant to this Section 9.1(c)
shall be unsecured, shall be evidenced by instruments satisfactory to the
Administrative Agent which will be pledged to the Administrative Agent for the
benefit of the Administrative Agent and the Lenders and shall be subordinated to
the Obligations pursuant to a subordination agreement in form and substance
satisfactory to the Administrative Agent, provided, however, that temporary
advances made from time to time in the ordinary course of business not to exceed
$100,000 in aggregate principal amount at any time owing
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by any Wholly-Owned Subsidiary of the Borrower to the Borrower shall not be
required to be so evidenced, pledged or subordinated;
(d) unsecured Debt under the Interest Rate Protection Agreements
required to be maintained by Section 8.14, provided, however, that Debt
thereunder may be secured if such Debt constitutes a part of the Obligations;
(e) (i) existing Debt described on Schedule 7.10 hereto and renewals,
extensions or refinancings of such Debt which do not increase the outstanding
principal amount of such Debt and the terms and provisions of which are not
materially more onerous than the terms and conditions of such Debt on the
Closing Date, (ii) purchase money Debt (including Capital Lease Obligations)
secured by purchase money Liens, which Debt and Liens are permitted under and
meet all of the requirements of clause (g) of the definition of Permitted Liens
contained in Section 1.1, and (iii) additional unsecured Debt; provided,
however, that the aggregate principal amount of the Debt referred to in this
Section 9.1(e) shall not exceed $25,000,000 in aggregate amount at any time
outstanding;
(f) liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such liabilities will
not constitute, cause or result in a Default; and
(g) Debt of the Borrower in the form of a revolving credit facility
not to exceed $50,000,000 in aggregate principal amount at any time outstanding
which is either unsecured or is secured only by accounts of the Borrower and its
Subsidiaries, books and records related thereto and proceeds thereof and as to
which the advance rate for advances made thereunder does not exceed 75% of
eligible accounts.
Section 9.2 Limitation on Liens. The Borrower will not, and will not
permit NCH or any Subsidiary of the Borrower to, incur, create, assume or permit
to exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, except Permitted Liens and will not enter into any negative
pledge or similar arrangement in favor of other creditors (other than such
negative pledge or similar arrangement under purchase money Debts and Capital
Lease Obligations with respect to the assets financed or secured thereby).
Section 9.3 Mergers, Etc. The Borrower will not, and will not permit
its Subsidiaries to, (a) become a party to a merger or consolidation, (b)
wind-up, dissolve or liquidate itself, or (c) purchase or acquire all or a
material or substantial part of the business or Properties of any Person;
provided however, that (i) Borrower or its Affiliates may make Qualified
Telecommunications Investments and other Investments permitted pursuant to
clause (i) of Section 9.5 and (ii) (A) any Subsidiary of the Borrower other than
NCS, NCRE and NCV may merge with and into the Borrower if the Borrower is the
surviving corporation and (B) NCV may merge with and into NCS or NCS may merge
with and into NCV, provided that in the case of either (A) or (B) above, no
consideration is given by the surviving corporation in such merger other than
the issuance of any Capital Stock of
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the surviving corporation and such Capital Stock is pledged to the
Administrative Agent, on behalf of the Administrative Agent and Lenders, as
security for the Obligations pursuant to Section 9.6. The surviving corporation
in any such merger shall ratify the Security Documents and other obligations of
the non-surviving corporation under the Loan Documents.
Section 9.4 Restricted Payments. The Borrower will not, and will not
permit NCH or any Subsidiary of the Borrower to, make any Restricted Payments,
except:
(a) subject to the subordination provisions relating thereto, NCH may
make regularly scheduled payments of interest accrued on any Subordinated Debt
if and to the extent (but only if and to the extent) permitted by the express
terms of the Subordinated Debt Documents governing such Subordinated Debt, which
terms have been expressly approved in writing by the Administrative Agent;
(b) if and to the extent that NCH has incurred Subordinated Debt, all
or a portion of the proceeds of which are contributed by NCH to the Borrower as
additional equity capital of the Borrower, the Borrower may declare and pay
dividends to NCH in an amount not to exceed the amount necessary to allow NCH to
pay interest accrued on the portion of such Subordinated Debt the proceeds of
which have been contributed to the Borrower, in accordance with its terms;
(c) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower;
(d) the Borrower and its Subsidiaries may make temporary loans or
advances to employees, officers and directors of the Loan Parties in the
ordinary course of business that do not exceed $1,000,000 in aggregate amount at
any time outstanding; and
(e) the Borrower may pay dividends to NCH, and NCH may pay dividends
to NCI, in each case in an amount sufficient to pay the interest accrued on the
Senior Notes which is payable in cash substantially concurrently with the dates
upon which such interest is due;
provided, however, that no Restricted Payments may be made pursuant to clause
(a), (b) or (e) preceding if a Default exists at the time of such Restricted
Payment or would result therefrom.
Section 9.5 Investments. The Borrower will not, and will not permit NCH
or any Subsidiary of the Borrower to, make or permit to remain outstanding any
advance, loan, extension of credit or capital contribution to or investment in
any Person, or purchase or own any stock, bonds, notes, debentures or other
securities of any Person, or be or become a joint venturer with or partner of
any Person (all such transactions being herein called "Investments"), except:
(a) Investments in obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to the Borrower or
another Loan Party;
(b) existing Investments identified on Schedule 9.5 hereto;
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(c) Investments in securities issued or guaranteed by the U.S. or any
agency thereof with maturities of one year or less from the date of acquisition;
(d) Investments in certificates of deposit and Eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a term of not more than
seven days for securities of the types described in clause (c) preceding with
any Lender or with any domestic commercial bank having capital and surplus in
excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer rated A-1 or
better or P-1 or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., respectively, maturing not more than 270 days from the date of
acquisition;
(g) (i) Investments (other than Intercompany Debt referred to in
clause (h) below) by the Borrower in its Subsidiaries existing on the Closing
Date and by NCH and the Borrower existing as of the Closing Date or required to
occur in accordance with this Agreement, (ii) additional Investments by NCH in
the Borrower, and (iii) additional Investments by a the Borrower in its
Subsidiaries made after the Closing Date in the ordinary course of business;
(h) intercompany Debt permitted pursuant to Section 9.1(c);
(i) (A) Qualified Telecommunications Investments and (B) additional
investments in and acquisitions of, Telecommunications Business or
Telecommunications Assets not to exceed an aggregate of $10,000,000;
(j) Interest Rate Protection Agreements permitted by Section 9.1;
(k) Capital contributions permitted pursuant to Section 9.8(c); and
(l) temporary loans or advances to employees, officers and directors
of the Loan Parties in the ordinary course of business that do not exceed
$1,000,000 at any time outstanding in aggregate amount.
provided, however, that no Investments may be made by the Borrower pursuant to
clauses (g), (h) or (i) preceding if a Default exists at the time of such
Investment or would result therefrom.
Section 9.6 Limitation on Issuance of Capital Stock of the Borrower.
The Borrower will not, and will not permit any of its Subsidiaries to, at any
time issue, sell, assign or otherwise dispose of (a) any of its Capital Stock,
(b) any securities exchangeable for or convertible into or carrying any
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rights to acquire any of its Capital Stock, or (c) any option, warrant or other
right to acquire any of its Capital Stock, in each case to any Person other than
NCH (with respect to Capital Stock of the Borrower) or the Borrower (with
respect to Capital Stock of the Subsidiaries of the Borrower). All such Capital
Stock, securities, options, warrants and other rights issued, sold, assigned or
disposed of shall be, and shall continue to be, subject to a first priority Lien
in favor of the Administrative Agent as security for the payment and performance
of the Obligations.
Section 9.7 Transactions with Affiliates. The Borrower will not, and
will not permit NCH or any Subsidiary of the Borrower to, enter into any
transaction, including, without limitation, the purchase, sale or exchange of
Property or the rendering of any service, with any Affiliate of the Borrower
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's business and upon fair and reasonable terms no less favorable to
the Borrower than would be obtained in a comparable arms-length transaction with
a Person not an Affiliate of the Borrower; provided, however, that transactions
between or among the Borrower and its Affiliates may be on terms more favorable
to the Borrower than would be obtained in a comparable arms-length transaction
with a Person not an Affiliate of the Borrower. In addition to the foregoing, no
transactions between or among (a) Affiliates of the Borrower and (b) the
Borrower and its Subsidiaries relating to the purchases of equipment from any
such Affiliate or the provision of services by any such Affiliate for the
Network shall be permitted unless the same are purchased or provided at the cost
to such Affiliate.
Section 9.8 Disposition of Property. The Borrower will not, and will
not permit NCH or any Subsidiary of the Borrower to, sell, lease, assign,
transfer or otherwise dispose of any of its Property (including, without
limitation, the Nortel Networks Equipment and the Nortel Networks Software),
except:
(a) dispositions of Inventory (other than equipment) in the ordinary
course of business;
(b) Asset Dispositions of Property, other than accounts and
Receivables, by the Borrower made in the ordinary course of business if each of
the following conditions have been satisfied: (i)(A) (1) the Net Proceeds from
any single Asset Disposition or series of related Asset Dispositions in any
fiscal year of the Borrower do not exceed $1,000,000 and (2) the Borrower
receives fair consideration for such assets, or (B) with respect to Asset
Dispositions to ILECs made in connection with the execution of any agreement for
Virtual Co-location, the aggregate fair value of all such Asset Dispositions
made at any time during the term of this Agreement shall not exceed $1,000,000,
and (ii) no Default exists at the time of or will result from such Asset
Disposition;
(c) Asset Dispositions of Property, other than equipment, accounts and
Receivables, by the Borrower to any Wholly-Owned Subsidiary of the Borrower if
each of the following conditions have been satisfied: (i) the assets sold,
disposed of or otherwise transferred to a Wholly-Owned Subsidiary of the
Borrower shall continue to be subject to a perfected, first priority Lien
(except for Permitted Liens, if any, which are expressly permitted by the Loan
Documents to have priority over
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the Liens in favor of the Administrative Agent) in favor of the Administrative
Agent and the Lenders, and (ii) no Default exists at the time of or will result
from such Asset Disposition; and
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
being exchanged or replaced with comparable or better equipment.
Section 9.9 Sale and Leaseback. The Borrower will not, and will not
permit NCH or any Subsidiary of the Borrower to, enter into any arrangement with
any Person pursuant to which it leases from such Person real or personal
Property that has been or is to be sold or transferred, directly or indirectly,
by it to such Person.
Section 9.10 Lines of Business. The Borrower will not, and will not
permit any of its Subsidiaries to, (a) engage in any line or lines of business
activity other than the construction, implementation and operation of the
Network and related activities reasonably incidental thereto and the holding of
Permits used in connection therewith and other telecommunications businesses in
the United States as described in and contemplated by the Business Plan or (b)
discontinue any line or lines of business which provide material revenues to the
Borrower or such Subsidiary in which it is engaged on the Closing Date. The
Borrower will not discontinue its engagement in, and will continue to engage in,
the Telecommunications Business. The Borrower will not permit NCI or NCH to
engage in (i) any Telecommunications Business or (ii) in any other business
other than the ownership of the Capital Stock of its Subsidiaries and matters
incidental thereto, including the raising of capital.
Section 9.11 Environmental Protection. The Borrower will not, and will
not permit NCH or any Subsidiary of the Borrower to, (a) use (or permit any
tenant to use) any of its Properties for the handling, processing, storage,
transportation or disposal of any Hazardous Material except in compliance with
applicable Environmental Laws, (b) generate any Hazardous Material except in
compliance with applicable Environmental Laws, (c) conduct any activity that is
likely to cause a Release or threatened Release of any Hazardous Material in
violation of any Environmental Law, or (d) otherwise conduct any activity or use
any of its Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which the Borrower
or any of its Subsidiaries would be responsible, except for circumstances or
events described in clauses (a) through (d) preceding that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents, the Borrower will not, and will not
permit any of its Subsidiaries to, create or otherwise cause or permit to exist
or become effective any consensual encumbrance or restriction of any kind on the
ability of (a) any of its Subsidiaries to (i) pay dividends or make any other
distribution to the Borrower or any of its Subsidiaries in respect of such
Subsidiary's Capital Stock or with respect to any other interest or
participation in, or measured by, its profits, (ii) pay any indebtedness owed to
the Borrower or any of its Subsidiaries, (iii) make any loan or advance to the
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Borrower or any of its Subsidiaries, or (iv) except for Property subject to
purchase money Liens permitted in accordance with this Agreement, sell, lease,
transfer any of its Property to the Borrower or any of its Subsidiaries, or (b)
the Borrower or any of its Subsidiaries to (i) comply with the terms and
provisions of Section 8.13(b), or (ii) grant any Lien on any of its Properties
to secure the payment and performance of the Obligations.
Section 9.13 Management Fees. The Borrower and its Subsidiaries shall
not pay any management fees; provided, however, that Subsidiaries of the
Borrower may pay management fees to the Borrower or other Subsidiaries of the
Borrower.
Section 9.14 Modification of Other Agreements. The Borrower will not,
and will not permit NCH or any Subsidiary of the Borrower to, consent to or
implement any termination, amendment, modification, supplement or waiver of (a)
the certificate or articles of incorporation or bylaws or other constitutional
documents of the Borrower or any other Loan Party, (b) the Business Plan or (c)
any other Material Contract to which it is a party or any Permit which it
possesses; provided, however, that the Loan Parties may amend or modify (i) the
documents referred to in clause (a) preceding or the Business Plan if and to the
extent that such amendment or modification is not substantive or material and
could not be adverse to any Loan Party, the Administrative Agent or the Lenders
and (ii) the Material Contracts referred to in clause (b) preceding if and to
the extent that such amendment or modification could not reasonably be expected
to be materially adverse to any Loan Party or any of its Subsidiaries or the
Administrative Agent or any of the Lenders or, in the case of Material Contracts
involving other Debt of the Loan Parties, to the extent that such amendment or
modification does not result in such Loan Party being in breach of any covenant
or agreement contained in any Loan Document.
Section 9.15 ERISA. The Borrower will not, and will not permit NCH or
any Subsidiary of the Borrower to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that
exceeds $200,000 with respect to any such Plan or $500,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit
any ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created, either individually as to any such Plan or in the aggregate as to all
such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
Section 9.16 Financial Covenants.
(a) Total Debt to Total Capitalization. The Borrower and NCH will not
permit the ratio of (i) Total Debt of NCH and its Consolidated Subsidiaries
outstanding at the end of any of the
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calendar quarters set forth on Schedule 9.16(a) to (ii) Total Capitalization of
NCH and its Consolidated Subsidiaries on such date, to exceed the ratio set
forth opposite such date on such Schedule.
(b) Secured Debt to Total Capitalization. The Borrower and NCH will
not permit the ratio of (i) Secured Debt of NCH and its Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
Schedule 9.16(b) to (ii) Total Capitalization of NCH and its Consolidated
Subsidiaries on such date, to exceed the ratio set forth opposite such date on
such Schedule.
(c) Fixed Charge Coverage. The Borrower and NCH will not permit the
ratio of (i) EBITDA of NCH and its Consolidated Subsidiaries during any of the
calendar quarters ending on any of the dates set forth on Schedule 9.16(c) plus
cash balances on such date to (ii) Consolidated Fixed Charges of NCH and its
Consolidated Subsidiaries for the next calendar quarter, to be less than the
ratio set forth opposite such date on such Schedule.
(d) Capital Expenditures. The Borrower and NCH will not permit
cumulative Capital Expenditures of NCH and its Consolidated Subsidiaries for the
period beginning on September 30, 1998 and ending on any of the dates set forth
on Schedule 9.16(d) to exceed the amount set forth opposite such date on such
Schedule.
(e) Quarterly Minimum Revenue Levels. The Borrower and NCH will not
permit Gross Revenues of NCH and its Consolidated Subsidiaries for any of the
calendar quarters ending on any of the dates set forth on Schedule 9.16(e) to be
less than the amount set forth opposite such date on such Schedule.
(f) Total Debt to Annualized EBITDA. The Borrower and NCH will not
permit the ratio of (i) Total Debt of NCH and its Consolidated Subsidiaries
outstanding at the end of any of the calendar quarters set forth on Schedule
9.16(f) to (ii) Annualized EBITDA of NCH and its Consolidated Subsidiaries for
the calendar quarter ending on such date, to exceed the ratio set forth opposite
such date on such Schedule.
(g) Secured Debt to Annualized EBITDA. The Borrower and NCH will not
permit the ratio of (i) Secured Debt of NCH and its Consolidated Subsidiaries
outstanding at the end of any of the calendar quarters set forth on Schedule
9.16(g) to (ii) Annualized EBITDA of NCH and its Consolidated Subsidiaries for
the calendar quarter ending on such date, to exceed the ratio set forth opposite
such date on such Schedule.
(h) EBITDA. The Borrower and NCH will not permit EBITDA for any of the
calendar quarters ending on any of the dates set forth on Schedule 9.16(h) to be
less than the amount set forth opposite such date on such Schedule.
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(i) Gross Margin Percentage. The Borrower and NCH will not permit the
Gross Margin Percentage of NCH and its Consolidated Subsidiaries for any of the
calendar quarters ending on any of the dates set forth on Schedule 9.16(i) to be
less than the percentage set forth opposite such date on such Schedule.
(j) Access Lines. The Borrower will not permit the number of the total
Access Lines of the Borrower and its Consolidated Subsidiaries in service at the
end of any of the calendar quarters ending on any of the dates set forth in
Schedule 9.16(j) to be less than the amount set forth on Schedule 9.16(j)
opposite such date on such Schedule.
Section 9.17 No Prepayment of Debt. The Borrower will not, and will not
permit NCH or any of its Subsidiaries to, directly or indirectly, make any
optional prepayment or distribution on account of, or voluntarily purchase,
acquire, redeem or retire, any Debt, prior to 30 days before its originally
stated maturity (or its stated maturity on the Closing Date in the case of Debt
outstanding on the Closing Date), or in the case of interest, its stated due
date, or directly or indirectly become obligated to do any of the foregoing by
amending the terms thereof or otherwise, except for:
(a) prepayments of the Loans or other Obligations pursuant to or as
permitted by the Loan Documents;
(b) prepayments made with the proceeds of new Debt incurred for the
purpose of refinancing the Debt being prepaid, provided that (i) no portion of
such new Debt matures or is required to be prepaid, purchased or otherwise
retired earlier than the corresponding portion of the Debt being prepaid
(including as a result of any prepayment or redemption upon the occurrence of a
condition), (ii) such new Debt (A) is subordinated to the Obligations to at
least the same extent as the Debt being refinanced if such Debt is Subordinated
Debt or (B) is permitted in accordance with this Agreement, and (iii) no Default
or Event of Default then exists or would result from such prepayment or
refinancing; and
(c) prepayments of trade payables incurred in the ordinary course of
the Borrower's or any Subsidiary's business and not overdue by more than 120
days.
In addition, the Borrower will not, and will not permit any Subsidiary of the
Borrower to, prepay any rent or other obligations under any operating lease or
any other Material Contract prior to 90 days before the originally stated due
date therefor (or the due date therefor as of the Closing Date in the case of
operating leases or Material Contracts in existence on the Closing Date).
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ARTICLE 10
Default
Section 10.1 Events of Default. Each of the following shall be deemed an
"Event of Default":
(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal owing to the Administrative Agent or any Lender pursuant to
this Agreement or any other Loan Document, or (ii) the Borrower shall fail to
pay, within two Business Days after the due date thereof, any interest, fee,
expense or other amount or other Obligation owing to the Administrative Agent or
any Lender pursuant to this Agreement or any other Loan Document.
(b) Any representation or warranty made or deemed made by or on behalf
of any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Section 5.1, 8.1(e) or 8.2 or Article
9; any Loan Party shall fail to perform, observe or comply with any covenant,
agreement or term contained in Article 5 or Section 8.1, 8.3, or 8.5, and such
failure is not remedied or waived within ten days after such failure commenced;
or any Loan Party shall fail to perform, observe or comply with any other
covenant, agreement or term contained in this Agreement or any other Loan
Document (other than covenants to pay the Obligations) and such failure is not
remedied or waived within the earlier to occur of 30 days after such failure
commenced or, if a different grace period is expressly made applicable in such
other Loan Documents, such applicable grace period.
(d) Any Loan Party ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due.
(e) Any Loan Party shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, liquidator
or administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due, subject to any applicable grace periods, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (v) file a petition seeking to take advantage of any other
law providing for the relief of debtors or relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding up, or
composition or readjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or other applicable Governmental
Requirement, (vii) dissolve, or (viii) take any corporate action for the purpose
of effecting any of the foregoing.
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(f) A proceeding or case shall be commenced, without the application
or consent of any Loan Party, in any court of competent jurisdiction, seeking
(i) the liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property, or (iii) similar relief in respect
of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or readjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be entered
in an involuntary case under the Bankruptcy Code against any Loan Party and
shall continue unstayed and in effect for any period of 60 consecutive days.
(g) Any Loan Party shall fail to discharge within a period of 30 days
after the commencement thereof any attachment, sequestration, forfeiture or
similar proceeding or proceedings involving an aggregate amount in excess of
$2,000,000 against any of its Properties.
(h) A final judgment or judgments for the payment of money in excess
of $2,000,000 in the aggregate shall be rendered by a court or courts against
any Loan Party on claims not covered by insurance and the same shall not be
discharged, bonded or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and any Loan Party shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) Any Loan Party shall fail to pay when due any principal of or
interest on any Debt of such Loan Party (other than the Obligations) having a
principal amount of at least $2,000,000 individually or at least $5,000,000 in
the aggregate, or the maturity of any such Debt shall have been accelerated, or
any such Debt shall have been required to be prepaid prior to the stated
maturity thereof, or any event shall have occurred (and shall not have been
waived or otherwise cured) that permits (or, with the giving of notice or lapse
of time or both, would permit) any holder or holders of such Debt or any Person
acting on behalf of such holder or holders to accelerate the maturity thereof or
require any such prepayment.
(j) This Agreement or any other Loan Document shall cease to be in
full force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further liability or obligation under any of
the Loan Documents; or any Lien created or purported to be created by the Loan
Documents shall for any reason cease to be or fail to be a valid, first priority
perfected Lien upon any of the Collateral purported to be covered thereby
(except to the extent that such failure results from the Administrative Agent's
failure to file applicable continuation statements under the UCC).
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(k) Any of the following events shall occur or exist with respect to
any Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Lenders subject any Loan Party or any ERISA
Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer
Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $2,000,000.
(l) If, at any time, the subordination provisions of any of the
Subordinated Debt Documents shall be invalidated or shall otherwise cease to be
in full force and effect.
(m) The occurrence of (i) a default (whether or not such term is used
or defined) under any Subordinated Debt Document, unless (A) such default has
been waived, cured or consented to in accordance with such documents, (B) such
default is not a payment default, (C) the maturity of the Debt affected thereby
has not been accelerated, (D) a blockage under such Subordinated Debt Document
has not been invoked, and (E) such waiver or consent is not made in connection
with any amendment or modification of any of the Subordinated Debt Documents or
in connection with any payment to the holders of any Subordinated Debt, (ii) a
payment default under any Subordinated Debt Document, (iii) an event of default
(whether or not such term is used or defined) under any Subordinated Debt
Document, or (iv) any acceleration of the maturity of any Subordinated Debt.
(n) The occurrence of any breach or default by the Borrower under the
Master Purchase Agreement (after giving effect to any grace or cure period
specified therein) which breach or default entitles Nortel Networks to exercise
a right or remedy under or in connection with the Master Purchase Agreement.
(o) If, at any time, any event or circumstance shall occur which gives
any holder of any Subordinated Debt the right to request or require any Loan
Party to redeem, purchase or prepay any Subordinated Debt.
(p) The occurrence of any Material Adverse Effect.
(q) The occurrence of any Change in Control.
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(r) The occurrence of any "Event of Default" as such term is defined
in the Senior Notes Indenture.
Section 10.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments
without notice to the Borrower or any other Loan Party;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to
the Administrative Agent for the benefit of the Administrative Agent and the
Lenders to secure payment and performance of the Obligations in accordance with
the terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded by the
laws of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
provided, however, that (i) upon the occurrence of an Event of Default under
Section 10.1(e) or Section 10.1(f), the Commitments of all of the Lenders shall
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower under the Loan Documents shall thereupon become immediately and
automatically due and payable, and (ii) upon the occurrence of an Event of
Default under clause (iv) of Section 10.1(m) or under Section 10.1(o), the
outstanding principal of and accrued and unpaid interest on the Loans and all
other amounts payable by the Borrower under the Loan Documents shall thereupon
become immediately and automatically due and payable, all (with respect to each
of clauses (i) and (ii) preceding) without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
Section 10.3 Performance by the Administrative Agent, etc.. If the
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Administrative Agent,
promptly pay any amount expended by the Administrative Agent or the Lenders in
connection with
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such performance or attempted performance to the Administrative Agent at its
Principal Office, together with interest thereon at the applicable Default Rate
from and including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that neither the Administrative Agent nor any Lender shall have any
liability or responsibility for the performance of any obligation of the
Borrower or any other Person under this Agreement or any of the other Loan
Documents.
ARTICLE 11
The Administrative Agent
Section 11.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, validity, effectiveness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by any Person to perform any
of its obligations hereunder or thereunder, (e) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for by
this Agreement, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders; provided, however, that the Administrative
Agent shall not be required to take any action which exposes the Administrative
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Agent to liability or which is contrary to this Agreement or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any fiduciary relationship with any Lender or any Loan Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with respect to the Administrative Agent is not intended to
connote any fiduciary or other express or implied obligation arising under
agency doctrine of any applicable law; instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship among independent contracting parties.
Section 11.2 Rights of Administrative Agent as a Lender. With respect to
its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders. Without limiting the generality of the
foregoing, it is contemplated that (a) Nortel Networks and/or an Affiliate of
Nortel Networks may purchase equity securities of NCI, (b) Nortel Networks will
purchase the Senior Notes, and (c) Nortel Networks will be the holder of the
Warrants.
Section 11.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 11.1) take such
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall seem advisable and in the best interest of the
Lenders.
SECTION 11.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY THE
ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST (TO
THE EXTENT NOT REIMBURSED UNDER SECTIONS 12.1 AND 12.2, BUT WITHOUT LIMITING THE
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OBLIGATIONS OF THE BORROWER UNDER SECTIONS 12.1 AND 12.2), RATABLY IN ACCORDANCE
WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT PERCENTAGE OF
THE AGGREGATE COMMITMENTS), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING
TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO
BE TAKEN BY THE ADMINISTRATIVE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF
THE FOREGOING TO THE EXTENT CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE
EXPRESS INTENTION OF THE LENDERS THAT THE ADMINISTRATIVE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE
OF THE ADMINISTRATIVE AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE
ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING
ANY OTHER PROVISION OF THIS SECTION 11.4, EACH LENDER AGREES TO REIMBURSE THE
ADMINISTRATIVE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF ITS COMMITMENT PERCENTAGE OF THE COMMITMENTS) OF ANY AND ALL
OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE
ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
Section 11.5 Independent Credit Decisions. Each Lender agrees that it
has independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and NCH and the
Subsidiaries of the Borrower and its own decision to enter into this Agreement
and that it will, independently and without reliance upon the Administrative
Agent or any other Lender, and based upon such documents and information as it
shall deem appropriate at the time, continue to
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make its own analysis and decisions in taking or not taking action under this
Agreement or any of the other Loan Documents. The Administrative Agent shall not
be required to keep itself informed as to the performance or observance by the
Borrower (or any other Person) of this Agreement or any other Loan Document or
to inspect the Properties or books of the Borrower (or any other Person). Except
for notices, reports and other documents and information expressly required to
be furnished to the Lenders by the Administrative Agent hereunder or under the
other Loan Documents, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other financial
information concerning the affairs, financial condition or business of the
Borrower (or any of its Affiliates) which may come into the possession of the
Administrative Agent or any of its Affiliates.
Section 11.6 Several Commitments. The Commitments and other obligations
of the Lenders under this Agreement are several. The default by any Lender in
making a Loan in accordance with any of its Commitments shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event shall
any Lender be required to advance an amount or amounts with respect to any of
the Loans which would in the aggregate exceed such Lender's Commitment with
respect to such Loans. No Lender shall be responsible for any act or omission of
any other Lender.
Section 11.7 Successor Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders will
have the right to appoint another Lender as a successor Administrative Agent. If
no successor Administrative Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign country if acting through its
U.S. branch and having combined capital and surplus of at least $100,000,000.
Upon the acceptance of its appointment as successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges, immunities and duties of the resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the provisions of this Article 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
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ARTICLE 12
Miscellaneous
Section 12.1 Expenses. The Borrower hereby agrees, on demand, to pay or
reimburse the Administrative Agent and each of the Lenders for paying: (a) all
reasonable out-of-pocket costs and expenses of the Administrative Agent accrued
in connection with the drafting, preparation, negotiation, execution and
delivery of the Loan Documents and in connection with any and all waivers,
amendments, modifications, renewals, extensions and supplements of or to the
Loan Documents, and the syndication of the Commitments and the Loans, including,
without limitation, the reasonable fees and expenses of legal counsel (including
all local counsel) for the Administrative Agent, (b) all out-of-pocket costs and
expenses of the Administrative Agent and the Lenders in connection with any
Default, the exercise of any right or remedy and the enforcement of this
Agreement or any other Loan Document or any term or provision hereof or thereof,
including, without limitation, the fees and expenses of all legal counsel for
the Administrative Agent and/or any Lender, (c) all transfer, stamp, documentary
or other similar taxes, assessments or charges levied by any Governmental
Authority in respect of this Agreement or any of the other Loan Documents, (d)
all costs, expenses, assessments and other charges incurred in connection with
any filing, registration, recording or perfection of any Lien contemplated by
this Agreement or any other Loan Document, and (e) all reasonable out-of-pocket
costs and expenses incurred by the Administrative Agent in connection with due
diligence, computer services, copying, appraisals, environmental audits,
collateral audits, field exams, insurance, consultants and search reports.
Section 12.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE RIGHT OR OTHER
RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN COMPLIANCE WITH LAWS
AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO OTHER PERSONS, (B) ANY
OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE
BORROWER OF ANY MATERIAL REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE OF ANY LOAN,
(E) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF
ANY
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HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE PROPERTIES
OF THE BORROWER OR ANY OF ITS AFFILIATES, EXCEPT TO THE EXTENT THAT THE LOSS,
DAMAGE OR CLAIM IS THE DIRECT RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF THE PERSON TO BE INDEMNIFIED, OR (F) ANY INVESTIGATION, LITIGATION OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING
ANY OF THE FOREGOING TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF
THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 12.2 SHALL
BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON. WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER TERM
OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS OF THE BORROWER UNDER THIS
SECTION 12.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS AND OTHER OBLIGATIONS AND
TERMINATION OF THE COMMITMENTS.
Section 12.3 Limitation of Liability. None of the Administrative Agent,
any Lender or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable for any error of judgment or act done in good faith, or
be otherwise liable or responsible under any circumstances whatsoever (including
such Person's negligence), except for such Person's gross negligence or willful
misconduct. None of the Administrative Agent, any Lender or any Affiliate,
officer, director, employee, attorney or agent thereof shall have any liability
with respect to, and the Borrower hereby waives, releases and agrees not to sue
any of them upon, any claim for any special, indirect, incidental or
consequential damages suffered or incurred by the Borrower or any Affiliate of
the Borrower in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. The Borrower
hereby waives, releases and agrees not to sue the Administrative Agent or any
Lender or any of their respective Affiliates, officers, directors, employees,
attorneys or agents for exemplary or punitive damages in respect of any claim in
connection with, arising out of or in any way related to this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents.
Section 12.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty
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of disclosure, duty of loyalty, duty of care or other duty or obligation of any
type or nature whatsoever to the Borrower or any of its Affiliates or any other
Person.
Section 12.5 No Fiduciary Relationship. The relationship between the
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower or any of its Affiliates, and no term or
condition of any of the Loan Documents shall be construed so as to deem the
relationship between the Borrower and any Lender, or such Affiliate and any
Lender, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Lenders or among the Borrower
or any of its Affiliates and the Lenders.
Section 12.6 Equitable Relief. The Borrower recognizes that, in the
event it fails to pay, perform, observe or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to the
Administrative Agent and the Lenders. The Borrower therefore agrees that the
Administrative Agent and the Lenders, if the Administrative Agent or the Lenders
so request, shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
Section 12.7 No Waiver; Cumulative Remedies. No failure on the part of
the Administrative Agent or any Lender to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
Section 12.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Borrower may
not assign or transfer any of its rights or obligations under this Agreement or
any other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrower for the performance of such obligations, (iii) such
Lender shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, and (v) the Lenders shall not grant any participation
under which the participant shall have the right to approve (or under which the
consent of the participant must be obtained prior to the Lenders being able to
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approve) any amendment or waiver of this Agreement or the other Loan Documents,
except to the extent that such amendment or waiver (A) increases any Commitment,
(B) reduces the interest rate or the amount of principal or fees applicable to
the Loans or Commitments in which such participant is participating, (C) extends
any Maturity Date, (D) releases any of the Collateral (except as provided for
herein or in any other Loan Document) or any guaranty of the Obligations, or (E)
releases any Loan Party from its monetary Obligations under any of the Loan
Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees all
or any part of its rights and/or obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitments and/or Loans)
(each an "Assignee"); provided, however, that (i) each such assignment may be of
a varying percentage of the Assigning Lender's rights and/or obligations under
this Agreement and the other Loan Documents and may relate to some but not all
of such rights and/or obligations, (ii) except in the case of an assignment of
all of a Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitment(s) and/or Loans of the Assigning Lender
being assigned pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $5,000,000 calculated based upon the aggregate amount of the
Commitment(s) and/or Loans assigned and (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with the Note subject to such assignment, and a processing
and recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by the Administrative
Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder and under the Loan Documents, and (2) the Assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement and the other Loan
Documents (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Lender's rights and obligations under the Loan Documents,
such Lender shall cease to be a party thereto, provided that such Lender's
rights under Article 4, Section 12.1 and Section 12.2 accrued through the date
of assignment shall continue). The Borrower will provide full and prompt
assistance to each Lender as it may reasonably request from time to time in
connection with such Lender's efforts to assign its Commitments and/or Loans or
sell any participation interest therein. Such assistance shall include, without
limitation, making senior officers of the Borrower available for meetings with
prospective Lenders and participants and providing (in a timely manner) such
assistance as may be reasonably requested by such Lender and/or its advisors,
including, without limitation, providing information to and responding to
inquiries from such prospective Lenders and participants with respect to the
businesses, operations, business plan, financial condition and results of
operations of the Borrower and its Subsidiaries.
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(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition or results of operations of the Borrower or any of its Affiliates or
the performance or observance by the Borrower or any of its Affiliates of its
obligations under the Loan Documents; (iii) such Assignee confirms that it has
received a copy of the Loan Documents, together with copies of the financial
statements referred to in Section 7.2 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such Assignee will,
independently and without reliance upon the Administrative Agent or such
Assigning Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vii) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at its Principal Office a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at its expense, shall
execute and deliver to the Administrative Agent in exchange for each surrendered
Note evidencing the Loans assigned, a new Note evidencing such Loans payable to
the order of such Eligible Assignee in an amount equal to such Loans assigned to
it and, if the Assigning Lender has
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retained any Loans, a new Note evidencing each such Loans payable to the order
of the Assigning Lender in the amount of such Loans retained by it (each such
promissory note shall constitute a "Note" for purposes of the Loan Documents).
Such new Notes shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit B hereto.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 12.8, disclose
to the Assignee or participant or proposed Assignee or participant any
information relating to the Borrower or any of its Affiliates furnished to such
Lender by or on behalf of the Borrower or any of its Affiliates; provided that
each such actual or proposed Assignee or participant shall agree to be bound by
the provisions of Section 12.20.
(g) Any Lender may assign and pledge any Note held by it to any
Federal Reserve Bank or the U.S. Treasury as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
operating circular issued by such Federal Reserve System and/or Federal Reserve
Bank; provided, however, that any payment made by the Borrower for the benefit
of such assigning and/or pledging Lender in accordance with the terms of the
Loan Documents shall satisfy the Borrower's obligations under the Loan Documents
in respect thereof to the extent of such payment. No such assignment and/or
pledge shall release the assigning and/or pledging Lender from its obligations
hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note. Notwithstanding anything
to the contrary contained in this Section 12.8, a Registered Note and the Loans
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall expressly so provide). Any assignment or transfer of all or part of
such Loans and the Registered Note evidencing the same shall be registered on
the Registered Note Register only upon surrender for registration of assignment
or transfer of the Registered Note evidencing such Loans, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the registered noteholder thereof, and thereupon one or more new Registered
Notes in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the due presentment for registration of
transfer of any Registered Note, the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Note(s) evidencing
the same are registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding any notice to the
contrary. The Registered Note Register shall be available for inspection by the
Borrower and any Lender at any reasonable time upon reasonable prior notice.
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(i) The Borrower will not become a party to any loan agreement, credit
agreement or similar agreement which restricts or prohibits the right or ability
of any lender which is a party thereto to become a Lender under this Agreement.
(j) Upon the initial assignment by Nortel Networks as Assigning Lender
of the entirety of its Commitment (if any) and Loans (if any) hereunder to an
Eligible Assignee (the "Initial Assignment of Commitments and Loans"), the
Administrative Agent shall give the Borrower prompt written notice thereof and
notice that the Applicable Margin and the Applicable Commitment Fee Rate shall
be adjusted as provided herein. In connection with the Initial Assignment of
Commitments and Loans, Nortel Networks shall offer not less than the entirety of
its Commitment (if any) and Loans (if any) hereunder to one or more Eligible
Assignees under bidding procedures determined by Nortel Networks in its sole
discretion. Such offer shall provide the opportunity for the offeree to select
an Applicable Margin and an Applicable Commitment Fee Rate of less than the
maximum rates therefor specified herein which are applicable from and after the
date of the Initial Assignment of Commitments and Loans. In the event that any
offeree accepts (which offeree shall be the initial offeree so accepting if more
than one offeree so accepts) an Applicable Margin and an Applicable Commitment
Fee Rate of less than the maximum rates therefor specified herein which are
applicable from and after the date of the Initial Assignment of Commitments and
Loans (each a "Market Clearing Rate"), each of the Applicable Margin and the
Applicable Commitment Fee Rate shall be adjusted to the applicable Market
Clearing Rate with respect to all Loans then or thereafter outstanding;
provided, however, that in no event shall the Applicable Margin or the
Applicable Commitment Fee Rate be reduced below the Applicable Margin and the
Applicable Commitment Fee Rate, respectively, in effect as of the Effective
Date.
Section 12.9 Survival. All representations and warranties made or deemed
made in this Agreement or any other Loan Document or in any document, statement
or certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans, and no investigation by the Administrative Agent or any
Lender or any closing shall affect the representations and warranties or the
right of the Administrative Agent or any Lender to rely upon them. Without
prejudice to the survival of any other obligation of the Borrower hereunder, the
obligations of the Borrower under Article 4 and Sections 12.1 and 12.2 shall
survive repayment of the Loans and the Reimbursement Obligations and the other
Obligations.
Section 12.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, TERM SHEETS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
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AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Section 12.11 Amendments. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the Borrower, do any of
the following: (a) increase the Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts payable hereunder; (c)
postpone any date fixed for any payment (including, without limitation, any
mandatory prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable hereunder; (d) change the Commitment Percentages or the
aggregate unpaid principal amount of the Loans or the number or interests of the
Lenders which shall be required for the Lenders or any of them to take any
action under this Agreement; (e) change any provision contained in Section 3.2,
3.3 or 5.1 or this Section 12.11 or modify the definition of "Required Lenders"
contained in Section 1.1; or (f) except as expressly authorized by this
Agreement, release any Collateral from any of the Liens created by the Security
Documents; and provided further, however, that no amendment, waiver or consent
relating to Sections 11.1, 11.2, 11.3, 11.4 or 11.5 shall require the agreement
of the Borrower. Notwithstanding anything to the contrary contained in this
Section 12.11, no amendment, waiver or consent shall be made with respect to (i)
Article 11 hereof without the prior written consent of the Administrative Agent,
(ii) the definition of "Eligible Third-Party Expenses", "Maximum Financed Amount
of Eligible Third-Party Expenses", "Master Purchase Agreement", "Nortel Networks
Equipment", "Nortel Networks Goods and Services" or "Nortel Networks Software"
or Section 2.5, 2.9 or 2.10 hereof without the prior written consent of Nortel
Networks (whether or not Nortel Networks is then a Lender hereunder), or (iii)
any condition precedent set forth in Article 6 with respect to the making of any
Loans without the prior written consent of the Lenders that hold, at the time of
such amendment, waiver or consent, at least a majority (in Dollar amount) of the
Commitments.
Section 12.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
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(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions of this
Agreement or the other Loan Documents shall ever be construed to create a
contract or obligation to pay interest at a rate in excess of the Maximum Rate;
and neither the Administrative Agent nor any Lender shall ever charge, receive,
take, collect, reserve or apply, as interest on the Obligations, any amount in
excess of the Maximum Rate. The parties hereto agree that any interest, charge,
fee, expense or other obligation provided for in this Agreement or in the other
Loan Documents which constitutes interest under applicable law shall be, ipso
facto and under any and all circumstances, limited or reduced to an amount equal
to the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 12.12(b) or (ii)
an amount, which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, the Administrative Agent or any Lender ever contracts for, charges,
receives, takes, collects, reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive interest shall
be deemed a partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to the
Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Administrative
Agent and the Lenders shall, to the maximum extent permitted by applicable law,
(i) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Obligations; provided
that, if the unpaid principal balance is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Rate, the Administrative
Agent and/or the Lenders, as appropriate, shall refund to the Borrower the
amount of such excess and, in such event, the Administrative Agent and the
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or applying
interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised
Civil Statutes of Texas 1925, as amended, the Borrower agrees that such Chapter
15 (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) shall not govern or in any manner apply to the Obligations.
Section 12.13 Notices. All notices and other communications provided for
in this Agreement and the other Loan Documents to which the Borrower is a party
shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or, with respect to a Lender that becomes a party to this Agreement
pursuant to an assignment made in accordance with Section 12.8, in the
Assignment and Acceptance executed by it); or, as to any party, at such other
address as shall be designated by such party in a notice to
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each other party given in accordance with this Section 12.13. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telecopy or personally delivered or, in
the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid; provided, however, that notices to the Administrative Agent shall be
deemed given when received by the Administrative Agent.
Section 12.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES HERETO
CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT PURSUANT TO
N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE LAWS OF THE
U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF
(1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (2) ANY NEW
YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S. DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS
COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SET FORTH UNDERNEATH ITS
SIGNATURE HERETO. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORM.
Section 12.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 12.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
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Section 12.18 Construction. The Borrower, the Administrative Agent and
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 12.19 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 12.20 Confidentiality. Each Lender agrees to exercise its best
efforts to keep any information delivered or made available by the Borrower to
it which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Lender
from disclosing such information (a) to any other Lender, (b) to any Person if
reasonably incidental to the administration of the Loans, (c) upon the order of
any court or administrative agency, (d) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Lender, (e) which
has been publicly disclosed, (f) in connection with any litigation to which the
Administrative Agent, any Lender or their respective Affiliates may be a party,
(g) to the extent reasonably required in connection with the exercise of any
right or remedy under the Loan Documents, (h) to such Lender's legal counsel,
independent auditors and affiliates, and (i) to any actual or proposed
participant or Assignee of all or part of its rights hereunder, so long as such
actual or proposed participant or Assignee agrees to be bound by the provisions
of this Section 12.20.
Section 12.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 12.22 Approvals and Consent. Except as may be expressly provided
to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such approval or consent or to exercise
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such judgment in any particular manner, regardless of the reasonableness of the
request or the action or judgment of the Administrative Agent or such Lender,
and (b) no approval or consent of the Administrative Agent or any Lender shall
in any event be effective unless the same shall be in writing and the same shall
be effective only in the specific instance and for the specific purpose for
which given.
Section 12.23 Service of Process. The Borrower irrevocably consents to
the service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. Nothing in this
Section 12.23 shall affect the right of the Administrative Agent or the Lenders
to serve legal process in any other manner permitted by law or affect the right
of the Administrative Agent or any Lender to bring any action or proceeding
against the Borrower or its Property in the court of any jurisdiction.
Section 12.24 Amendment and Restatement. Effective as of the Effective
Date, this Agreement shall constitute an amendment and restatement of all, but
not an extinguishment, discharge, satisfaction or novation of any, indebtedness,
liabilities and/or obligations (including, without limitation, the Obligations)
of the Loan Parties under the Original Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
NET2000 COMMUNICATIONS GROUP, INC.
By: /s/ Donald E. Clarke
----------------------------------
Name: Donald E. Clarke
Title: Chief Financial Officer
Address for Notices:
--------------------
2195 Fox Mill Road
Herndon, Virginia 20171
Telecopy No.: (703) 561-5006
Telephone No.: (703) 561-5406
Attention: Donald E. Clarke
Chief Financial Officer
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ADMINISTRATIVE AGENT:
---------------------
NORTEL NETWORKS INC., as Administrative
Agent
By: /s/ Jay R. Prestipino
----------------------------------
Name: Jay R. Prestipino
Title: Director, Customer Finance
Address for Notices:
--------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Networks,
Finance
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082
Attention: Vice President,
Customer Finance North
America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe,
Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
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LENDERS:
--------
NORTEL NETWORKS INC.
Commitment: $75,000,000
- ----------
By: /s/ Jay R. Prestipino
----------------------------------
Name: Jay R. Prestipino
Title: Director, Customer Finance
Address for Notices:
--------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Networks
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082
Attention: Vice President,
Customer Finance North
America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention:
Kimberly Poe, Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
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Lending Office for Prime Rate Loans:
------------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
------------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
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<PAGE> 1
EXHIBIT 10.15
AMENDED AND RESTATED
GUARANTY AGREEMENT
(Net2000 Subsidiary)
This AMENDED AND RESTATED GUARANTY AGREEMENT (this "Guaranty"), dated
effective as of July 30, 1999, is executed and delivered by
__________________________, a Delaware corporation ("Guarantor"), to and in
favor of NORTEL NETWORKS INC. (f/k/a Northern Telecom Inc.), as administrative
agent for itself and the other Lenders (as such term is hereinafter defined) (in
such capacity, together with its successors and assigns in such capacity,
"Administrative Agent").
W I T N E S S E T H:
A. Subject to the terms of that certain Credit Agreement dated as of
November 2, 1998, among Net2000 Communications Group, Inc. ("Borrower"), certain
of the Lenders and Administrative Agent (the "Original Credit Agreement"),
certain of the Lenders extended certain credit facilities to Borrower. As a
condition to the effectiveness of the Original Credit Agreement, Guarantor
executed and delivered that certain Guaranty Agreement dated as of November 2,
1998 (the "Original Guaranty") pursuant to which Guarantor guaranteed payment
and performance of the "Obligations" as such term is defined in the Original
Credit Agreement.
B. Pursuant to that certain Amended and Restated Credit Agreement dated
as of July 30, 1999, among Borrower, the lenders named therein (together with
their successors and assigns, the "Lenders") and Administrative Agent (as the
same may be amended, renewed, extended, restated, replaced, substituted,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
the Original Credit Agreement is, concurrently herewith, being amended and
restated. In connection therewith and concurrently herewith, Borrower is, inter
alia, executing and delivering that certain Promissory Note dated July 30, 1999,
in the original principal amount of $75,000,000 payable to the order of Nortel
Networks Inc. (such promissory note, as amended, renewed, extended, restated,
replaced, substituted, supplemented or otherwise modified from time to time, the
"Note"; the Credit Agreement, the Note and the other Loan Documents (as such
terms are defined in the Credit Agreement), including, without limitation, any
and all security agreements, pledge agreements, assignments, guaranties,
licenses, lien waivers, collection account agreements and other agreements,
documents, instruments and certificates now or hereafter executed and/or
delivered in connection therewith, and any and all amendments, modifications,
renewals, extensions, restatements and/or supplements thereto from time to time,
are hereinafter collectively called the "Loan Documents").
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<PAGE> 2
C. Guarantor has directly and indirectly benefitted and will directly
and indirectly benefit from the loans evidenced and governed by the Credit
Agreement, the Note and the other Loan Documents and the other transactions
evidenced by and contemplated in the Loan Documents.
D. The execution and delivery of this Guaranty is a condition to
Administrative Agent and Lenders entering into the Credit Agreement and the
making of Loans pursuant thereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows:
1. Definitions. Unless otherwise defined in this Guaranty, all
capitalized terms used in this Guaranty shall have the meanings ascribed to such
terms in the Credit Agreement.
2. Guaranty of Indebtedness, Liabilities and Obligations. Guarantor
hereby absolutely, unconditionally and irrevocably guarantees (a) payment and
performance to Administrative Agent and Lenders, as and when the same become
payable or performable strictly in accordance with the terms and provisions of
the Loan Documents, when due, whether at stated maturity, by acceleration or
otherwise, of any and all Obligations (as such term is defined in the Credit
Agreement), which Obligations include, without limitation, (i) any and all
interest, penalties, fees and expenses (specifically including, but not limited
to, attorneys' fees and expenses) which Borrower may now or at any time
hereafter owe to Administrative Agent or any Lender (whether or not such
interest, penalties, fees and expenses were originally contracted with
Administrative Agent or any Lender or with another or others and whether or not
such interest, penalties, fees and expenses are enforceable against Borrower)
pursuant to the Credit Agreement, the Note or any other Loan Document plus (ii)
the principal amount of any and all indebtedness, liabilities and other
obligations, whether primary, absolute, secondary, direct, indirect, fixed,
contingent, liquidated, unliquidated, secured or unsecured, matured or
unmatured, joint, several or joint and several, due or to become due and whether
arising by agreement, note, discount, acceptance, overdraft or otherwise, which
Borrower may now or at any time hereafter owe to Administrative Agent or any
Lender (whether or not such indebtedness, liabilities and obligations were
originally contracted with Administrative Agent or any Lender or with another or
others and whether or not such indebtedness, liabilities or obligations are
enforceable against Borrower) pursuant to the Credit Agreement, the Note or any
other Loan Document and (b) the faithful prompt and complete compliance by
Borrower with all terms, conditions, covenants, agreements and undertakings of
Borrower under the Credit Agreement, the Note or any other Loan Document (the
Obligations and the interest, penalties, fees, expenses, indebtedness,
liabilities and obligations, etc. referred to in clauses (a) and (b) preceding
as to which payment, performance and compliance are guaranteed pursuant to this
Guaranty are hereinafter individually and collectively called the "Guaranteed
Obligations").
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<PAGE> 3
Notwithstanding that Borrower may not be liable or obligated to
Administrative Agent or any Lender for interest and/or attorneys' fees and
expenses on, or in connection with, the Guaranteed Obligations from and after
the Petition Date (as hereinafter defined) as a result of the provisions of the
federal bankruptcy laws or otherwise, the Guaranteed Obligations for which
Guarantor shall be liable and obligated under this Guaranty shall include (to
the extent permitted by law or a court of competent jurisdiction) interest
accruing on the Guaranteed Obligations at the highest rate provided for in the
Credit Agreement from and after the date on which Borrower files for protection
under the federal bankruptcy laws or from and after the date on which an
involuntary proceeding is filed against Borrower under the federal bankruptcy
laws (herein collectively referred to as the "Petition Date") and all attorneys'
fees and expenses incurred by Administrative Agent or any Lender from and after
the Petition Date in connection with the Guaranteed Obligations.
3. Continuing Guaranty of Payment. This Guaranty is and shall be an
absolute, unconditional, irrevocable and continuing guaranty of payment, and not
merely of collection, and from time to time or at any time the Guaranteed
Obligations may be increased, reduced or paid in full without affecting the
liability or obligation of Guarantor with respect to indebtedness, liabilities
and obligations of Borrower to Administrative Agent or any Lender thereafter
incurred. Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated (if a release or discharge has occurred), as the case
may be, if at any time any payment (or any part thereof) to Administrative Agent
or any Lender in respect of the Guaranteed Obligations is rescinded or must
otherwise be restored by Administrative Agent or any Lender pursuant to any
bankruptcy, insolvency, reorganization, receivership or other debtor relief
granted to Borrower or its successors or assigns. In the event that
Administrative Agent or any Lender must rescind or restore any payment received
by Administrative Agent or any Lender, respectively, in satisfaction of the
Guaranteed Obligations, as set forth herein, any prior release or discharge from
the terms of this Guaranty given to Guarantor by Administrative Agent or such
Lender, respectively, shall be without effect, and this Guaranty shall remain in
full force and effect. It is the intention of Administrative Agent, Lenders and
Guarantor that Guarantor's liabilities and obligations hereunder shall not be
discharged except by the full and complete payment and performance of the
Guaranteed Obligations and then only to the extent of such payment and
performance. This Guaranty is independent of, and in addition and without
modification to, and does not impair or in any way affect any other guaranty,
endorsement or other agreement executed in favor of Administrative Agent or any
Lender, and this Guaranty and Guarantor's liabilities and obligations under this
Guaranty shall not be impaired or otherwise affected by the execution, delivery
or performance by Guarantor or any other Person of any other guaranty,
endorsement or other agreement.
4. Absolute Guaranty. Guarantor's liabilities and obligations under this
Guaranty shall be absolute and unconditional irrespective of, shall not be
released, impaired, limited, reduced, conditioned upon or otherwise affected by
and shall continue in full force and effect notwithstanding the occurrence of
any event (other than an event consisting of payment and performance of such
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<PAGE> 4
liabilities and obligations as provided in Paragraph 3 hereof) at any time or
from time to time, including, without limitation, any one or more of the
following events specified in clauses (a) through (o) of this Paragraph 4 below,
and neither Administrative Agent nor any Lender shall be obligated or required
to take or to refrain from taking any of such actions or inactions specified
below and shall not have any liability, obligation or duty whatsoever with
respect to such actions or inactions, it being acknowledged and agreed by
Guarantor that all of such liabilities, obligations and duties (if any) of
Administrative Agent or any Lender otherwise existing and all rights and
remedies (if any) of Guarantor with respect thereto (whether such liabilities,
obligations, duties, rights or remedies exist by virtue of agreement, common
law, equity, statute or otherwise), and each and every defense which, under
principles of guaranty or suretyship law, would otherwise operate to eliminate,
impair, condition or restrict the liabilities and obligations of Guarantor for
the Guaranteed Obligations, are hereby expressly waived by Guarantor:
(a) The taking or accepting of any security or other guaranty for
any or all of the Guaranteed Obligations, whether heretofore,
concurrently herewith or hereafter;
(b) Any failure to create or perfect or properly create or
perfect any lien, security interest or assignment intended as security,
or any release, surrender, exchange, substitution, subordination or loss
of any security or guaranty at any time existing in connection with any
or all of the Guaranteed Obligations for any reason;
(c) Any partial or full release of the liability or obligation of
Guarantor under any other guaranty whether or not similar to this
Guaranty;
(d) The entering into, delivery of, modification of, amendment to
or waiver of compliance with the Credit Agreement, the Note or any other
Loan Document, or any agreement, document or instrument evidencing,
securing or otherwise affecting all or part of the Guaranteed
Obligations, without the notification of Guarantor, the right of such
notification being hereby specifically waived by Guarantor;
(e) The bankruptcy, insolvency, arrangement, adjustment,
composition, liquidation, disability, dissolution or lack of authority
(whether corporate, partnership or trust or relating to any other entity
or Person) of Borrower, Guarantor or any other Person at any time liable
or obligated for the payment of any or all of the Guaranteed
Obligations, whether now existing or hereafter arising;
(f) Any increase, reduction, renewal, extension, modification,
repayment, refunding and/or rearrangement of the payment of any or all
of the Guaranteed Obligations at any time and from time to time, whether
on one or more occasions, either with or without notice to or consent of
Guarantor, or any adjustment, indulgence, forbearance or compromise
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<PAGE> 5
that might be granted or given by Administrative Agent or any Lender to
Borrower or Guarantor;
(g) Any neglect, delay, omission, failure or refusal of
Administrative Agent or any Lender to (i) exercise or properly or
diligently exercise any right or remedy with respect to any or all of
the Guaranteed Obligations or the collection thereof or any collateral,
security or guaranty therefor, whether under the Credit Agreement, the
Note or any other Loan Document or otherwise, (ii) take or prosecute or
properly or diligently take or prosecute any action for the collection
of any or all of the Guaranteed Obligations against Borrower, Guarantor
or any other guarantor of any or all of the Guaranteed Obligations
and/or any other Person, (iii) foreclose or prosecute or properly or
diligently foreclose or prosecute any action in connection with any
agreement, document or instrument or arrangement evidencing, securing or
otherwise affecting all or any part of the Guaranteed Obligations, or
(iv) mitigate damages or take any other action to reduce, collect or
enforce the Guaranteed Obligations;
(h) Any failure of Administrative Agent or any Lender to give
notice to Borrower and/or Guarantor of, or obtain the consent of
Borrower and/or Guarantor with respect to, (i) demand, presentment,
protest, nonpayment, intention to accelerate, acceleration, lack of
diligence or delay in collection of all or any part of the Guaranteed
Obligations or any other matter, or the absence thereof, (ii) any
renewal, extension or assignment of the Guaranteed Obligations or any
part thereof, (iii) the disposition or release of all or any part of any
security for the Guaranteed Obligations (whether or not such disposition
is commercially reasonable) or (iv) any other action taken or refrained
from being taken by Administrative Agent or any Lender against Borrower,
it being agreed that (except as may be expressly provided in the other
Loan Documents) neither Administrative Agent nor any Lender shall be
required to give Borrower or Guarantor any notice of any kind or to
obtain Borrower's or Guarantor's consent under any circumstances
whatsoever with respect to or in connection with the Guaranteed
Obligations;
(i) The unenforceability, illegality or uncollectibility of all
or any part of the Guaranteed Obligations against Borrower by reason of
the fact that the interest contracted for, charged, collected or
received in respect of the Guaranteed Obligations exceeds the amount
permitted by law, the act of creating the Guaranteed Obligations or any
part thereof is ultra vires, the officers, directors, partners, trustees
or representatives creating the Guaranteed Obligations acted in excess
of their authority, the Loan Agreement, the Note or any other Loan
Document evidencing the Guaranteed Obligations has been forged or
otherwise is irregular or is not genuine or authentic or expiration of
the applicable statute of limitations of the Guaranteed Obligations;
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(j) Any payment by Borrower to Administrative Agent or any Lender
is held to constitute a preferential transfer or a fraudulent conveyance
or transfer under any applicable law, or for any reason Administrative
Agent or any Lender is required to refund such payment or pay such
amount to Borrower or any other Person;
(k) Any merger, reorganization, consolidation or dissolution of
Borrower, any sale, lease or transfer of any or all of the assets of
Borrower, or any change in name, business, location, composition,
structure or any change in the shareholders, partners or members
(whether by accession, secession, death, dissolution, transfer of assets
or otherwise) of Borrower;
(l) Any failure of Administrative Agent or any Lender to notify
Guarantor of the acceptance of this Guaranty or of the making of Loans
by any Lender in reliance on this Guaranty or of the failure of Borrower
to make any payment due by Borrower to Administrative Agent or any
Lender;
(m) Any existing or future offset, claim or defense of Borrower
against Administrative Agent or any Lender or against payment of all or
any part of the Guaranteed Obligations, whether such offset, claim or
defense arises in connection with the Guaranteed Obligations (or the
transactions creating the Guaranteed Obligations) or otherwise;
(n) Any full or partial release of the liability of Borrower, any
guarantor of all or any part of the Guaranteed Obligations or any other
Person for all or any part of the Guaranteed Obligations, it being
acknowledged and agreed by Guarantor that it may be required to pay the
Guaranteed Obligations in full without assistance or support, whether
from Borrower, any other guarantor or any other Person; or
(o) Any other action taken or omitted to be taken with respect to
any of the Credit Agreement, the Note or any other Loan Document, the
Guaranteed Obligations or the security and collateral therefor, whether
or not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay all or any part of the
Guaranteed Obligations pursuant to the terms hereof.
Without limiting the foregoing or Guarantor's liability under this Guaranty, to
the extent that Administrative Agent and Lenders (or any of them) have advanced
funds or extended credit to Borrower and do not receive payments or benefits
thereon in the amounts and at the times required or provided by or in connection
with the Credit Agreement, the Note or any other Loan Document, Guarantor is
absolutely liable to make such payments and to confer such benefits on Lenders
on a timely basis.
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5. Representations and Warranties. In connection with this Guaranty,
Guarantor hereby represents and warrants to Administrative Agent and Lenders
that:
(a) Guarantor and Borrower are members of an affiliated and
integrated group of corporations and are engaged in related businesses
and supporting lines of business; Guarantor has received and will
receive a direct and indirect material benefit from the transactions
evidenced by and contemplated in the Credit Agreement, the Note and the
other Loan Documents; this Guaranty is given by Guarantor in furtherance
of the direct and indirect business interests and corporate purposes of
Guarantor, and is necessary to the conduct, promotion and attainment of
the businesses of Borrower and Guarantor; and the value of the
consideration received and to be received by Guarantor is reasonably
worth at least as much as the liability and obligation of Guarantor
hereunder;
(b) The execution and delivery of this Guaranty and the
performance of and compliance with the terms hereof will not constitute
a default (or an event which with notice or lapse of time or both would
constitute a default) under, or result in the breach of, any material
contract, agreement or instrument to which Guarantor is a party or which
may be applicable to Guarantor or any of its assets;
(c) This Guaranty, when executed and delivered by Guarantor, will
constitute the legal, valid and binding obligation of Guarantor
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to
the enforcement of creditors' rights and general principles of equity;
(d) As of the date of this Guaranty, and after giving effect to
this Guaranty and the contingent obligation evidenced by this Guaranty
(but excluding the effect of the provisions of Paragraph 2 hereof which
limit the Guaranteed Obligations to an amount that would not render
Guarantor's indebtedness, liabilities or obligations under this Guaranty
subject to avoidance), Guarantor is not, on either an unconsolidated
basis or a consolidated basis with Borrower and Guarantor's
subsidiaries, insolvent, as such term is used or defined in any
applicable bankruptcy, fraudulent conveyance, fraudulent transfer or
similar law, and Guarantor has and will have assets which, fairly
valued, exceed its indebtedness, liabilities and obligations; Guarantor
is not executing this Guaranty with any intention to hinder, delay or
defraud any present or future creditor or creditors of Guarantor;
Guarantor is not engaged in any business or transaction (including,
without limitation, the execution of this Guaranty) which will leave
Guarantor with unreasonably small capital or assets which are
unreasonably small in relation to the business or transactions engaged
in by Guarantor, and Guarantor does not intend to engage in any such
business or transaction; Guarantor does not intend to incur, nor does
Guarantor believe that it will incur, debts beyond Guarantor's ability
to repay such debts as they mature;
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(e) All acts and conditions required to be performed and
satisfied prior to the creation and issuance of this Guaranty, and to
constitute this Guaranty as the legal, valid and binding obligation of
Guarantor in accordance with its terms, have been performed and
satisfied in due and strict compliance with all applicable laws;
(f) Guarantor is familiar with, and has independently received
books and records regarding, the financial condition of Borrower and is
familiar with the value of any and all collateral (if any) intended to
secure the Guaranteed Obligations; however, Guarantor is not relying on
such financial condition or any such collateral (if any) as an
inducement to enter into this Guaranty; furthermore, Guarantor has
adequate means to obtain from Borrower, on a continuing basis, the
information referred to in this clause (f) preceding and is not relying
on Administrative Agent or any Lender to provide any such information at
any time;
(g) Guarantor has not been induced to enter into this Guaranty on
the basis of a contemplation, belief, understanding or agreement that
any Person other than Guarantor will be liable to pay the Guaranteed
Obligations;
(h) Except for the execution of the Credit Agreement, neither
Administrative Agent, any Lender nor any other Person has made any
representation, warranty or statement to, or promise, covenant or
agreement with, Guarantor in order to induce Guarantor to execute this
Guaranty;
(i) Borrower is a wholly-owned Subsidiary of Guarantor; and
(j) All representations and warranties in the Credit Agreement
relating to the Guarantor are true and correct in all respects as of the
date hereof, except to the extent made only as of a specific prior date,
and on each date the representations and warranties thereunder are
restated pursuant to any of the Loan Documents with the same force and
effect as if such representations and warranties had been made on and as
of such date, all of which are incorporated herein by reference.
6. Default. Upon the occurrence and during the continuation of an
Event of Default, Guarantor shall, on demand by Administrative Agent and without
further demand and without notice of dishonor and without notice of any kind
(including, without limitation, notice of acceptance by Administrative Agent or
any Lender of this Guaranty) having been given to Borrower, Guarantor or any
other Person previous to such demand, promptly (i.e., not later than 1:00 p.m.,
New York, New York time, on the date of such demand or, if such demand is made
after 12:00 noon, on the next succeeding Business Day) pay, in immediately
available funds, the full unpaid amount of the Guaranteed Obligations, or such
lesser amount, if any, as may be specifically demanded by
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Administrative Agent from time to time, to Administrative Agent at
Administrative Agent's Principal Office located in New York, New York or at such
other place as Administrative Agent may specify to Guarantor in writing. If
acceleration of the time for payment of any amount payable by Borrower under or
with respect to any of the Guaranteed Obligations is stayed or otherwise delayed
upon the insolvency, bankruptcy or reorganization of Borrower, all such amounts
otherwise subject to acceleration under the terms of the Guaranteed Obligations
shall nonetheless be payable by Guarantor hereunder promptly on demand by
Administrative Agent.
7. Cumulative Remedies; No Election. If Guarantor is or becomes liable
or obligated for the Guaranteed Obligations, by endorsement or otherwise, other
than under this Guaranty, such liability or obligation shall not be in any
manner impaired or affected hereby, and the rights and remedies of
Administrative Agent or any Lender hereunder shall be cumulative of any and all
other rights and remedies that Administrative Agent or such Lender may ever have
against Guarantor. The exercise by Administrative Agent or any Lender of any
right or remedy hereunder or under any other agreement, document or instrument,
or at law or in equity, shall not preclude the concurrent or subsequent exercise
of any other right or remedy. Without in any way limiting the generality of the
foregoing, it is specifically understood and agreed that this Guaranty is given
by Guarantor as an additional guaranty or security to any and all other
guaranties or security heretofore, concurrently herewith or hereafter executed
and/or delivered by Guarantor to or in favor of Administrative Agent or any
Lender relating to the Guaranteed Obligations, and nothing herein shall ever be
deemed to in any way negate or replace any such other guaranties or security;
provided, however, that Administrative Agent and Lenders shall have all of their
rights and remedies under this Guaranty irrespective of anything to the contrary
contained in any such other guaranties or security. This Guaranty may be
enforced from time to time as often as occasion therefor may arise, and it is
agreed and understood that it shall not be necessary for Administrative Agent or
any Lender, in order to enforce this Guaranty against Guarantor, first to
exercise any rights or remedies against Borrower or any other Person or
institute suit or exhaust any available rights or remedies against security in
Administrative Agent's or any Lender's possession or under Administrative
Agent's or any Lender's control, or to resort to any other sources or means of
obtaining payment of the Guaranteed Obligations.
8. Joint and Several Obligation. Guarantor agrees that Administrative
Agent and Lenders, in their sole discretion, may (a) bring suit against all
guarantors or other Persons liable or obligated to Administrative Agent or any
Lender or against any one or more of them, for interest, penalties, expenses,
fees, indebtedness, liabilities and obligations owed to Administrative Agent or
any Lender and apply any amounts obtained by Administrative Agent or any Lender
in such a manner as Administrative Agent or any Lender may elect, (b) bring suit
against all guarantors of the Guaranteed Obligations jointly and severally or
against any one or more of them, (c) settle fully or in part with any one or
more of such guarantors for such consideration as Administrative Agent or any
Lender may deem proper, and (d) partially or fully release one or more of such
guarantors from
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liability under any guaranty agreement, and that no such action shall impair the
rights of Administrative Agent or any Lender to collect the Guaranteed
Obligations (or the unpaid balance thereof) from other guarantors (including,
without limitation, Guarantor), or any of them, not so sued, settled with or
released.
9. Release of Collateral, etc. If all or any part of the Guaranteed
Obligations is at any time secured, Guarantor agrees that Administrative Agent
or any Lender may, at any time and from time to time in its discretion and with
or without valuable consideration, allow substitution or withdrawal of
collateral or other security and release collateral or other security without
impairing or diminishing the liabilities or obligations of Guarantor hereunder.
Guarantor further agrees that, if Borrower or any other Person executes in favor
of Administrative Agent or any Lender any collateral agreement, mortgage, deed
of trust, collateral assignment, security agreement or other security
instrument, the exercise by Administrative Agent or any Lender of any right or
remedy thereby conferred on Administrative Agent or any Lender shall be wholly
discretionary with Administrative Agent and such Lender, respectively, and that
the exercise or failure to exercise any such right or remedy shall in no way
impair or diminish the obligation of Guarantor hereunder. Guarantor further
agrees that (except to the extent prohibited by applicable law notwithstanding
an agreement of the parties to the contrary) neither Administrative Agent nor
any Lender shall be liable for its failure to use diligence or care in the
collection of the Guaranteed Obligations, in the creation or perfection of any
lien, security interest or assignment intended as security or in preserving the
liability of any Person liable or obligated on the Guaranteed Obligations, and
Guarantor hereby waives presentment for payment, notice of nonpayment, protest
and notice thereof, and diligence in bringing suit against any Person liable on
the Guaranteed Obligations or any part thereof.
10. Binding Effect. This Guaranty is for the benefit of Administrative
Agent and Lenders and their successors and permitted assigns, and in the event
of an assignment by Administrative Agent or any Lender or its successors or
assigns of the Guaranteed Obligations, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the indebtedness, liabilities
and obligations so assigned, may be transferred with such indebtedness,
liabilities and obligations. This Guaranty is binding, not only upon Guarantor,
but upon its successors and assigns.
11. WAIVER OF SUBROGATION, CONTRIBUTION AND OTHER RIGHTS. UPON PAYMENT
BY GUARANTOR OF ANY SUMS IN RESPECT OF THE GUARANTEED OBLIGATIONS HEREUNDER
(INCLUDING, WITHOUT LIMITATION, ANY AMOUNTS ADVANCED TO BORROWER BY GUARANTOR),
ALL RIGHTS OF GUARANTOR AGAINST BORROWER OR ANY OTHER GUARANTOR OF THE
GUARANTEED OBLIGATIONS ARISING AS A RESULT THEREFROM BY WAY OF RIGHT OF
SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR
OTHERWISE SHALL IN ALL RESPECTS BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT
AND ENFORCEMENT TO THE
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PRIOR INDEFEASIBLE PAYMENT AND ENFORCEMENT IN FULL OF THE GUARANTEED
OBLIGATIONS. GUARANTOR SHALL NOT HAVE, AND HEREBY IRREVOCABLY WAIVES, ANY AND
ALL RIGHTS AND REMEDIES OF SUBROGATION, REIMBURSEMENT, EXONERATION,
CONTRIBUTION, INDEMNIFICATION AND/OR OTHERWISE AGAINST OR FROM BORROWER UNLESS
AND UNTIL ALL OF THE GUARANTEED OBLIGATIONS HAVE BEEN PAID AND PERFORMED IN
FULL. IN ADDITION TO THE FOREGOING, GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND
ALL CLAIMS OR OTHER RIGHTS AND REMEDIES IT MAY NOW HAVE OR HEREAFTER ACQUIRE
AGAINST ADMINISTRATIVE AGENT, ANY LENDER, BORROWER OR ANY OTHER PERSON UNDER
CHAPTER 34 OF THE TEXAS BUSINESS AND COMMERCE CODE, UNDER RULES 31 AND 163 OF
THE TEXAS RULES OF CIVIL PROCEDURE, UNDER SECTION 17.001 OF THE TEXAS CIVIL
PRACTICE AND REMEDIES CODE AND UNDER ANY OTHER STATUTE OF ANY STATE OR OTHER
JURISDICTION REQUIRING RECOURSE AGAINST THE PRIMARY OBLIGOR OR IMPOSING OTHER
REQUIREMENTS AS A CONDITION TO RECOURSE AGAINST A GUARANTOR IF AND TO THE EXTENT
THAT THE SAME MAY BE APPLICABLE TO THIS GUARANTY. Except as expressly otherwise
provided in this Paragraph 11, Guarantor shall have all rights of subrogation,
reimbursement, exoneration, contribution and indemnification that may exist
under currently applicable law.
12. Subordination of Indebtedness and Liens. The payment of any and all
principal of and interest on all indebtedness of Borrower, whether primary,
absolute, secondary, direct, indirect, fixed, contingent, liquidated,
unliquidated, secured or unsecured, matured or unmatured, joint, several or
joint and several, now or hereafter existing, due or to become due to Guarantor
(the "Subordinated Debt"), shall in all respects be subordinate and junior in
right of payment and enforcement to the prior payment and enforcement in full of
the Guaranteed Obligations as provided in this Paragraph 12. Except as may be
expressly permitted by the Credit Agreement, no payment shall be made on or with
respect to the Subordinated Debt (whether owed to Guarantor or any Affiliate of
Guarantor) unless and until the Guaranteed Obligations shall have been paid and
performed in full. In the event that Guarantor or any Affiliate of Guarantor
shall receive any payment on account of the Subordinated Debt in violation of
this Paragraph 12, Guarantor will hold, or cause to be held (as the case may
be), any amount so received in trust for the benefit of Administrative Agent and
Lenders and will forthwith deliver, or cause to be delivered (as the case may
be), such payment to Administrative Agent, in the form received, to be applied
to the Guaranteed Obligations. All Liens (if any) securing payment of all or any
part of the Subordinated Debt (the "Subordinated Liens") shall be and remain
inferior and subordinate to the Liens securing payment of all or any part of the
Guaranteed Obligations, regardless of whether such Subordinated Liens presently
exist or are hereafter created or when such Subordinated Liens were created,
perfected, filed or recorded. Guarantor shall not exercise or enforce any
creditors' rights or remedies
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that it may have against Borrower or foreclose, repossess, sequester or
otherwise institute any action or proceeding (whether judicial or otherwise,
including, without limitation, the commencement of, or joinder in, any
bankruptcy, insolvency, reorganization, liquidation, receivership or other
debtor relief law) to enforce any Subordinated Lien on any assets of Borrower or
any other Person unless and until the Guaranteed Obligations shall have been
irrevocably paid and performed in full. The terms and provisions of this
Paragraph 12 are given by Guarantor as additional rights, remedies and benefits
to any and all other subordination agreements heretofore, concurrently herewith
or hereafter executed by Guarantor to or in favor of Administrative Agent or any
Lender, and nothing in this Guaranty shall ever be deemed to in any way negate
or replace any other such previous, concurrent or subsequent subordination
agreements. Guarantor shall make all reasonable efforts to ensure that all
promissory notes, accounts receivable ledgers and other evidences of the
Subordinated Debt, and all mortgages, deeds of trust, security agreements,
assignments and other security documents evidencing the Subordinated Liens,
shall contain a specific written notice that the indebtedness and Liens
evidenced thereby are subordinated as provided in this Paragraph 12.
13. Right of Setoff. Guarantor hereby grants to Administrative Agent and
each Lender a right of setoff upon any and all monies, securities or other
property of Guarantor, and the proceeds therefrom, now or hereafter held or
received by or in transit to Administrative Agent or any Lender from or for the
account of Guarantor, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of Guarantor, and any and all claims of Guarantor against
Administrative Agent or any Lender at any time existing. The right of setoff
granted pursuant to this Paragraph 13 shall be cumulative of and in addition to
Administrative Agent's and each Lender's common law right of setoff.
14. Further Assurances. Upon the request of Administrative Agent or any
Lender, Guarantor will, at any time and from time to time, duly execute and
deliver to Administrative Agent any and all such further agreements, documents
and instruments, and supply such additional information, as may be necessary or
advisable, in the reasonable opinion of Administrative Agent or any Lender, to
obtain the full benefits of this Guaranty.
15. Invalid Provisions. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable, this Guaranty shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Guaranty a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. No provision herein or in any other Loan Document
evidencing the Guaranteed
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Obligations shall require the payment or permit the collection of interest in
excess of the maximum permitted by applicable law.
16. Modification in Writing. No modification, consent, amendment or
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor herefrom, shall be effective unless the same shall be in writing and
signed by a duly authorized officer of Administrative Agent and Guarantor and
then shall be effective only in the specific instance and for the specific
purpose for which given.
17. No Waiver, Etc. No notice to or demand on Guarantor or
Administrative Agent in any case shall entitle Guarantor or Administrative
Agent, respectively, to any other or further notice or demand in similar or
other circumstances. No delay or omission by Administrative Agent, any Lender or
Guarantor in exercising any right or remedy hereunder shall impair any such
right or remedy or be construed as a waiver thereof or any acquiescence therein,
and no single or partial exercise of any such right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or remedy
hereunder.
18. Cumulative Rights. All rights and remedies of Administrative Agent
and Lenders hereunder are cumulative of each other and of every other right or
remedy which Administrative Agent or any Lender may otherwise have at law or in
equity or under any other contract or document, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
19. Expenses. Guarantor agrees to pay on demand by Administrative Agent
all costs and expenses incurred by Administrative Agent or any Lender in
connection with the enforcement of the terms and provisions of this Guaranty
and, if and to the extent that Borrower is obligated therefor in accordance with
the Credit Agreement, any and all amendments, modifications, renewals,
restatements and/or supplements hereto from time to time, including, without
limitation, the reasonable fees and expenses of legal counsel to Administrative
Agent. If Guarantor should breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay to Administrative Agent all costs and expenses
incurred by Administrative Agent or any Lender in the enforcement of this
Guaranty from time to time, including, without limitation, the reasonable fees
and expenses of all legal counsel to Administrative Agent and Lenders.
20. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES).
21. NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT
BETWEEN GUARANTOR AND ADMINISTRATIVE AGENT AND
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LENDERS RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG
GUARANTOR AND ADMINISTRATIVE AGENT OR ANY LENDER. THIS GUARANTY SUPERSEDES ALL
PRIOR (IF ANY) ORAL AGREEMENTS, ORAL ARRANGEMENTS OR ORAL UNDERSTANDINGS
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY.
22. Notices. All notices and other communications required or permitted
to be given under this Guaranty shall be given or made in writing and shall be
delivered in the manner and to the addresses, and shall be deemed to have been
duly given when, specified in the Credit Agreement.
23. Survival. All representations, warranties, covenants and agreements
of Guarantor in this Guaranty shall survive the execution of this Guaranty.
24. Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one and the same Guaranty.
25. Limitation on Interest. Notwithstanding anything to the contrary
contained or referred to in this Guaranty, none of the terms and provisions of
this Guaranty, the Credit Agreement, the Note or any other Loan Document shall
ever be construed to create a contract or obligation to pay interest at a rate
in excess of the Maximum Rate, and neither Administrative Agent nor any Lender
shall ever charge, receive, take, collect, reserve or apply, as interest on the
Obligations or the Guaranteed Obligations, any amount in excess of the Maximum
Rate. The parties hereto agree that any interest, charge, fee, expense or other
indebtedness, liability or obligation provided for in this Guaranty, the Credit
Agreement, the Note or any other Loan Document which constitutes interest under
applicable law shall be, ipso facto and under any and all circumstances, limited
or reduced to an amount equal to the lesser of (a) the amount of such interest,
charge, fee, expense or other indebtedness, liability or obligation that would
be payable in the absence of this Paragraph 25 or (b) an amount, which when
added to all other interest payable under this Guaranty, the Credit Agreement,
the Note and any other Loan Document, equals the Maximum Rate. If,
notwithstanding the foregoing, Administrative Agent or any Lender ever contracts
for, charges, receives, takes, collects, reserves or applies as interest any
amount in excess of the Maximum Rate, such amount which would be deemed
excessive interest shall be deemed a partial payment or prepayment of principal
of the Obligations and the Guaranteed Obligations and treated hereunder as such,
and if the Obligations and the Guaranteed Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to
Borrower, Guarantor or such other Person (as appropriate). In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Maximum Rate, Guarantor, Borrower, Administrative Agent and Lenders
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shall, to the maximum extent permitted by applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations and the
Guaranteed Obligations, or applicable portions thereof, so that the interest
rate does not exceed the Maximum Rate at any time during the term of the
Obligations and the Guaranteed Obligations; provided that, if the unpaid
principal balance is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, Administrative Agent and Lenders
shall refund to Borrower, Guarantor or such other Person (as appropriate) the
amount of such excess and, in such event, neither Administrative Agent nor any
Lender shall be subject to any penalties provided by any laws for contracting
for, charging, receiving, taking, collecting, receiving or applying interest in
excess of the Maximum Rate.
26. Irrevocable Nature of Guaranty. This Guaranty may not be revoked by
Guarantor; provided, however, in the event it shall be determined that Guarantor
shall have the right, in accordance with applicable law and notwithstanding its
express agreement herein to the contrary, to revoke this Guaranty, Guarantor may
deliver to Administrative Agent, at its address for notices set forth in the
Credit Agreement, written notice of Guarantor's intention not to be liable
hereunder for any Guaranteed Obligations arising, created or incurred after
Administrative Agent's receipt of such notice, whereupon such notice shall be
effective to the extent (but only to the extent) provided hereinbelow as to
Guarantor from and after (but not before) the time when such notice is actually
delivered to and received by and receipted for in writing by Administrative
Agent (the "Effective Revocation Time"); provided, further, however, that such
notice shall not be effective as to, and shall not in any way restrict, limit,
impair, release or otherwise affect, the indebtedness, liabilities or
obligations of Guarantor under this Guaranty with respect to (a) any Guaranteed
Obligations consisting of indebtedness, liabilities or obligations under the
Credit Agreement, the Note or any other Loan Document, whether incurred before
or after the Effective Revocation Time (including, without limitation, any
loans, advances or extensions of credit at any time made or created under the
Credit Agreement, whether or not agreed, committed or contemplated to be made by
Administrative Agent or any Lender and whether or not discretionary with
Administrative Agent or any Lender), (b) any Guaranteed Obligations arising,
created or incurred prior to the Effective Revocation Time, (c) any amendments,
modifications, renewals, extensions, restatements and/or supplements to or of
the indebtedness, liabilities or obligations referred to in clauses (a) and (b)
preceding, whether occurring before or after the Effective Revocation Time, or
(d) any interest or costs of collection with respect to any of the indebtedness,
liabilities or obligations referred to in clauses (a), (b) or (c) preceding. Any
revocation or attempted revocation of this Guaranty, whether in whole or in
part, shall not be effective except under the limited circumstances (if any),
and to the limited extent, expressly provided in this Paragraph 26.
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27. Reinstatement of Guaranteed Obligations. Notwithstanding anything to
the contrary contained in this Guaranty or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Guaranteed
Obligations, or any portion thereof, is rescinded, voided or must otherwise be
refunded by the Administrative Agent or any Lender or otherwise for any reason
whatsoever, then the Guaranteed Obligations will be automatically reinstated and
become automatically effective and in full force and effect, all to the extent
that and as though such payment so rescinded, voided or otherwise refunded had
never been made.
28. Covenants and Agreements. Guarantor covenants and agrees that, as
long as the Guaranteed Obligations or any part thereof are outstanding or any
Lender has any Commitment under the Credit Agreement, Guarantor will comply,
strictly in accordance with the terms thereof, with all covenants and agreements
specifically applicable to it as set forth in any one or more of the Credit
Agreement and the other Loan Documents, all of which are incorporated herein by
reference.
29. Amendment and Restatement. This Guaranty shall constitute an
amendment and restatement of all, but not an extinguishment, discharge,
satisfaction or novation of any, indebtedness, liabilities and/or obligations
(including, without limitation, the "Guaranteed Obligations" as such term is
defined in the Original Guaranty) of Guarantor under the Original Guaranty.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.
GUARANTOR:
NET2000 SUBSIDIARY.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 18
The undersigned has executed this Guaranty solely for the purpose of
confirming receipt of this Guaranty and reliance on this Guaranty by
Administrative Agent and Lenders as of the date first written above.
NORTEL NETWORKS INC., as Administrative Agent
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
<PAGE> 1
EXHIBIT 10.16
AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
(Net2000 Subsidiary)
THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT ("Agreement")
dated as of July 30, 1999, is by and between _______________________, a Delaware
corporation ("Debtor"), whose address is c/o ______________________________, and
whose Tax I.D. No. is _______________, and NORTEL NETWORKS INC. (f/k/a Northern
Telecom Inc.), a Delaware corporation ("Secured Party"), as Administrative Agent
for the "Lenders", as that term is defined below, whose address is 2221 Lakeside
Blvd., Richardson, Texas 75082.
R E C I T A L S:
A. Subject to the terms of that certain Credit Agreement dated as of
November 2, 1998, among Net2000 Communications Group, Inc. ("Borrower"), certain
of the Lenders and Administrative Agent (the "Original Credit Agreement"),
certain of the Lenders extended certain credit facilities to Borrower. As a
condition to the effectiveness of the Original Credit Agreement, Debtor executed
and delivered that certain Pledge and Security Agreement dated as of November 2,
1998 (the "Original Security Agreement") pursuant to which Debtor granted Liens
on Debtor's assets and properties to secure payment and performance of the
"Obligations" as such term is defined in the Original Credit Agreement.
B. Pursuant to that certain Amended and Restated Credit Agreement dated
as of July 30, 1999, among Borrower, the lenders named therein (together with
their successors and assigns, the "Lenders") and Administrative Agent (as the
same may be amended, renewed, extended, restated, replaced, substituted,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
the Original Credit Agreement is, concurrently herewith, being amended and
restated. In connection therewith and concurrently herewith, Borrower is, inter
alia, executing and delivering that certain Promissory Note dated July 30, 1999,
in the original principal amount of $75,000,000 payable to the order of Nortel
Networks Inc. (such promissory note, as amended, renewed, extended, restated,
replaced, substituted, supplemented or otherwise modified from time to time, the
"Note"; the Credit Agreement, the Note and the other Loan Documents (as such
terms are defined in the Credit Agreement), including, without limitation, any
and all security agreements, pledge agreements, assignments, guaranties,
licenses, lien waivers, collection account agreements and other agreements,
documents, instruments and certificates now or hereafter executed and/or
delivered in connection therewith, and any and all amendments, modifications,
renewals, extensions, restatements and/or supplements thereto from time to time,
are hereinafter collectively called the "Loan Documents").
C. Debtor has directly and indirectly benefitted and will directly and
indirectly benefit from the Loans evidenced and governed by the Credit Agreement
and the other transactions evidenced by and contemplated in the Loan Documents
(as defined in the Credit Agreement), and
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the execution and delivery of this Agreement is necessary and convenient to the
conduct, promotion and attainment of the business of Debtor.
D. The execution and delivery of this Agreement is required by the terms
of the Credit Agreement and is a condition to the availability of the Loans to
Borrower pursuant to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy, receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Lenders to make the Loans under
the Credit Agreement, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"Account" means any "account", as such term is defined in Article
or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and,
in any event, shall include, without limitation, each of the following,
whether now owned or hereafter acquired by Debtor: (a) all rights of
Debtor to payment for goods sold or leased, services rendered or the
license of Intellectual Property, whether or not earned by performance;
(b) all accounts receivable of Debtor; (c) all rights of Debtor to
receive any payment of money or other form of consideration; (d) all
security pledged, assigned or granted to or held by Debtor to secure any
of the foregoing; (e) all guaranties of, or indemnifications with
respect to, any of the foregoing; (f) all rights of Debtor as an unpaid
seller of goods or services, including, but not limited to, all rights
of stoppage in transit, replevin, reclamation and resale; and (g) all
rights to brokerage commissions.
"Borrower" means Net2000 Communications Group, Inc., a Delaware
corporation, with its chief executive office located at 8614 Westwood
Center Drive, Suite 700, Vienna, Virginia 22182, and whose tax
identification number is 51-0384992.
"Broker" means any "broker," as such term is defined in Article
or Chapter 8 of the UCC, and in any event shall include, but not be
limited to, any Person defined as a broker or dealer under the federal
securities laws, but without excluding a bank acting in that capacity.
"Capital Stock" means corporate stock and any and all securities,
shares, partnership interests, limited partnership interests, limited
liability company interests, membership interests, equity interests,
participations, rights or other equivalents (however designated) of
corporate stock or any of the foregoing issued by any entity (whether a
corporation, a
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partnership, a limited liability company or another entity) and
includes, without limitation, securities convertible into Capital Stock
and rights or options to acquire Capital Stock.
"Chattel Paper" means any "chattel paper," as such term is
defined in Article or Chapter 9 of the UCC, now owned or hereafter
acquired by Debtor.
"Clearing Corporation" means any "clearing corporation," as such
term is defined in Article or Chapter 8 of the UCC, and in any event
shall include, but not be limited to, any (a) Person that is registered
as a "clearing agency" under the federal securities laws, (b) federal
reserve bank, or (c) other Person that provides clearance or settlement
services with respect to Financial Assets that would require it to
register as a clearing agency under the federal securities laws but for
an exclusion or exemption from the registration requirement, if its
activities as a clearing corporation, including, without limitation,
promulgation of rules, are subject to regulation by a federal or state
governmental authority.
"Collateral" has the meaning specified in Section 2.1.
"Commodity Account" means any "commodity account," as such term
is defined in Article or Chapter 9 of the UCC, now owned or hereafter
acquired by Debtor, including, without limitation, all accounts
maintained by a Commodity Intermediary in which a Commodity Contract is
carried for Debtor.
"Commodity Contract" means any "commodity contract," as such term
is defined in Article or Chapter 9 of the UCC, and includes, without
limitation, a commodity futures contract, a commodity option, or other
contract that, in each case, is (a) traded on or subject to the rules of
a board of trade that has been designated as a contract market for such
a contract pursuant to the federal commodities laws, or (b) traded on a
foreign commodity board of trade, exchange or market, and is carried on
the books of a Commodity Intermediary for a Commodity Customer.
"Commodity Customer" means any "commodity customer" as such term
is defined in Article or Chapter 9 of the UCC, and includes, without
limitation, any Person for whom a Commodity Intermediary carries a
Commodity Contract on its books.
"Commodity Intermediary" means any "commodity intermediary," as
such term is defined in Article or Chapter 9 of the UCC, including,
without limitation, (a) a Person who is registered as a futures
commission merchant under the federal commodities laws, or (b) a Person
who in the ordinary course of its business provides clearance or
settlement services for a board of trade that has been designated as a
contract market pursuant to the federal commodities laws.
"Copyright License" means any written agreement now or hereafter
in existence granting to Debtor any right to use any Copyright
including, without limitation, the agreements identified on Schedule 3.
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"Copyright Security Agreement" means a copyright security
agreement, executed and delivered by Debtor to Secured Party,
substantially in the form of Exhibit A, as such agreement may be
amended, supplemented or otherwise modified from time to time.
"Copyrights" means all of the following: (a) all copyrights,
works protectable by copyright, copyright registrations and copyright
applications of Debtor, including, without limitation, those set forth
on Schedule 3; (b) all renewals, extensions and modifications thereof;
(c) all income, royalties, damages, profits and payments relating to or
payable under any of the foregoing; (d) the right to sue for past,
present or future infringements of any of the foregoing; (e) all other
rights and benefits relating to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing; in each case, whether now owned or hereafter acquired by
Debtor.
"Deposit Accounts" means any and all deposit accounts (including
cash collateral accounts), bank accounts or investment accounts now
owned or hereafter acquired or opened by Debtor, including, without
limitation, those set forth on Schedule 7, and any account which is a
replacement or substitute for any of such accounts, together with all
monies, Instruments, certificates, checks, drafts, wire transfer
receipts and other property deposited therein and all balances therein
and all investments made with funds deposited therein or otherwise held
in connection therewith, including, without limitation, indebtedness
(howsoever evidenced) and/or securities issued or guaranteed by the
government of the U.S., certificates of deposit and all contract rights,
General Intangibles, contracts, Instruments, Investment Property,
Security Entitlements, Financial Assets, Commodity Contracts and other
Documents now or hereafter existing with respect thereto, including, but
not limited to, any and all renewals, extensions, reissuances and
replacements and substitutions therefor with all earnings, profits or
other Proceeds therefrom in the form of interest or otherwise, from time
to time representing, evidencing, deposited into or held in the Deposit
Accounts.
"Document" means any "document," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, including, without limitation, all documents of title and all
receipts covering, evidencing or representing goods now owned or
hereafter acquired by Debtor.
"Entitlement Holder" means any "entitlement holder", as such term
is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any Person identified in the records of
a Securities Intermediary as the Person having a Security Entitlement
against the Securities Intermediary, including, without limitation, any
Person who acquires a security entitlement under Article or Chapter 8 of
the UCC.
"Equipment" means any "equipment," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor and, in any event, shall include, without limitation, all
machinery, equipment, furniture, fixtures, trade fixtures, trailers,
rolling stock, vessels, aircraft and vehicles now owned or hereafter
acquired by Debtor and any and all additions, substitutions and
replacements of any of the foregoing, wherever
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located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
"Financial Asset" means any "financial asset," as such term is
defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any (a) Security, (b) obligation of a
Person or a share, participation or other interest in a Person or in
property or an enterprise of a Person, which is, or is of a type, dealt
in or traded on financial markets, or which is recognized in any area in
which it is issued or dealt in as a medium for investment, and (c) any
property that is held by a Securities Intermediary for another Person in
a Securities Account if the Securities Intermediary has expressly agreed
with the other Person that the property is to be treated as a Financial
Asset under Article or Chapter 8 of the UCC.
"General Intangibles" means any "general intangibles," as such
term is defined in Article or Chapter 9 of the UCC, now owned or
hereafter acquired by Debtor and, in any event, shall include, without
limitation, each of the following, whether now owned or hereafter
acquired by Debtor: (a) all of Debtor's service marks, trade names,
trade secrets, registrations, goodwill, franchises, licenses, permits,
proprietary information, customer lists, designs and inventions; (b) all
of Debtor's books and records, data, plans, manuals, computer software,
computer tapes, computer disks, computer programs, source codes, object
codes, management information systems and all rights of Debtor to
retrieve data and other information from third parties; (c) all of
Debtor's contract rights, partnership interests, joint venture
interests, securities, deposit accounts, investment accounts and
certificates of deposit (including, without limitation, all contracts
relating to the construction or operation of the Network, including
rights of way, easements, leases and all related contracts); (d) all
rights of Debtor to payment under letters of credit and similar
agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all
choses in action and causes of action of Debtor (whether arising in
contract, tort or otherwise and whether or not currently in litigation)
and all judgments in favor of Debtor; (g) all rights and claims of
Debtor under warranties and indemnities; and (h) all rights of Debtor
under any insurance, surety or similar contract or arrangement.
"Guarantee" by any Person means any indebtedness, liability or
obligation, contingent or otherwise, of such Person directly or
indirectly guaranteeing any Debt or other obligation of any other Person
and, without limiting the generality of the foregoing, any indebtedness,
liability or obligation, direct or indirect, contingent or otherwise, of
such Person (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising
by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (b) entered
into for the purpose of assuring in any other manner the obligee of such
Debt or other indebtedness, liability or obligation as to the payment
thereof or to protect the obligee against loss in respect thereof (in
whole or in part), provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb
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has a corresponding meaning. The amount of any Guarantee shall be deemed
to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee is made or, if not
stated or determinable, the maximum anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as
reasonably determined.
"Instrument" means any "instrument," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, and, in any event, shall include all promissory notes, drafts,
bills of exchange and trade acceptances of Debtor, whether now owned or
hereafter acquired.
"Intellectual Property" means the Copyrights, Copyright Licenses,
Patents, Patent Licenses, Trademarks and Trademark Licenses.
"Inventory" means any "inventory," as such term is defined in
Article or Chapter 9 of the UCC, now owned or hereafter acquired by
Debtor, and, in any event, shall include, without limitation, each of
the following, whether now owned or hereafter acquired by Debtor: (a)
all goods and other personal property of Debtor that are held for sale
or lease or to be furnished under any contract of service; (b) all raw
materials, work-in-process, finished goods, inventory, supplies and
materials of Debtor; (c) all wrapping, packaging, advertising and
shipping materials of Debtor; (d) all goods that have been returned to,
repossessed by or stopped in transit by Debtor; and (e) all Documents
evidencing any of the foregoing.
"Investment Property" means any "investment property," as such
term is defined in Article or Chapter 9 of the UCC, now owned or
hereafter acquired by Debtor, and, in any event, shall include, without
limitation, each of the following, whether now owned or hereafter
acquired by Debtor: (a) the Securities Accounts and other Investment
Property described on Schedule 5; (b) any Security or Capital Stock,
whether certificated or uncertificated; (c) any Security Entitlement;
(d) any Commodity Contract; and (e) any Commodity Account.
"Issuer" means any "issuer," as such term is defined in Article
or Chapter 8 of the UCC, and in any event shall include, but not be
limited to, any Person that, with respect to an obligation on or a
defense to a Security, (a) places or authorizes the placing of its name
on a Security Certificate, other than as authenticating trustee,
registrar, transfer agent or the like, to evidence a share,
participation or other interest in its property or in an enterprise, or
to evidence its duty to perform an obligation represented by the
certificate; (b) creates a share, participation or other interest in its
property or in an enterprise, or undertakes an obligation, that is an
Uncertificated Security; (c) directly or indirectly creates a fractional
interest in its rights or property, if the fractional interest is
represented by a Security Certificate; or (d) becomes responsible for,
or in the place of, another Issuer.
"License" means any permit, certificate, approval, order, license
or other authorization, including, without limitation, any FCC License.
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"Network" means Borrower's long-distance telecommunications
network.
"Obligations" means the "Obligations," as such term is defined in
the Credit Agreement, and the obligations, indebtedness and liabilities
of Debtor under this Agreement and any other Loan Document to which
Debtor may be a party.
"Patent License" means any written agreement now or hereafter in
existence granting to Debtor any right to use any invention on which a
Patent is in existence including, without limitation, the agreements
described on Schedule 3.
"Patent Security Agreement" means a patent security agreement
executed and delivered by Debtor to Secured Party, substantially in the
form of Exhibit B, as such agreement may be amended, supplemented or
otherwise modified from time to time.
"Patents" means all of the following: (a) all patents, patent
applications and patentable inventions of Debtor, including, without
limitation, those set forth on Schedule 3, and all of the inventions and
improvements described and claimed therein; (b) all continuations,
divisions, renewals, extensions, modifications, substitutions,
continuations-in-part or reissues of any of the foregoing; (c) all
income, royalties, profits, damages, awards and payments relating to or
payable under any of the foregoing; (d) the right to sue for past,
present and future infringements of any of the foregoing; (e) all other
rights and benefits relating to any of the foregoing throughout the
world; and (f) all goodwill associated with any of the foregoing; in
each case, whether now owned or hereafter acquired by Debtor.
"Pledged Collateral" has the meaning specified in Section 4.16(b)
(i).
"Pledged Shares" means all Capital Stock now or hereafter owned
by Debtor, including, without limitation, the shares of Capital Stock
described on Schedule 4.
"Proceeds" means any "proceeds," as such term is defined in
Article or Chapter 9 of the UCC and, in any event, shall include, but
not be limited to, (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Debtor from time to time with respect to
any of the Collateral, (b) any and all payments (in any form whatsoever)
made or due and payable to Debtor from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of
all or any part of the Collateral by any Governmental Authority (or any
Person acting, or purporting to act, for or on behalf of any
Governmental Authority), and (c) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"Securities Account" means any "securities account," as such term
is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any account to which a Financial Asset
is or may be credited in accordance with an agreement
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under which the Person maintaining the account undertakes to treat the
Person for whom the account is maintained as entitled to exercise the
rights that comprise the Financial Asset.
"Securities Intermediary" means any "securities intermediary," as
such term is defined in Article or Chapter 8 of the UCC, and in any
event shall include, but not be limited to, any (a) Clearing
Corporation, or (b) Person, including a bank or Broker, that in the
ordinary course of its business maintains Securities Accounts for others
and is acting in that capacity.
"Security" means any "security," as such term is defined in
Article or Chapter 8 of the UCC and, in any event, shall include, but
not be limited to, any obligation of an Issuer or a share, participation
or other interest in an Issuer or in property or an enterprise of an
Issuer (a) which is represented by a Security Certificate in bearer or
registered form, or the transfer of which may be registered upon books
maintained for that purpose by or on behalf of the Issuer, (b) which is
one of a class or series or by its terms is divisible into a class or
series of shares, participations, interests or obligations, and (c)
which (i) is, or is of a type, dealt in or traded on securities
exchanges or securities markets, or (ii) is a medium for investment and
by its terms expressly provides that it is a security governed by
Article or Chapter 8 of the UCC.
"Security Certificate" means any "security certificate," as such
term is defined in Article or Chapter 8 of the UCC, and in any event
shall include, but not be limited to, any certificate representing a
Security.
"Security Entitlement" means any "security entitlement," as such
term is defined in Article or Chapter 8 of the UCC, and in any event
shall include, but not be limited to, any of the rights and property
interests of an Entitlement Holder with respect to a Financial Asset.
"Trademark License" means any written agreement now or hereafter
in existence granting to Debtor any right to use any Trademark,
including, without limitation, the agreements identified on Schedule 3.
"Trademark Security Agreement" means a trademark security
agreement executed and delivered by Debtor to Secured Party,
substantially in the form of Exhibit C, as such agreement may be
amended, supplemented or otherwise modified from time to time.
"Trademarks" means all of the following: (a) all trademarks,
trade names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, other business
identifiers, prints and labels on which any of the foregoing have
appeared or appear, all registrations and recordings thereof and all
applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the U.S., any
state thereof or any other country or any political subdivision thereof,
including, without
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limitation, those described in Schedule 3; (b) all reissues, extensions
and renewals thereof; (c) all income, royalties, damages and payments
now or hereafter relating to or payable under any of the foregoing,
including, without limitation, damages or payments for past or future
infringements of any of the foregoing; (e) the right to sue for past,
present and future infringements of any of the foregoing; (f) all rights
corresponding to any of the foregoing throughout the world; and (g) all
goodwill associated with and symbolized by any of the foregoing; in each
case, whether now owned or hereafter acquired by Debtor.
"UCC" means the Uniform Commercial Code as in effect in the State
of New York; provided, that if, by applicable law, the perfection or
effect of perfection or non-perfection of the security interest created
hereunder in any Collateral is governed by the Uniform Commercial Code
as in effect on or after the date hereof in any other jurisdiction,
"UCC" means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such
perfection or the effect of perfection or non-perfection.
"Uncertificated Security" means any "uncertificated security," as
such term is defined in Article or Chapter 8 of the UCC, and in any
event shall include, but not be limited to, any Security that is not
represented by a certificate.
Section 1.2 Other Definitional Provisions. Terms used herein that are
defined in the Credit Agreement and are not otherwise defined herein shall have
the meanings therefor specified in the Credit Agreement. References to
"Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections,
subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement are
equally applicable to the singular and plural forms of the terms defined. All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations. References to particular sections of
the UCC should be read to refer also to parallel sections of the Uniform
Commercial Code as enacted in each state or other jurisdiction where any portion
of the Collateral is or may be located.
ARTICLE 2
Security Interest
Section 2.1 Security Interest. As collateral security for the prompt
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as
collateral) to Secured Party, and grants to Secured Party a continuing lien on
and security interest in, all of Debtor's right, title and interest in and to
the following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
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(c) all Instruments;
(d) all General Intangibles;
(e) all Documents;
(f) all Equipment (including, without limitation, Equipment at the
locations set forth on Schedule 1 hereto);
(g) all Inventory (including, without limitation, Inventory at the
locations set forth on Schedule 1 hereto);
(h) all Intellectual Property;
(i) all Investment Property, and the certificates and all dividends,
cash, instruments and other property from time to time received,
receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of such Investment Property;
(j) all Deposit Accounts;
(k) the Pledged Shares and the certificates representing the Pledged
Shares, all additional Capital Stock of the Subsidiaries of
Debtor and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed
or distributable in respect of or in exchange for any or all of
the Pledged Shares or such additional Capital Stock, and all
rights, interests and other property, including, without
limitation, General Intangibles, relating to any or all of the
Pledged Shares, such additional Capital Stock and such
dividends, cash, instruments and other property;
(l) all indebtedness from time to time owed to Debtor by its
Subsidiaries and the instruments evidencing such indebtedness,
and all interest, cash, instruments and other property from time
to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of such
indebtedness;
(m) all proceeds, in cash or otherwise, of any of the property
described in the foregoing clauses (a) through (l) and all liens,
security, rights, remedies and claims of Debtor with respect
thereto;
(n) all other goods and personal property of Debtor of any kind or
character, whether tangible or intangible, including, without
limitation, any and all rights in and claims under insurance
policies, judgments and rights thereunder, and tort claims; and
(o) all Proceeds and products of any or all of the foregoing.
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Section 2.2 Debtor Remains Liable. Notwithstanding anything to the
contrary contained herein, (a) Debtor shall remain liable under the contracts,
agreements, documents and instruments included in the Collateral to the extent
set forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by
Secured Party of any of its rights or remedies hereunder shall not release
Debtor from any of its duties or obligations under the contracts, agreements,
documents and instruments included in the Collateral, and (c) Secured Party
shall not have any indebtedness, liability or obligation under any of the
contracts, agreements, documents and instruments included in the Collateral by
reason of this Agreement, and Secured Party shall not be obligated to perform
any of the obligations or duties of Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
Section 2.3 Delivery of Collateral. All certificates or instruments
representing or evidencing the Pledged Shares, any Instruments or Chattel Paper
or any other Collateral including, without limitation, any Investment Property,
promptly upon Debtor gaining any rights therein, shall be delivered to and held
by or on behalf of Secured Party pursuant hereto in suitable form for transfer
by delivery, or accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to
Secured Party. After the occurrence and during the continuation of a Default or
an Event of Default, Secured Party shall have the right at any time to exchange
certificates or instruments representing or evidencing any Pledged Collateral in
its possession for certificates or instruments of smaller or larger
denominations.
ARTICLE 3
Representations and Warranties
To induce Secured Party and the Lenders to enter into this Agreement and
the other Loan Documents, Debtor represents and warrants that:
Section 3.1 Title. Debtor is, and with respect to Collateral acquired
after the date hereof Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien or other encumbrance, except for Permitted
Liens and Liens in favor of Secured Party.
Section 3.2 Accounts. Unless Debtor has given Secured Party written
notice to the contrary, whenever the security interest granted hereunder
attaches to an Account, Debtor shall be deemed to have represented and warranted
to Secured Party as to each of its Accounts that (a) each Account is genuine and
in all respects what it purports to be, (b) each Account represents the legal,
valid and binding obligation of the account debtor evidencing indebtedness
unpaid and owed by such account debtor, (c) except for defenses and business
disputes arising in the ordinary course of business which in the aggregate are
not material, the amount of each Account represented as owing is the correct
amount actually and unconditionally owing except for normal trade discounts
granted in the ordinary course of business, and (d) except for defenses and
business disputes arising in the
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ordinary course of business which in the aggregate are not material, no Account
is subject to any offset, counterclaim or other defense.
Section 3.3 Financing Statements. No financing statement, security
agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of Secured
Party pursuant to this Agreement and except for financing statements evidencing
Permitted Liens. Except as otherwise disclosed on Schedule 6 hereto, Debtor does
not do business and has not done business within the past five (5) years under a
trade name or any name other than its legal name set forth at the beginning of
this Agreement.
Section 3.4 Principal Place of Business. The principal place of business
and chief executive office of Debtor, and the office where Debtor keeps its
books and records, is located at the address of Debtor shown at the beginning of
this Agreement.
Section 3.5 Location of Collateral. All Inventory (except Inventory in
transit) and Equipment (other than vehicles) of Debtor is located at the places
specified on Schedule 1 hereto. If any such location is leased by Debtor, the
name and address of the landlord leasing such location is identified on Schedule
1 hereto. All Equipment consisting of switches, passport equipment, access node
equipment, Bay routing equipment and other equipment of material value which may
constitute fixtures from time to time is and will be located only at (a) the
specific locations which are described as locations for such types of Equipment
on Schedule 1 hereto or (b) subject to the requirements of this Agreement, such
other locations as may be expressly identified by Debtor from time to time as
locations for such types of Equipment, which identification shall be set forth
in a written notice given by Debtor to Secured Party at least 30 days prior to
the date upon which any such Equipment is located at such location. Debtor has
exclusive possession and control of its Inventory and Equipment. None of the
Inventory (other than Inventory in transit as to which all Documents evidencing
such Inventory have been delivered to Secured Party) or Equipment (other than
vehicles) of Debtor is evidenced by a Document (including, without limitation, a
negotiable document of title). All Instruments, Chattel Paper and Security
Certificates of Debtor have been delivered to Secured Party.
Section 3.6 Perfection. Upon the filing of Uniform Commercial Code
financing statements in the jurisdictions listed on Schedule 2, the filing of a
Patent Security Agreement (if any) and a Trademark Security Agreement (if any)
with the United States Patent and Trademark Office, the filing of a Copyright
Security Agreement (if any) with the United States Copyright Office, and upon
Secured Party's obtaining possession of the Pledged Shares and all other
Instruments, Chattel Paper and Security Certificates of Debtor, the security
interest in favor of Secured Party created herein will constitute a valid and
perfected Lien upon and security interest in the Collateral (except for (a)
vehicles covered by certificates of title, and (b) other Property excluded from
the application of Article or Chapter 9 of the UCC by Section 9-104 of the UCC),
subject to no equal or prior Liens except for those Liens (if any) which
constitute Permitted Liens and are permitted by the Credit Agreement to have
equal or greater priority.
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Section 3.7 Inventory. All production (if any) and purchase of
Inventory by Debtor has been in compliance with all requirements of the Fair
Labor Standards Act.
Section 3.8 Intellectual Property.
(a) All of the Intellectual Property is subsisting, valid and
enforceable. The information contained on Schedule 3 hereto is true,
correct and complete. All Intellectual Property existing on the date
hereof is identified on Schedule 3 hereto.
(b) Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to the Intellectual
Property free and clear of any Liens, including, without limitation, any
pledges, assignments, licenses, user agreements and covenants by Debtor
not to sue third Persons, other than Permitted Liens.
(c) No claim has been made that the use of any of the
Intellectual Property violates or may violate the rights of any third
Person.
(d) Each of the Patents and Trademarks identified on Schedule 3
hereto has been properly registered with the United States Patent and
Trademark Office and each of the Copyrights identified on Schedule 3
hereto has been properly registered with the United States Copyright
Office.
Section 3.9 Pledged Shares and Instruments.
(a) The Pledged Shares that are shares of a corporation have
been duly authorized and validly issued and are fully paid and
nonassessable, and the Pledged Shares that are membership or partnership
interests have been validly granted, under the laws of the jurisdiction
of organization of the issuers thereof. To the best knowledge of Debtor,
the Instruments have been duly authorized and validly issued and
constitute legal and enforceable indebtedness of the makers or issuers
thereof.
(b) Debtor is the legal and beneficial owner of the Pledged
Shares and the Instruments, free and clear of any Lien (other than the
Lien created by this Agreement), and Debtor has not sold, granted any
option with respect to, assigned, transferred or otherwise disposed of
any of its rights or interest in or to the Pledged Shares or the
Instruments.
(c) On the date hereof, the Pledged Shares constitute the
percentage of the issued and outstanding Capital Stock of the issuers
thereof indicated on Schedule 4, as such Schedule 4 may from time to
time be supplemented, amended or modified.
Section 3.10 Investment Property. As of the Closing Date, Schedule 5
contains a complete and accurate description of all Investment Property owned by
Debtor.
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Section 3.11 Common Enterprise. Borrower, Debtor and each Subsidiary of
Borrower are members of an affiliated group and are engaged in a common
enterprise, and the expertise and efforts each such Person support and benefit
the other members of such affiliated group. Debtor expects to derive substantial
benefit (and Debtor may reasonably be expected to derive substantial benefit),
directly and indirectly, from the Loans and the other transactions contemplated
by the Credit Agreement, both in its separate capacity and as a member of an
affiliated and integrated group. Debtor will receive reasonably equivalent value
in exchange for the Collateral being provided by it pursuant to the Loan
Documents to which it is a party as security for the payment and performance of
the Obligations.
ARTICLE 4
Covenants
Debtor covenants and agrees with Secured Party that until the
Obligations are paid and performed in full, the obligations of Secured Party
under the Loan Documents and all Commitments of the Lenders have expired or have
been terminated:
Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to
exist, and shall defend the Collateral against, any Lien or other encumbrance on
the Collateral except for those Permitted Liens (if any) which are permitted to
attach to the Collateral in accordance with the Credit Agreement, and shall
defend Debtor's rights in the Collateral and Secured Party's pledge and
collateral assignment of and security interest in the Collateral against the
claims and demands of all Persons. Debtor shall do nothing to impair the rights
of Secured Party in the Collateral.
Section 4.2 Modification of Accounts. Debtor shall, in accordance with
prudent business practices, endeavor to collect or cause to be collected from
each account debtor under its Accounts, as and when due, any and all amounts
owing under such Accounts. Without the prior written consent of Secured Party,
Debtor shall not, other than in the ordinary course of business and pursuant to
customary business practices in Debtor's industry, (a) grant any extension of
time for any payment with respect to any of the Accounts, (b) compromise,
compound or settle any of the Accounts for less than the full amount thereof,
(c) release, in whole or in part, any Person liable for payment of any of the
Accounts, (d) allow any credit or discount for payment with respect to any
Account other than trade discounts granted in the ordinary course of business,
or (e) release any Lien or Guarantee securing any Account.
Section 4.3 Disposition of Collateral. Except as expressly permitted by
the terms of the Credit Agreement, Debtor shall not sell, lease, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, the Collateral or any part thereof without the prior written consent
of Secured Party.
Section 4.4 Further Assurances. At any time and from time to time, upon
the request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly execute and deliver all such further agreements, documents and
instruments and take such further action as Secured Party may
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reasonably deem necessary or appropriate to preserve and perfect its security
interest in and pledge and collateral assignment of the Collateral and carry out
the provisions and purposes of this Agreement or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any of
the Collateral, and, to the extent any of the Collateral at any time constitutes
Investment Property, then Debtor shall cause Secured Party to obtain "control,"
as defined in Article or Chapter 8 of the UCC, of such Collateral in one (or
more, if Secured Party reasonably so requests) of the manners prescribed in
Section 8-106 of the UCC. Debtor and Secured Party agree that the grant of the
security interest in the Investment Property pursuant to this Agreement shall
have the effect of a delivery of such securities to Secured Party pursuant to
Section 8-301 of the UCC, and the effect of a taking of delivery by Secured
Party of such Collateral in accordance with Section 8-302 of the UCC. Except as
otherwise expressly permitted by the terms of the Credit Agreement relating to
disposition of assets and except for Permitted Liens, Debtor agrees to defend
the title to the Collateral and the Lien thereon of Secured Party against the
claim of any other Person and to maintain and preserve such Lien. Without
limiting the generality of the foregoing, Debtor shall (a) execute and deliver
to Secured Party such financing statements as Secured Party may from time to
time require; (b) deliver and pledge to Secured Party all Documents (including,
without limitation, all documents of title) evidencing Inventory or Equipment
(except for certificates of title covering vehicles) and cause Secured Party to
be named as lienholder on all such Documents; (c) deliver and pledge to Secured
Party all Instruments and Chattel Paper of Debtor with any necessary
endorsements; and (d) execute and deliver to Secured Party such other
agreements, documents and instruments as Secured Party may require to perfect
and maintain the validity, effectiveness and priority of the Liens intended to
be created by the Loan Documents. Debtor authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of Debtor where
permitted by law. A carbon, photographic or other reproduction of this Agreement
or of any financing statement covering the Collateral or any part thereof shall
be sufficient as a financing statement and may be filed as a financing
statement.
Section 4.5 Insurance. Debtor shall maintain insurance in the types and
amounts, and under the terms and conditions, specified in Section 8.5 of the
Credit Agreement. Recoveries under any such policy of insurance shall be paid as
provided in the Credit Agreement.
Section 4.6 Bailees. If any of the Collateral is at any time in the
possession or control of any warehouseman, bailee or any of Debtor's agents or
processors, Debtor shall, at the request of Secured Party, notify such
warehouseman, bailee, agent or processor of the security interest created
hereunder and shall instruct such Person to hold such Collateral for Secured
Party's account subject to Secured Party's instructions.
Section 4.7 Inspection Rights. Debtor shall permit Secured Party and its
representatives to examine, inspect and audit the Collateral and to examine,
inspect and audit Debtor's books and records at any reasonable time, and as the
Secured Party may desire. Secured Party may at any time and from time to time
contact account debtors to verify the existence, amounts and terms of the
Accounts.
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Section 4.8 Mortgagee and Landlord Waivers or Subordinations. Subject
to the provisions of the Credit Agreement, Debtor shall cause each mortgagee of
real property owned by Debtor and each landlord of real property leased by
Debtor to execute and deliver instruments satisfactory in form and substance to
Secured Party by which such mortgagee or landlord waives or subordinates its
rights, if any, in any of the Collateral.
Section 4.9 Corporate Changes. Debtor shall not change its name,
identity or corporate structure in any manner that might make any financing
statement filed in connection with this Agreement seriously misleading unless
Debtor shall have given Secured Party thirty (30) days prior written notice
thereof and shall have taken all action deemed necessary or appropriate by
Secured Party to protect its Liens and the perfection and priority thereof.
Debtor shall not change its principal place of business, chief executive office
or the place where it keeps its books and records unless it shall have given
Secured Party thirty (30) days prior written notice thereof and shall have taken
all action deemed necessary or appropriate by Secured Party to cause its
security interest in the Collateral to be perfected with the priority required
by this Agreement.
Section 4.10 Books and Records; Information. Debtor shall keep accurate
and complete books and records of the Collateral and Debtor's business and
financial condition in accordance with GAAP. Debtor shall from time to time at
the request of Secured Party deliver to Secured Party such information regarding
the Collateral and Debtor as Secured Party may reasonably request, including,
without limitation, lists and descriptions of the Collateral and evidence of the
identity and existence of the Collateral. To the extent required by Section 4.4
of this Agreement, Debtor shall mark its books and records to reflect the
security interest of Secured Party under this Agreement.
Section 4.11 Equipment and Inventory.
(a) Debtor shall keep the Equipment (other than vehicles) and
Inventory (other than Inventory in transit) at the locations specified
on Schedule 1 hereto or at such other places within the U.S. where all
action required to perfect Secured Party's security interest in the
Equipment and Inventory with the priority required by this Agreement
shall have been taken; provided that if any Equipment (other than
vehicles) or Inventory (other than Inventory in transit) is being
relocated to any jurisdiction where the security interest of Secured
Party under this Agreement has not been previously perfected, then in
such case Debtor shall deliver prompt (and in any event within not less
than thirty (30) days) notice thereof to Secured Party.
(b) Debtor shall maintain the Equipment and Inventory in good
condition and repair (ordinary wear and tear of the Equipment excepted).
Debtor shall not permit any waste or destruction of the Equipment or
Inventory or any part thereof. Debtor shall not permit the Equipment or
Inventory to be used in violation of any law, rule or regulation or the
terms of any policy of insurance. Debtor shall not use or permit any of
the Equipment or Inventory to be used in any manner or for any purpose
that would impair its value or expose it to unusual risk.
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(c) Debtor shall comply with all requirements of the Fair Labor
Standards Act in producing or purchasing Inventory.
(d) Within forty-five (45) days of the end of each of Debtor's
fiscal quarters, Debtor shall provide Secured Party with a report
setting forth in reasonable detail any change during such preceding
fiscal quarter of the location of any Equipment or Inventory (unless
such location is one of the locations already specified on Schedule 1
hereto).
Section 4.12 Warehouse Receipts Non-Negotiable. Debtor agrees that if
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
in respect of any of the Collateral, such warehouse receipt or receipt in the
nature thereof shall not be "negotiable" (as such term is used in Section 7-104
of the UCC) unless such warehouse receipt or receipt in the nature thereof is
delivered to Secured Party.
Section 4.13 Notification. Debtor shall promptly notify Secured Party of
(a) any Lien, encumbrance or claim (other than Permitted Liens) that has
attached to or been made or asserted against any of the Collateral, (b) any
material change in any of the Collateral, including, without limitation, any
material damage to or loss of Collateral, and (c) the occurrence of any other
event or condition (including, without limitation, matters as to Lien priority)
that could have a material adverse effect on the Collateral or the security
interest created hereunder.
Section 4.14 Collection of Accounts. Debtor shall cause all collections
of Accounts and sales of Inventory to be conducted in compliance with the terms
of the Credit Agreement. In addition all cash proceeds (including, without
limitation, all Proceeds of Collateral) shall be deposited directly, as
received, into a collection account of Debtor and, on a daily basis after such
deposit, transferred into a concentration account as required under Section
8.13(b) of the Credit Agreement. Debtor agrees that all Proceeds of Collateral
deposited in any collection account or concentration account shall at all times
continue to be Collateral under the terms of this Agreement.
Section 4.15 Intellectual Property. Except with the written consent of
Secured Party:
(a) Debtor shall prosecute diligently all applications in
respect of Intellectual Property, now or hereafter pending;
(b) Debtor shall make federal applications on all of its
unpatented but patentable inventions and all of its registrable but
unregistered Copyrights and Trademarks other than any immaterial
Patents, Trademarks and Copyrights which are not useful in Debtor's
business;
(c) Debtor shall preserve and maintain all of its rights in the
Intellectual Property and shall protect the Intellectual Property from
infringement, unfair competition, cancellation or dilution by all
appropriate action, including, without limitation, the commencement and
prosecution of legal proceedings to recover damages for infringement and
to defend and preserve its rights in the Intellectual Property;
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(d) Debtor shall not abandon any of the Intellectual Property
except for any immaterial Intellectual Property which is not useful in
Debtor's business;
(e) Debtor shall not sell or assign any of its interest in, or
grant any license under (except as permitted by Section 5.5), any of the
Intellectual Property and shall maintain the quality of any and all
products and services with respect to which the Intellectual Property is
used. Debtor shall not enter into any agreement regarding Intellectual
Property, including, but not limited to, any licensing agreement not
permitted by Section 5.5, that is or may be inconsistent with Debtor's
obligations under this Agreement or any of the other Loan Documents;
(f) If Debtor shall obtain rights to or become entitled to the
benefit of any Intellectual Property not identified on Schedule 3
hereto, Debtor shall give Secured Party prompt written notice thereof
and the provisions of this Agreement shall automatically apply thereto
and Debtor hereby authorizes Secured Party to modify or update Schedule
3 hereto to include any such new Intellectual Property;
(g) Upon the occurrence of any event that would require any
addition to or modification of Schedule 3 hereto or upon the request of
Secured Party, Debtor shall furnish to Secured Party statements and
schedules further identifying the Intellectual Property and such other
items in connection with the Intellectual Property as Secured Party may
request. Promptly upon the request of Secured Party, Debtor shall modify
this Agreement by amending Schedule 3 hereto to include any Intellectual
Property that becomes part of the Collateral;
(h) If an Event of Default shall have occurred and be continuing,
Debtor shall use its best efforts to obtain any consents, waivers or
agreements necessary to enable Secured Party to exercise its rights and
remedies with respect to the Intellectual Property; and
(i) Debtor shall, at the request of Secured Party, execute and
deliver to Secured Party a Copyright Security Agreement, a Patent
Security Agreement, a Trademark Security Agreement and all other
agreements, documents, instruments and other items as may be necessary
for Secured Party to file such agreements with the United States
Copyright Office, the United States Patent and Trademark Office and any
similar domestic or foreign office, department or agency. Debtor will,
at any time and from time to time upon the request of Secured Party,
execute and deliver to Secured Party all such other agreements,
documents, instruments and other items as may be necessary or
appropriate for Secured Party to create and perfect its security
interest in the Intellectual Property and to make all appropriate
filings with respect thereto.
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Section 4.16 Voting Rights, Distributions, Etc..
(a) So long as no Default or Event of Default shall have
occurred and be continuing:
(i) Debtor shall be entitled to exercise any and all
voting and other consensual rights (including, without
limitation, the right to give consents, waivers and notifications
in respect of any of the Pledged Collateral) pertaining to any of
the Pledged Collateral or any part thereof; provided, however,
that without the prior written consent of Secured Party, no vote
shall be cast or consent, waiver or ratification given or action
taken which would (x) be inconsistent with or violate any
provision of this Agreement or any other Loan Document or (y)
amend, modify or waive any term, provision or condition of the
certificate of incorporation, by-laws, certificate of formation,
operating agreement, or other charter document or other agreement
relating to, evidencing, providing for the issuance of or
securing any Collateral; and provided further that Debtor shall
give Secured Party at least five (5) Business Days' prior written
notice in the form of an officer's certificate of the manner in
which it intends to exercise, or the reasons for refraining from
exercising, any voting or other consensual rights pertaining to
the Collateral or any part thereof which might have a material
adverse effect on the value of the Collateral or any part
thereof; and
(ii) Unless a Default or an Event of Default shall have
occurred and be continuing, Debtor shall be entitled to receive
and retain any and all dividends and interest paid in respect of
any of the Collateral to the extent permitted by the Credit
Agreement; provided, however, that any and all
(A) Restricted Payments paid or payable in
violation of Section 9.4 of the Credit Agreement,
(B) Restricted Payments paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect
of, or in exchange for, any Collateral,
(C) Restricted Payments hereafter paid or payable
in cash in respect of any Collateral in connection with a
partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(D) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Debtor, be received in trust for
the benefit of Secured Party, be segregated
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from the other property or funds of Debtor and be forthwith delivered to
Secured Party as Collateral in the same form as so received (with any
necessary endorsement). All amounts (other than amounts described in
clauses (ii)(A-D) above) received by Secured Party in respect of any
Pledged Collateral shall be either (1) promptly released to Debtor, so
long as no Default or Event of Default shall have occurred and be
continuing or (2) if any Default or Event of Default shall have occurred
and be continuing, held by Secured Party and (if an Event of Default
shall have occurred and be continuing) applied as provided by the Credit
Agreement. During the continuance of any Default, any dividends,
interest or other distributions (whether in cash, securities, property
or otherwise) received by Debtor with respect to any Pledged Collateral
shall be held by Debtor in trust for the benefit of Secured Party and,
upon the request of Secured Party, shall be delivered promptly to
Secured Party to hold as Collateral or shall be applied by Secured Party
toward payment of the Obligations, as Secured Party may in its
discretion determine. If such Default is waived or cured to the
satisfaction of Secured Party, any such distributions (except those of
the types described in clauses (ii)(A-D) above) shall be returned
promptly to Debtor (provided that no other Default or Event of Default
exists). If such Default remains uncured and becomes an Event of
Default, any such distributions will be applied by Secured Party as
provided in the Credit Agreement.
(b) Upon the occurrence and during the continuance of a Default
or an Event of Default:
(i) Secured Party may, without notice to Debtor, transfer
or register in the name of Secured Party or any of its nominees
any or all of the Collateral described in Section 2.1(k) or
Section 2.1(l), the proceeds thereof (in cash or otherwise) and
all liens, security, rights, remedies and claims of Debtor with
respect thereto (collectively, the "Pledged Collateral") held by
Secured Party hereunder, and Secured Party or its nominee may
thereafter, after delivery of notice to Debtor, exercise all
voting and corporate rights at any meeting of any corporation,
partnership or other business entity issuing any of the Pledged
Collateral and any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
pertaining to any of the Pledged Collateral as if it were the
absolute owner thereof, including, without limitation, the right
to exchange at its discretion any and all of the Pledged
Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any corporation,
partnership or other business entity issuing any of such Pledged
Collateral or upon the exercise by any such issuer or Secured
Party of any right, privilege or option pertaining to any of the
Pledged Collateral, and in connection therewith, to deposit and
deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as it may determine, all without
liability except to account for property actually received by it,
but Secured Party shall have no duty to exercise any of the
aforesaid rights, privileges or options, and neither Secured
Party nor any Lender shall be responsible for any failure to do
so or delay in so doing.
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(ii) All rights of Debtor to exercise the voting and other
consensual rights which it would otherwise be entitled to
exercise pursuant to subsection 4.16(a)(i) and to receive the
dividends, interest and other distributions which it would
otherwise be authorized to receive and retain pursuant to
subsection 4.16(a)(ii) shall be suspended until such Default or
Event of Default shall no longer exist, and all such rights
shall, until such Default or Event of Default shall no longer
exist, thereupon become vested in Secured Party which shall
thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral
such dividends, interest and other distributions.
(iii) All dividends, interest and other distributions
which are received by Debtor contrary to the provisions of this
subsection 4.16(b) shall be received in trust for the benefit of
Secured Party, shall be segregated from other funds of Debtor and
shall be forthwith paid over to Secured Party as Collateral in
the same form as so received (with any necessary endorsement).
(iv) Debtor shall execute and deliver (or cause to be
executed and delivered) to Secured Party all such proxies and
other instruments as Secured Party may reasonably request for the
purpose of enabling Secured Party to exercise the voting and
other rights which it is entitled to exercise pursuant to this
subsection 4.16(b) and to receive the dividends, interest and
other distributions which it is entitled to receive and retain
pursuant to this subsection 4.16(b). The foregoing shall not in
any way limit Secured Party's power and authority granted
pursuant to Section 5.1.
Section 4.17 Transfers and Other Liens; Additional Investments.
(a) Except as may be expressly permitted by the terms of the
Credit Agreement, Debtor shall not grant any option with respect to,
exchange, sell or otherwise dispose of any of the Collateral or create
or permit to exist any Lien upon or with respect to any of the
Collateral except for the Liens created hereby.
(b) Debtor agrees that it will (i) cause each issuer of any of
the Pledged Collateral not to issue any Capital Stock, notes or other
securities or instruments in addition to or in substitution for any of
the Pledged Collateral, except, with the written consent of Secured
Party, to Debtor, (ii) pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all such Capital
Stock, notes or other securities or instruments, and (iii) promptly (and
in any event within three Business Days) deliver to Secured Party an
Amendment, duly executed by Debtor, in substantially the form of Exhibit
D (an "Amendment"), in respect of such Capital Stock, notes or other
securities or instruments, together with all certificates, notes or
other securities or instruments representing or evidencing the same.
Debtor hereby (i) authorizes Secured Party to attach each Amendment to
this Agreement, (ii) agrees that all such Capital Stock, notes or other
securities or instruments listed on any Amendment delivered to Secured
Party shall for all purposes hereunder constitute Pledged Collateral,
and (iii) is deemed to have made, upon such
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delivery, the representations and warranties contained in Article III
with respect to such Pledged Collateral.
Section 4.18 Possession; Reasonable Care. Regardless of whether a
Default or an Event of Default has occurred or is continuing, Secured Party
shall have the right to hold in its possession all Instruments, Chattel Paper
and Pledged Collateral pledged, assigned or transferred hereunder and from time
to time constituting a portion of the Collateral. Secured Party may, from time
to time, in its sole discretion, appoint one or more agents (which in no case
shall be Debtor or an Affiliate of Debtor) to hold physical custody, for the
account of Secured Party, of any or all of the Collateral. Secured Party shall
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Secured Party accords its own property, it
being understood that Secured Party shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Secured Party has or is deemed to have knowledge of such matters, or (b) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral. Following the occurrence and during the continuation of an Event of
Default, Secured Party shall be entitled to take possession of the Collateral.
Section 4.19 Acknowledgment of Collateral Assignment of Deposit
Accounts. Debtor shall deliver to Secured Party, concurrently with the execution
hereof and at any time as Secured Party may request hereafter, acknowledgment by
each financial institution in which any Deposit Account is held or maintained
that the collateral assignment of such Deposit Account has been recorded in the
books and records of such financial institution, and that Secured Party shall
have dominion and control over such Deposit Account, such acknowledgment to be
in form and substance satisfactory to Secured Party.
Section 4.20 Statement of Account for Deposit Accounts. Debtor shall,
from time to time upon written request of Secured Party, provide to Secured
Party a copy of each statement of account for any Deposit Account received by
Debtor from the financial institution in which a Deposit Account is held or
maintained. At Secured Party's request, Debtor will use its reasonable efforts
to make such arrangements as are reasonably necessary in order to enable Secured
Party to access such information by inquiry of an officer or other
representative of any such financial institution or via any automated
information system which may be maintained by such financial institution.
ARTICLE 5
Rights of Secured Party
Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes and
appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take after the
occurrence and during the continuance of an Event of Default and from time to
time thereafter, any and all action and to execute any and all documents and
instruments which Secured
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Party at any time and from time to time deems necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, Debtor hereby gives Secured Party the power and right on
behalf of Debtor and in its own name to do any of the following after the
occurrence and during the continuance of an Event of Default and from time to
time thereafter, without notice to or the consent of Debtor:
(a) to demand, sue for, collect or receive, in the name of Debtor
or in its own name, any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral and,
in connection therewith, endorse checks, notes, drafts, acceptances,
money orders, documents of title or any other instruments for the
payment of money under the Collateral or any policy of insurance;
(b) to pay or discharge taxes, Liens or other encumbrances levied
or placed on or threatened against the Collateral;
(c) to notify post office authorities to change the address for
delivery of mail of Debtor to an address designated by Secured Party and
to receive, open and dispose of mail addressed to Debtor;
(d) (i) to direct account debtors and any other parties liable
for any payment under any of the Collateral to make payment of any and
all monies due and to become due thereunder directly to Secured Party or
as Secured Party shall direct; (ii) to receive payment of and receipt
for any and all monies, claims and other amounts due and to become due
at any time in respect of or arising out of any Collateral; (iii) to
sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors,
assignments, proxies, stock powers, verifications and notices in
connection with accounts and other documents relating to the Collateral;
(iv) to commence and prosecute any suit, action or proceeding at law or
in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect
of any Collateral; (v) to defend any suit, action or proceeding brought
against Debtor with respect to any Collateral; (vi) to settle,
compromise or adjust any suit, action or proceeding described above and,
in connection therewith, to give such discharges or releases as Secured
Party may deem appropriate; (vii) to exchange any of the Collateral for
other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon
such terms as Secured Party may determine; (viii) to add or release any
guarantor, indorser, surety or other party to any of the Collateral;
(ix) to renew, extend or otherwise change the terms and conditions of
any of the Collateral; (x) to grant or issue any exclusive or
nonexclusive license under or with respect to any of the Intellectual
Property; (xi) to endorse Debtor's name on all applications, documents,
papers and instruments necessary or desirable in order for Secured Party
to use any of the Intellectual Property; (xii) to make, settle,
compromise or adjust any claims under or pertaining to any of the
Collateral (including, without limitation, claims under any policy of
insurance); and (xiii) to sell, transfer, pledge, convey, make any
agreement with respect
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to or otherwise deal with any of the Collateral as fully and completely
as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and Debtor's expense, at
any time, or from time to time, all acts and things which Secured Party
deems necessary to protect, preserve, maintain or realize upon the
Collateral and Secured Party's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable until this Agreement is terminated in accordance with its terms.
Secured Party shall be under no duty to exercise or withhold the exercise of any
of the rights, powers, privileges and options expressly or implicitly granted to
Secured Party in this Agreement, and shall not be liable for any failure to do
so or any delay in doing so. Neither Secured Party nor any Person designated by
Secured Party shall be liable for any act or omission or for any error of
judgment or any mistake of fact or law. This power of attorney is conferred on
Secured Party solely to protect, preserve, maintain and realize upon its
security interest in the Collateral. Secured Party shall not be responsible for
any decline in the value of the Collateral and shall not be required to take any
steps to preserve rights against prior parties or to protect, preserve or
maintain any Lien given to secure the Collateral.
Section 5.2 Set-off. Each of Secured Party and the Lenders shall have
the right to set-off and apply against the Obligations, at any time and without
notice to Debtor, any and all deposits (general or special, time or demand,
provisional or final) or other sums at any time credited by or owing from any of
Secured Party or the Lenders to Debtor whether or not the Obligations are then
due. The rights and remedies of Secured Party and the Lenders hereunder are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that Secured Party and the Lenders may have.
Section 5.3 Assignment by Secured Party. In accordance with the
provisions of the Credit Agreement, any of Secured Party and the Lenders may at
any time assign or otherwise transfer all or any portion of its rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, the Obligations), in connection with an assignment of the
Obligations, to any other Person, and such other Person shall thereupon become
vested with all the benefits thereof granted to Secured Party and the Lenders,
respectively, herein or otherwise.
Section 5.4 Performance by Secured Party. If Debtor shall fail to
perform any covenant or agreement contained in this Agreement, Secured Party may
perform or attempt to perform such covenant or agreement on behalf of Debtor. In
such event, Debtor shall, at the request of Secured Party, promptly pay any
amount expended by Secured Party in connection with such performance or
attempted performance to Secured Party, together with interest thereon at the
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that Secured Party shall not have any liability or
responsibility for the performance of any obligation of Debtor under this
Agreement.
Section 5.5 License. If no Event of Default shall have occurred and be
continuing, Debtor shall have the exclusive, non-transferrable right and license
to use the Intellectual Property in the ordinary course of business and the
exclusive right to grant to other Persons licenses and sublicenses
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with respect to the Intellectual Property for full and fair consideration.
Debtor agrees not to sell or assign its interest in, or grant any sublicense
under, the license granted under this Section 5.5 without the prior written
consent of Secured Party.
Section 5.6 Change of Depository. In the event of the termination by any
financial institution in which any Deposit Account is maintained of any
agreement with or for the benefit of Secured Party, or if any such financial
institution shall fail to comply with any provisions of any such agreement or
any instructions of Secured Party in accordance with any such agreement or this
Agreement, or if Secured Party determines in its sole discretion that the
financial condition of any such financial institution has materially
deteriorated, Debtor agrees to transfer the affected Deposit Account(s) to
another financial institution acceptable to Secured Party and cause such
substitute financial institution to execute such agreements as Secured Party may
require, in form and substance acceptable to Secured Party, to ensure that
Secured Party has a perfected, first priority collateral assignment of or
security interest in the Deposit Account(s) held with such substitute financial
institution. If any affected Deposit Account is a lockbox account, Debtor agrees
to notify its account debtors promptly to remit all payments which were being
sent to the terminated Deposit Account directly to the substitute Deposit
Account.
Section 5.7 Collection of Deposit Accounts. Upon written demand from
Secured Party to any financial institution in which any of the Deposit Accounts
are maintained, each such financial institution is hereby authorized and
directed by Debtor to make payment directly to Secured Party of the funds in or
credited to the Deposit Accounts, or such part thereof as Secured Party may
request, and each such financial institution shall be fully protected in relying
upon the written statement of Secured Party that the Deposit Accounts are at the
time of such demand assigned hereunder and that Secured Party is entitled to
payment of the Obligations therefrom. Secured Party's receipt for sums paid it
pursuant to such demand shall be a full and complete release, discharge and
acquittance to the depository or other financial institution making such payment
to the extent of the amount so paid. Debtor hereby authorizes Secured Party,
upon (a) Debtor's failure to make payment of any of the Obligations, or any part
thereof, or (b) any acceleration of the maturity of the Obligations upon the
occurrence of any Event of Default, each as provided in the Credit Agreement,
including, without limitation pursuant to Section 10.1(a) or Section 10.2(a) of
the Credit Agreement, (i) to withdraw, collect and receipt for any and all
funds, securities or other investments on deposit in or payable on the Deposit
Accounts, (ii) on behalf of Debtor to endorse the name of Debtor upon any
checks, drafts or other instruments payable to Debtor evidencing payment on the
Deposit Accounts, and (iii) to surrender or present for notation of withdrawal
the passbook, certificate or other documents issued to Debtor in connection with
the Deposit Accounts. No power granted herein to Secured Party by Debtor shall
terminate upon any disability of Debtor.
ARTICLE 6
Default
Section 6.1 Rights and Remedies. If an Event of Default shall have
occurred and be continuing, Secured Party shall have the following rights and
remedies (subject to Section 6.3):
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(a) In addition to all other rights and remedies granted to
Secured Party in this Agreement or in any other Loan Document or by
applicable law, Secured Party shall have all of the rights and remedies
of a secured party under the UCC (whether or not the UCC applies to the
affected Collateral) and Secured Party may also, without notice except
as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker's board
or at any of Secured Party's offices or elsewhere, for cash, on credit
or for future delivery, and upon such other terms as Secured Party may
deem commercially reasonable or otherwise as may be permitted by law.
Without limiting the generality of the foregoing, Secured Party may (i)
without demand or notice to Debtor, collect, receive or take possession
of the Collateral or any part thereof and for that purpose Secured Party
may enter upon any premises on which the Collateral is located and
remove the Collateral therefrom or render it inoperable, and/or (ii)
sell, lease or otherwise dispose of the Collateral, or any part thereof,
in one or more parcels at public or private sale or sales, at Secured
Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Secured Party may deem
commercially reasonable or otherwise as may be permitted by law. Secured
Party shall have the right at any public sale or sales, and, to the
extent permitted by applicable law, at any private sale or sales, to bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) and become a purchaser of the Collateral or any part
thereof free of any right or equity of redemption on the part of Debtor,
which right or equity of redemption is hereby expressly waived and
released by Debtor. Upon the request of Secured Party, Debtor shall
assemble the Collateral and make it available to Secured Party at any
place designated by Secured Party that is reasonably convenient to
Debtor and Secured Party. Debtor agrees that Secured Party shall not be
obligated to give more than five (5) days prior written notice of the
time and place of any public sale or of the time after which any private
sale may take place and that such notice shall constitute reasonable
notice of such matters. Secured Party shall not be obligated to make any
sale of Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of Collateral may have been given. Secured
Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further
notice, be made at the time and place to which the same was so
adjourned. Debtor shall be liable for all expenses of retaking, holding,
preparing for sale or the like, and all attorneys' fees, legal expenses
and other costs and expenses incurred by Secured Party in connection
with the collection of the Obligations and the enforcement of Secured
Party's rights under this Agreement. Debtor shall remain liable for any
deficiency if the Proceeds of any sale or other disposition of the
Collateral applied to the Obligations are insufficient to pay the
Obligations in full. Secured Party may apply the Collateral against the
Obligations in such order and manner as Secured Party may elect in its
sole discretion. Debtor waives all rights of marshaling, valuation and
appraisal in respect of the Collateral. Any cash held by Secured Party
as Collateral and all cash proceeds received by Secured Party in respect
of any sale of, collection from or other realization upon all or any
part of the Collateral may, in the discretion of Secured Party, be held
by Secured Party as collateral for, and then or at any time thereafter
applied in whole or in part by Secured Party against, the Obligations in
such
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order as Secured Party shall select. Any surplus of such cash or cash
proceeds and interest accrued thereon, if any, held by Secured Party and
remaining after payment in full of all the Obligations shall be paid
over to Debtor or to whomsoever may be lawfully entitled to receive such
surplus; provided that Secured Party shall have no obligation to invest
or otherwise pay interest on any amounts held by it in connection with
or pursuant to this Agreement.
(b) Secured Party may cause any or all of the Collateral held by
it to be transferred into the name of Secured Party or the name or names
of Secured Party's nominee or nominees.
(c) Secured Party may exercise any and all rights and remedies of
Debtor under or in respect of the Collateral, including, without
limitation, any and all rights of Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any of
the Collateral and any and all voting rights and corporate powers in
respect of the Collateral.
(d) Secured Party may collect or receive all money or property at
any time payable or receivable on account of or in exchange for any of
the Collateral, but shall be under no obligation to do so.
(e) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable
Governmental Authority.
(f) For purposes of enabling Secured Party to exercise its rights
and remedies under this Section 6.1 and enabling Secured Party and its
successors and assigns to enjoy the full benefits of the Collateral,
Debtor hereby grants to Secured Party an irrevocable, nonexclusive
license (exercisable without payment of royalty or other compensation to
Debtor) to use, assign, license or sublicense any of the Intellectual
Property, including in such license reasonable access to all media in
which any of the licensed items may be recorded or stored and all
computer programs used for the completion or printout thereof. This
license shall also inure to the benefit of all successors, assigns and
transferees of Secured Party.
(g) Secured Party may require that Debtor assign all of its
right, title and interest in and to the Intellectual Property or any
part thereof to Secured Party or such other Person as Secured Party may
designate pursuant to documents satisfactory to Secured Party.
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Section 6.2 Registration Rights, Private Sales, Etc.
(a) If Secured Party shall determine to exercise its right to
sell all or any of the Collateral pursuant to Section 6.1, Debtor agrees
that, upon the request of Secured Party (which request may be made by
Secured Party in its sole discretion), Debtor will, at its own expense:
(i) execute and deliver, and cause each issuer of any of
the Collateral contemplated to be sold and the directors and
officers thereof to execute and deliver, all such agreements,
documents and instruments, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of
Secured Party, advisable to register such Collateral under the
provisions of the Securities Act (as hereinafter defined) and to
cause the registration statement relating thereto to become
effective and to remain effective for such period as prospectuses
are required by law to be furnished and to make all amendments
and supplements thereto and to the related prospectus which, in
the opinion of Secured Party, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission
applicable thereto;
(ii) use its best efforts to qualify such Collateral under
all applicable state securities or "Blue Sky" laws and to obtain
all necessary governmental approvals for the sale of such
Collateral, as requested by Secured Party;
(iii) cause each such issuer to make available to its
security holders, as soon as practicable, an earnings statement
which will satisfy the provisions of Section 11(a) of the
Securities Act;
(iv) do or cause to be done all such other acts and things
as may be reasonably necessary to make such sale of the
Collateral or any part thereof valid and binding and in
compliance with applicable law; and
(v) bear all reasonable costs and expenses, including
reasonable attorneys' fees, of carrying out its obligations under
this Section 6.2.
(b) Debtor recognizes that Secured Party may be unable to effect
a public sale of any or all of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended from
time to time (the "Securities Act") and applicable state securities laws
but may be compelled to resort to one or more private sales thereof to a
restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Collateral for their own account for investment
and not with a view to the distribution or resale thereof. Debtor
acknowledges and agrees that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any
such private sale shall, to the extent permitted by law, be deemed to
have been made in a commercially reasonable manner. Neither Secured
Party
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nor the Lenders shall be under any obligation to delay a sale of any of
the Collateral for the period of time necessary to permit the issuer of
such securities to register such securities under the Securities Act or
under any applicable state securities laws, even if such issuer would
agree to do so.
(c) Debtor further agrees to do or cause to be done, to the
extent that Debtor may do so under applicable law, all such other acts
and things as may be necessary to make such sales or resales of any
portion or all of the Collateral valid and binding and in compliance
with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction
over any such sale or sales, all at Debtor's expense. Debtor further
agrees that a breach of any of the covenants contained in this Section
6.2 will cause irreparable injury to Secured Party and the Lenders and
that Secured Party and the Lenders have no adequate remedy at law in
respect of such breach and, as a consequence, agrees that each and every
covenant contained in this Section 6.2 shall be specifically enforceable
against Debtor, and Debtor hereby waives and agrees, to the fullest
extent permitted by law, not to assert as a defense against an action
for specific performance of such covenants that (i) Debtor's failure to
perform such covenants will not cause irreparable injury to Secured
Party and the Lenders or (ii) Secured Party and the Lenders have an
adequate remedy at law in respect of such breach. Debtor further
acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by Secured Party and the Lenders by reason of a
breach of any of the covenants contained in this Section 6.2 and,
consequently, agrees that, if Debtor shall breach any of such covenants
and Secured Party or any Lender shall sue for damages for such breach,
Debtor shall pay to Secured Party or such Lender, as liquidated damages
and not as a penalty, an aggregate amount equal to the value of the
Collateral on the date Secured Party or such Lender shall demand
compliance with this Section 6.2.
(d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS
SECURED PARTY AND THE LENDERS AND ANY CONTROLLING PERSONS THEREOF WITHIN
THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES
AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND
EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES
STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN
CONNECTION WITH THE SALE OF ANY SECURITIES OR THE EXERCISE OF ANY OTHER
RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH LIABILITIES, SUITS,
CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN
CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF THE COLLATERAL,
OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO
STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR
NECESSARY
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TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT
DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE
BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION
OR ALLEGED OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN
INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY OR SUCH LENDER
SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING
INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR
OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH
LENDER OR ANY SUCH CONTROLLING PERSON.
Section 6.3 Compliance with Laws. Notwithstanding anything to the
contrary contained in any Loan Document or in any other agreement, instrument or
document executed by Debtor and delivered to Secured Party, Secured Party will
not take any action pursuant to this Agreement or any document referred to
herein which would constitute or result in any assignment of any FCC license or
any change of control (whether de jure or de facto) of Debtor if such assignment
of any FCC license or change of control would require, under then existing law,
the prior approval of the FCC or any other Governmental Authority without first
obtaining such prior approval of the FCC or other Governmental Authority. Upon
the occurrence of an Event of Default or at any time thereafter during the
continuance thereof, subject to the terms and conditions of this Agreement,
Debtor agrees to take any action which Secured Party may reasonably request in
order to obtain from the FCC or such other Governmental Authority such approval
as may be necessary to enable Secured Party to exercise and enjoy the full
rights and benefits granted to Secured Party by this Agreement and the other
documents referred to above, including specifically, at the cost and expense of
Debtor, the use of reasonable efforts to assist in obtaining approval of the FCC
or such other Governmental Authority for any action or transaction contemplated
by this Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file with
the FCC or such other Governmental Authority the assignor's or transferor's
portion of any application or applications for consent to the assignment of
license or transfer of control necessary or appropriate under the FCC's or such
other Governmental Authority's rules and regulations for approval of (a) any
sale or other disposition of the Collateral by or on behalf of Secured Party, or
(b) any assumption by Secured Party of voting rights in the Collateral effected
in accordance with the terms of this Agreement.
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ARTICLE 7
Miscellaneous
Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.2 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of Debtor and Secured Party and their respective heirs,
successors and permitted assigns, except that Debtor may not assign any of its
rights, indebtedness, liabilities or obligations under this Agreement without
the prior written consent of Secured Party.
Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto,
except as provided in Section 4.15(g).
Section 7.4 Notices. All notices and other communications provided for
in this Agreement shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested, or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof, or, as to any party, at such other address as shall
be designated by such party in a notice to the other party given in accordance
with this Section 7.4. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopy or when personally delivered or, in the case of a mailed notice, three
(3) Business Days after deposit in the mails, in each case given or addressed as
aforesaid; provided, however, that notices to Secured Party shall be deemed
given when received by Secured Party.
Section 7.5 Governing Law; Submission to Jurisdiction; Service of
Process. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN THE CREDIT
AGREEMENT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND EACH OF THE PARTIES HERETO CHOOSES THE LAWS OF THE STATE OF NEW
YORK TO GOVERN THIS
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AGREEMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND
APPLICABLE LAWS OF THE U.S. DEBTOR HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK, (2) ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE
U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE
COURT SITTING IN DALLAS, COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. DEBTOR IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES OF SUCH PROCESS TO DEBTOR AT ITS ADDRESS FOR NOTICES
SET FORTH UNDERNEATH ITS SIGNATURE HERETO. DEBTOR HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
Section 7.6 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 7.7 Survival of Representations and Warranties. All
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by Secured Party shall affect the
representations and warranties or the right of Secured Party to rely upon them.
Section 7.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.9 Waiver of Bond. In the event Secured Party seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 7.10 Severability. Any provision of this Agreement which is
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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Section 7.11 Construction. Debtor and Secured Party acknowledge that
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Debtor and Secured
Party.
Section 7.12 Termination. If all of the Obligations shall have been paid
and performed in full and all Commitments of the Lenders shall have expired or
terminated, Secured Party shall, upon the written request of Debtor, execute and
deliver to Debtor a proper instrument or instruments acknowledging the release
and termination of the security interests created by this Agreement, and shall
duly assign and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of Secured Party and has not previously been sold or otherwise applied pursuant
to this Agreement.
Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED
PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 7.14 Amendment and Restatement. This Agreement shall constitute
an amendment and restatement of all, but not an extinguishment, discharge,
satisfaction or novation of any, indebtedness, liabilities and/or obligations
(including, without limitation, the "Obligations" as such term is defined in the
Original Security Agreement) of Debtor under the Original Security Agreement.
All Liens created under and/or evidenced by the Original Security Agreement
shall continue to be created under and/or evidenced by this Agreement, with the
same perfection and priority under this Agreement as existed under the Original
Security Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 33
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
DEBTOR:
NET2000 SUBSIDIARY
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address for Notices:
Net2000 Subsidiary
2195 Fox Mill Road
Herndon, Virginia 20171
Fax No.: (703) 561-5006
Telephone No.: (703) 561-5406
Attention: Donald E. Clarke
Chief Financial Officer and Treasurer
Page 34
<PAGE> 35
SECURED PARTY:
NORTEL NETWORKS INC.,
as Administrative Agent
By:
-----------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Address for Notices:
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082-4399
Attention: Vice President - Customer
Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
P.O. Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe,
Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
Page 35
<PAGE> 1
EXHIBIT 10.17
NOTE PURCHASE AGREEMENT
among
NET2000 COMMUNICATIONS, INC.
and
NORTEL NETWORKS INC.
Dated as of July 30, 1999
<PAGE> 2
This NOTE PURCHASE AGREEMENT, dated as of July 30, 1999 (the
"Agreement"), is by and among NET2000 COMMUNICATIONS, INC., a Delaware
corporation, as issuer (the "Company"), and NORTEL NETWORKS INC., a Delaware
corporation, as purchaser (the "Purchaser").
WHEREAS, the Company has authorized the issuance of up to
$75,000,000 aggregate principal amount of its Senior Discount Notes due 2009;
and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes
to sell, up to $75,000,000 aggregate principal amount of such Notes;
Accordingly, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.1. Certain Defined Terms.
Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Indenture and the following terms shall have
the following meanings:
"Accreted Value" means, as of any date of determination, for any
Note, the sum (rounded to the nearest whole dollar) of (a) the purchase price
paid on the date such Note was originally issued per each $1,000 in principal
amount at Stated Maturity of such Note (the "initial offering price") and (b)
the portion of the excess of the principal amount of such Note over such initial
offering price which shall have been accreted thereon through such date of
determination, such amounts to be so accreted on a daily basis at the Applicable
Rate (computed on a semi-annual bond equivalent basis and as may be adjusted as
provided in Section 2.2(b)) compounded semi-annually on each January 15 and July
15 from the date of original issuance of such Note through the date of
determination. On and after July 15, 2004, the Accreted Value of each Note shall
be equal to its principal amount at Stated Maturity.
"Additional Notes" has the meaning assigned to such term in
Section 2.3.
"Affiliate" means with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings consistent
with the foregoing.
"Applicable Rate" has the meaning assigned to such term in
Section 2.2(b).
"Authorized Officer" means, with respect to any Person, each of
the chairman or vice chairman of the board, the chief executive officer, the
president, the chief financial officer, the chief
- 2 -
<PAGE> 3
accounting officer, the treasurer or the secretary of such Person, or any other
officer designated as an Authorized Officer by the Board of Directors in writing
delivered to the Purchaser.
"Board of Directors" means, as to any Person, the Board of
Directors of such Person or any duly authorized committee thereof.
"Business Day" means any day on which commercial banks are not
authorized or required to close in New York City.
"Closing Date" means the date on which the conditions precedent
set forth in Section 9.1 shall have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" or "SEC" means the Securities and Exchange
Commission, or any regulatory body that succeeds to the functions thereof.
"Dollars" and "$" mean lawful money of the United States of
America.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code, or solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provisions of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the incurrence of any liability under
Title IV of ERISA with respect to the termination of any Plan or the withdrawal
or partial withdrawal of the Company or any of its ERISA Affiliates from any
Plan or Multiemployer Plan; (f) the receipt by the Company or any of its ERISA
Affiliates from the PBGC or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (g) the receipt by the Company or any of its ERISA Affiliates of any
notice concerning the imposition of liability as a consequence of a withdrawal
(within the meaning of Part I of Subtitle E or Title IV of ERISA) or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence
of a "prohibited transaction" with respect to which the Company or any of its
Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of
the Code) or with respect to which the Company or any such Subsidiary could
otherwise be liable; and (i) any other
- 3 -
<PAGE> 4
event or condition with respect to a Plan or Multiemployer Plan that could
reasonably be expected to result in liability of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Final Issue Date" means the earlier to occur of (i) the first
date on which Purchaser resells any of the Notes to any Person which is not an
Affiliate of Purchaser and (ii) July 15, 2000.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, the Commission and any
self-regulatory organizations) and any court, tribunal or arbitrator having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective properties or assets.
"Indenture" means the Indenture dated as of July 30, 1999 under
which the Notes will be issued, substantially in the form of Exhibit A-2 hereto.
"Initial Issue Date" means the first Issue Date to occur.
"IPO" means, with respect to any Person, the first Public Equity
Offering by such Person.
"Issue Date" means each date on which any Notes are issued under
the Indenture and sold to Purchaser pursuant to Section 2.3 hereof.
"Material Adverse Effect" means a material adverse effect on, and
"Material Adverse Change" means a material adverse change, in: (i) the
properties business, results of operations, condition (financial or otherwise),
affairs or prospects of the Company and its Subsidiaries taken as a whole; (ii)
the ability of the Company to perform its obligations under any of the Note
Documents to which it is a party; (iii) the validity or enforceability of any of
the Note Documents; and (iv) the ability of the Purchaser to enforce its rights
and remedies under any of the Note Documents.
"Note Documents" shall mean and include the following: (i) this
Agreement, (ii) the Indenture, (iii) the Notes, (iv) the Registration Rights
Agreement, and (v) such additional documents, instruments and agreements as the
Purchaser may reasonably require in connection with this Agreement.
- 4 -
<PAGE> 5
"Notes" has the meaning assigned to such term in Section 2.1 and
includes the Additional Notes.
"Officers' Certificate" means, with respect to any Person, a
Certificate signed by two Authorized Officers of such Person, one of whom must
be the principal executive officer, principal financial officer or principal
accounting officer of the Company.
"Optional Redemption Rate" means one-half the Applicable Rate
divided by three.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated association or Governmental Authority.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Company or
any of its ERISA Affiliates is (or, if such plan were terminated, would under
Section 4069 or ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Public Equity Offering" means, with respect to any Person, an
underwritten primary public offering of Common Stock of such Person in the
United States of at least $25 million pursuant to an effective registration
statement filed under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of July 30, 1999, substantially in the form of Exhibit A-3
hereto.
"Resale Date" means the first date on which Purchaser sells,
transfers or otherwise disposes of all of the Notes to any Person or Persons
that are not Affiliates of Purchaser.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" means any Indebtedness of the Company or
its Restricted Subsidiaries which is not Subordinated Indebtedness.
"Special Interest" means, as liquidated damages, all special
interest then accruing pursuant to Section 2(d) of the Registration Rights
Agreement.
"Subordinated Indebtedness" means any Indebtedness of the Company
or its Restricted Subsidiaries which is contractually subordinate or junior in
right of payment to the payment of principal of, premium, if any, and interest
on the Notes.
"TIA" means the Trust Indenture Act of 1939, as amended.
- 5 -
<PAGE> 6
"Treasury Rate" means, as of any date, the yield to maturity at
the time of computation of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15(519) which has become publicly available at least five
Business Days prior to such date (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to 10 years.
"Trustee" means the trustee under the Indenture.
1.2. Accounting Terms and Determinations.
Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Purchaser hereunder shall be prepared, in accordance with GAAP.
1.3. Other Definitional Provisions.
(a) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa.
(b) The word "hereof", "hereby", "herein", and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement; the term
"hereafter" shall mean after, and the term "heretofore" shall mean before, the
date of this Agreement; and Article, Section, schedule, exhibit and like
references are to this Agreement unless otherwise specified.
(c) Any defined term that relates to a document shall include within
its definition, any amendments, modifications, renewals, restatements,
extensions, supplements, or substitutions that heretofore may have been or
hereafter may be executed in accordance with the terms thereof and, if
applicable, hereof.
(d) References in this Agreement to particular sections of the Code,
ERISA or any other legislation shall be deemed to refer also to any successor
sections thereto or other redesignations for codification purposes.
(e) References herein and in the Notes to any "day" or to any number
of "days" that is not specified by reference to Business Days shall be deemed to
refer to calendar days.
SECTION 2. ISSUANCE OF NOTES.
2.1. Authorization.
The Company has duly authorized the issue and sale of up to
$75,000,000 aggregate principal amount at Stated Maturity of its Senior Discount
Notes due 2009 (the "Notes") in the form of Exhibit A-1 attached hereto. As used
herein, the term "Notes" shall mean all notes originally
- 6 -
<PAGE> 7
delivered pursuant to this Agreement (including any Additional Notes), and
issued pursuant to the Indentures and all notes delivered in substitution or
exchange for any such notes.
2.2. Terms of the Notes.
(a) The Notes will be senior, unsecured, general obligations of the
Company and will rank pari passu in right of payment to all existing and future
senior Indebtedness of the Company and senior in right of payment to all
Subordinated Indebtedness of the Company. The Notes will mature on July 15,
2009. Prior to July 15, 2004, no interest will accrue on the Notes, but the
Accreted Value will increase (representing amortization of original issue
discount) between the date of original issuance of each Note and July 15, 2004,
on a semi-annual bond equivalent basis using a 360-day year comprised of twelve
30-day months, such that on July 15, 2004 the Accreted Value will be equal to
the full principal amount at Stated Maturity of the Notes. Beginning on July 15,
2004 interest on the Notes will accrue at the Applicable Rate and will be
payable until maturity semi-annually in arrears on each January 15 and July 15,
commencing on January 15, 2004, to holders of record on the immediately
preceding January 1 and July 1. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Issue Date.
(b) The Applicable Rate shall initially be 13.5% per annum; provided,
however, that if the sum of the Treasury Rate on the Resale Date plus 8% is
greater than 13.5%, the Applicable Rate shall be reset on and as of the Resale
Date to equal such Treasury Rate plus 8%.
(c) The Notes will not have the benefit of any sinking fund.
(d) The holders of the Notes will be entitled to certain registration
rights as set forth in the Registration Rights Agreement.
2.3. Purchase and Sale of Notes; the Closing.
(a) Subject to the terms and conditions hereof, the Company hereby
agrees to sell to Purchaser, and, upon the basis of the representations,
warranties and agreements of the Company contained herein, Purchaser agrees to
purchase from the Company, up to $75,000,000 aggregate principal amount of the
Notes from time to time during the period from and including the date hereof to
and including the Final Issue Date, at a purchase price equal to a percentage of
the aggregate principal amount at Stated Maturity of the Notes to be issued such
that the Accreted Value of such Notes shall equal their aggregate principal
amount at Stated Maturity on July 15, 2004.
(b) The closing of each such purchase shall be held at 10:00 a.m.,
Eastern Daylight Time, on such Business Day prior to the Final Issue Date as may
be agreed to by Purchaser and the Company (each a "Closing Date"), at the
offices of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York,
10022; provided that no such closing shall occur on less than five (5) Business
Days' prior written notice to Purchaser, which notice shall include the
aggregate principal amount at Stated Maturity to be issued on such Closing Date.
On each Closing Date, the Company will deliver to Purchaser one or more Notes,
in definitive certificated form registered in
- 7 -
<PAGE> 8
the name of the Purchaser or in the name of one or more of its nominees, in any
denominations, with an aggregate Accreted Value on such Closing Date equal to
the purchase price for such Notes as determined pursuant to paragraph (a) above,
all as the Purchaser may specify by timely notice to the Company (or, in the
absence of such notice, one Note registered in the name of the Purchaser), duly
executed and dated such Closing Date, against the delivery to the Company of
immediately available funds in the amount of such purchase price, such delivery
to be by wire transfer on the Closing Date to an account specified by the
Company at least two (2) Business Days prior to the Closing Date provided that
in no event shall any Notes be issued on any Closing Date with an aggregate
Accreted Value on the date of issuance less than $10,000,000 (or an integral
multiple of $1,000 thereof). The Company will cause the Notes to be issued on
the Closing Date made available for checking at least 24 hours prior to the
Closing Date at such place as Purchaser may specify. On the Final Issue Date, if
the aggregate Accreted Value of all Notes sold to Purchaser prior thereto is
less than $44,477,307.06, if requested by Purchaser in a notice delivered to the
Company at least five (5) Business Days in advance of the Final Issue Date, the
Company will issue to Purchaser, on the Final Issue Date, an Additional Note in
an aggregate principal amount at Stated Maturity such that the aggregate
Accreted Value on the Final Issue Date of such Note and all Notes sold to
Purchaser prior thereto is equal to $44,477,307.06, against delivery to the
Company of immediately available funds in the aggregate amount of the purchase
price therefor determined pursuant to paragraph (a) above, such delivery to be
by wire transfer to an account designated by the Company at least two (2)
Business Days in advance of the Final Issue Date.
SECTION 3. REDEMPTION
3.1. Optional Redemption.
(a) The Company will not have the right to redeem any Notes prior to
July 15, 2004 other than as described in this Section 3.
(b) The Notes will be redeemable, at the option of the Company, in
whole or in part, at any time on or after July 15, 2004, at the following
redemption prices (expressed as percentages of the principal amount at maturity)
if redeemed during the 12-month period commencing on July 15 of each of the
years indicated below, in each case together with accrued and unpaid interest
(and Special Interest, if any) thereon to the Redemption Date:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004............................... 100% plus 3 times the Optional Redemption Rate
2005............................... 100% plus 2 times the Optional Redemption Rate
2006............................... 100% plus the Optional Redemption Rate
2007 and thereafter................ 100.00%
</TABLE>
(c) The Company may redeem the Notes held by Purchaser, at its
option, at any time or from time to time prior to the earlier of the Resale Date
or July 15, 2004, in whole or in part, at a redemption price equal to 100% of
the Accreted Value thereof plus accrued and unpaid Special Interest, if any, to
but excluding the redemption date.
- 8 -
<PAGE> 9
(d) Subject to Section 3.2(a), at any time or from time to time,
prior to July 15, 2004, the Company may (but shall not be obligated to) redeem
up to 35% of the Accreted Value of the Notes, at a redemption price equal to
100% plus the Applicable Rate of the Accreted Value thereof plus Liquidated
damages, if any, to the redemption date out of the Net Cash Proceeds of one or
more Public Equity Offerings; provided however, that such redemption shall occur
within 60 days of the closing of such Public Equity Offering and at least 65% of
the aggregate principal amount at Stated Maturity of the Notes originally issued
shall remain outstanding after each such redemption.
3.2. Mandatory Redemption.
(a) Equity and Debt Offerings. Until the Resale Date, in the event of
an IPO by the Company, its parent (if any) or one or more of its subsidiaries,
or the sale or distribution by any of them of any of their respective debt
securities, the Company shall, on the closing date of such sale or distribution,
redeem all Notes held by Purchaser (and only Purchaser) at a redemption price in
cash equal to 100% of their Accreted Value plus accrued and unpaid interest not
otherwise included in such Accreted Value (including Special Interest, if any)
to but excluding the redemption date in accordance with Section 3.08(b) of the
Indenture.
(b) Change of Control. In the event of a Change of Control, the
Company will make an offer to all holders of the Notes to purchase all Notes
properly tendered by such holders at a purchase price in cash equal to 101% of
their Accreted Value, together with accrued and unpaid interest, if any, thereon
(and Special Interest, if any) in accordance with Section 4.15 of the Indenture.
(c) Certain Asset Sales. In the event of an Asset Sale, the Company
will comply with the provisions of Section 4.10 of the Indenture, which may
include making an offer to all holders of the Notes to purchase with the Net
Cash Proceeds of such Asset Sale, all Notes properly tendered by such holders at
a purchase price in cash equal to 100% of their Accreted Value, together with
accrued and unpaid interest, if any, thereon (and Special Interest, if any).
SECTION 4. [NOT USED].
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to, and agrees with, the
Purchaser that:
(a) The Company and each of its Subsidiaries has been duly
incorporated and is validly existing as a corporation or other entity in good
standing under the laws of its jurisdiction of incorporation or organization,
with the power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as it is currently being conducted, and is
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the law of each other jurisdiction in which it owns,
leases or operates properties or conducts any business so as to require such
qualification, except where the failure to so qualify would not, individually or
in the aggregate, have a Material Adverse Effect.
- 9 -
<PAGE> 10
(b) The Company has all requisite corporate or partnership power (as
the case may be) and authority to execute, deliver and perform their obligations
under this Agreement and the Note Documents and each other document related
thereto to which they are, or will be, a party and to consummate the
transactions contemplated hereby and thereby, including without limitation the
corporate power and authority to issue, sell and deliver the Notes.
(c) This Agreement has been duly authorized, executed and delivered
by the Company.
(d) The Notes have been duly authorized and, when executed by the
Company and authenticated by the Trustee in accordance with the Indenture and
when delivered to Purchaser against payment therefor in accordance with the
terms of this Agreement, the Notes will be validly issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or laws of general applicability relating to
or affecting creditors' rights and to general equity principles ("Bankruptcy and
Equity"), and will be entitled to the benefits provided by the Indenture.
(e) The Indenture has been duly authorized, executed and delivered by
the Company and each of the Subsidiaries and, assuming due authorization,
execution and delivery by the Trustee, constitutes a valid and legally binding
obligation of the Company and the Subsidiaries, enforceable against each of them
in accordance with its terms, except to the extent that enforcement may be
limited by Bankruptcy and Equity.
(f) The Company has furnished to Purchaser (i) its audited balance
sheet as of December 31, 1998, and the related audited consolidated statements
of operations, shareholders' equity and cash flows for the year then ended,
together with the opinion thereon of Ernst & Young LLP, the Company's
independent auditors, and (ii) its unaudited balance sheet as of June 30, 1999
(the "Balance Sheet") and the related unaudited consolidated statements of
operations, shareholders' equity and cash flows for the three-month period then
ended (collectively the "Financial Statements"). The Financial Statements (i)
are complete and correct in all material respects, (ii) are in accordance with
and derived from the Company's books and records, (iii) present fairly the
Company's consolidated financial position as of the dates and for the periods
indicated, and (iv) have been prepared in conformity with GAAP throughout the
periods indicated, subject to year-end adjustments which will not be material.
The Company maintains and will continue to maintain a standard system of
accounting established and administered according to GAAP.
(g) Neither the Company nor any of its Subsidiaries has sustained
since the date of the Balance Sheet any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree; and, since the date of the Balance Sheet, there has not been any
change in the Capital Stock or long-term debt of the Company or any of its
Subsidiaries or any Material Adverse Change, or any development involving a
prospective Material Adverse Change.
- 10 -
<PAGE> 11
(h) The Company and its Subsidiaries have good and marketable title
in fee simple to all real property owned by them and good and marketable title
to all personal property owned by them, in each case free and clear of all Liens
and defects except for such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries; and any real property and
buildings held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Subsidiaries.
(i) The Company's authorized Capital Stock consists of 30,000,000
shares of common stock, par value $.01 per share, and 12,000,000 shares of
preferred stock, par value $.01 per share, of which 8,087,592 shares of common
stock are outstanding, 4,087,592 shares of Series A preferred stock are
outstanding, 5,510,535 shares of Series B preferred stock are outstanding and
2,140,310 shares of Series C preferred stock are outstanding; all of the issued
and outstanding shares of Capital Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and are not
subject to any preemptive or other similar right; all of the issued shares of
Capital Stock of each Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned directly
or indirectly by the Company, free and clear of all Liens except for Liens
granted to Purchaser, as Administrative Agent, under the Amended and Restated
Credit Agreement, dated as of July 30, 1999, by and among the Company, Purchaser
and the Lenders named therein; there are not outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale or Liens
related to or entitling any Person to purchase or otherwise acquire any shares
of Capital Stock of, or other ownership interest in, the Company or any of its
Subsidiaries other than those listed on Schedule 5(i); the Company has no
Subsidiaries other than those listed on Schedule 5(i) hereto; no holder of any
security of the Company or its Subsidiaries has or will have any right to
require the registration of such security by virtue of the transactions
contemplated by the Note Documents, except as provided for in the Registration
Rights Agreement.
(j) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and, assuming due authorization, execution
and delivery by Purchaser, constitutes the valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforcement may be limited by Bankruptcy and Equity;
pursuant to the Registration Rights Agreement, the Company will agree to file
with the Commission, under the circumstances set forth therein, (i) a
registration statement under the Securities Act relating to another series of
debt securities of the Company with terms substantially identical to the Notes
(the "Exchange Securities") to be offered in exchange for the Notes (the
"Exchange Offer"), (ii) to the extent required by the Registration Rights
Agreement, a shelf registration statement pursuant to Rule 415 of the Act
relating to the resale by certain holders of the Notes and (iii) to the extent
required by the Registration Rights Agreement, a market making registration
statement, and in each case, to use its reasonable best efforts to cause such
registration statements to be declared effective; the Exchange Securities have
been duly authorized for issuance by the Company, and when issued and
authenticated in accordance with the terms of the Indenture will be the valid
and legally binding obligations of the Company, entitled to the benefits
provided by the Indenture, enforceable in accordance with their terms, except to
the extent enforcement may be
- 11 -
<PAGE> 12
limited by Bankruptcy and Equity. The Registration Rights Agreement and the
Exchange Securities will be in substantially the form previously delivered to
Purchaser.
(k) Prior to the date hereof, neither the Company nor any of its
Subsidiaries nor any of their respective affiliates has taken any action which
is designed to or which has constituted or which might reasonably have been
expected to cause or result in stabilization or manipulation of the price of any
security of the Company or any of its Subsidiaries in connection with the
offering of the Notes.
(l) The issue and sale of the Notes and the compliance by the Company
and its Subsidiaries with all of the provisions of this Agreement and the other
Note Documents and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, sale/leaseback agreement, loan agreement or other
similar agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound or to
which any of the property or assets of the Company or any of its Subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or Bylaws or other constituent documents of the
Company or any of its Subsidiaries or any statute or any order, rule or
regulation of any court or Governmental Authority having jurisdiction over the
Company or any of its Subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or with any
such court or Governmental Authority is required for the issuance and sale of
the Notes or the consummation by the Company and the Subsidiaries of the
transactions contemplated by this Agreement or the other Note Documents, except
such as have been obtained or may be required in connection with the
registration under the Securities Act of the Notes in accordance with the
Registration Rights Agreement, the qualification of the Indenture under the TIA
and such consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection with the
purchase and resale of the Notes by Purchaser.
(m) Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation or Bylaws or other constituent documents or
in default in the performance or observance of any material obligation, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or by
which it or any its properties may be bound, except to the extent that such
failure or default would not have a Material Adverse Effect.
(n) There are no legal or governmental proceedings pending to which
the Company or any of its Subsidiaries is a party or of which any property of
the Company or any of its Subsidiaries is the subject which, if determined
adversely to the Company or any of its Subsidiaries, would, individually or in
the aggregate, have a Material Adverse Effect and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
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<PAGE> 13
(o) When the Notes are issued and delivered pursuant to this
Agreement, the Notes will not be of the same class (within the meaning of Rule
144A under the Securities Act) as securities which are listed on a national
securities exchange registered under Section 6 of the Exchange Act or quoted in
a U.S. automated inter-dealer quotation system.
(p) The Company is not and, after giving effect to the offering and
sale of the Notes, will not be an "investment company" or an entity "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act").
(q) Neither the Company nor any of its subsidiaries is a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
(r) None of the Company, its subsidiaries or any of their affiliates
does business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes.
(s) Ernst & Young LLP, who have certified the audited Financial
Statements of the Company and its Subsidiaries, are independent public
accountants as required by the Securities Act and the rules and regulations of
the Commission thereunder and by Rule 101 of the AICPA's Code of Professional
Conduct and their respective interpretations and rulings.
(t) The Company has reviewed its operations and those of its
Subsidiaries and any third parties with which the Company or any of its
Subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its Subsidiaries will be
affected by Year 2000 issues. As a result of such review, the Company represents
and warrants that the disclosure set forth in Schedule 5(t) hereto relating to
Year 2000 issues is accurate and complies in all material respects with the
rules and regulations under the Securities Act. Based on the results of such
review to the date hereof, the Company has no reason to believe, and does not
believe, that Year 2000 issues will have a Material Adverse Effect. "Year 2000
issues" as used herein means Year 2000 issues described in or contemplated by
the Commission's Interpretation: Disclosure of Year 2000 Issues and Consequences
by Public Companies, Investment Advisers, Investment Companies, and Municipal
Securities Issuers (Release No. 33-7558).
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<PAGE> 14
(u) Except as set forth in Schedule 5(u), the Company and each of its
Subsidiaries (a) have all licenses, certificates, permits, authorizations,
approvals, franchises and other rights from, and has made all declarations and
filings with all federal, state and local authorities (including, without
limitation, the Federal Communications Commission), all self-regulatory
authorities and all courts and other tribunals (each an "Authorization")
necessary to engage in the business currently conducted by the Company and its
Subsidiaries conducted, except insofar as the failure to obtain any such
Authorization would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect, and no such Authorization
contains a materially burdensome restriction and (b) have not received any
notice that any Governmental Authority is considering limiting, suspending or
revoking any such Authorization; except where the failure to be in full force
and effect would not, individually or in the aggregate, result in a Material
Adverse Effect, all such Authorizations are valid and in full force and effect
and the Company and each of its Subsidiaries are in compliance in all material
respects with the terms and conditions of all such Authorizations and with the
rules and regulations of the regulatory authorities having jurisdiction with
respect thereto.
(v) The Company and its Subsidiaries have complied in all material
respects with all laws, regulations and orders applicable to it or its
businesses the violation of which would have a Material Adverse Effect.
(w) Except as set forth in Schedule 5(w), The Company and its
Subsidiaries own, possess or have the right to employ sufficient patents, patent
rights, licenses, (including all Federal Communications Commission, state, local
or other jurisdictional regulatory licenses), inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, software, systems or procedures), trademarks, service
marks and trade names, inventions, computer programs, technical data and
information (collectively, the "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted; and the expected
expiration of any such Intellectual Property Rights would not, individually or
in the aggregate, result in a Material Adverse Change, or any development that
could reasonably be expected to result in a Material Adverse Change; the
Intellectual Property Rights presently employed by the Company and its
Subsidiaries in connection with the businesses now operated by them or which are
proposed to be operated by them are owned, to the Company's knowledge, free and
clear of and without violating any right, claimed rights, restriction or Lien of
any kind of any other person and neither the Company nor any of its Subsidiaries
has received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing except as would not reasonably be
expected to, individually or in the aggregate, result in a Material Adverse
Effect; the use of the Intellectual Property in connection with the business and
operations of the Company and its Subsidiaries does not infringe on the rights
of any person, except as could not reasonably be expected to individually or in
the aggregate result in a Material Adverse Effect.
(x) The Company and its Subsidiaries (i) are in compliance in all
material respects with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where
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<PAGE> 15
such noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(y) No labor dispute with the employees of the Company or any of its
Subsidiaries exists, or, to the knowledge of the Company, is imminent that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that would reasonably be
expected to result in a Material Adverse Effect.
(z) The Company and its Subsidiaries maintain insurance with insurers
of recognized financial responsibility covering its properties, operations,
personnel and businesses against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; neither
the Company nor any of its Subsidiaries has been refused any insurance coverage
sought or applied for; neither the Company nor the Subsidiaries has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other expenditures will have to be made in order to continue
such insurance; all such insurance is outstanding and duly in force on the date
hereof and will be outstanding and duly in force at the Issue Date; and neither
the Company nor any of its Subsidiaries has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not result in a Material Adverse
Effect.
(aa) Neither the Company nor any of its Subsidiaries has violated any
federal, state or local law, statute, rule or regulation relating to
discrimination in the hiring, promotion or pay of employees pursuant to any
applicable wage or hour laws or any provisions of ERISA or the rules and
regulations promulgated thereunder, and neither the Company nor any of its
Subsidiaries has engaged in any unfair labor practice, which in each case could
reasonably be expected to result, singly or in the aggregate, in a Material
Adverse Effect; there is (i) no significant unfair labor practice complaint
pending against the Company or any of its Subsidiaries or, to the Company's
knowledge, threatened against any of them before the National Labor Relations
Board or any state or local labor relations board, and no significant grievance
or significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of its
Subsidiaries or, to the Company's knowledge, threatened against any of them,
(ii) no significant strike, labor dispute, slowdown or stoppage pending against
the Company or any of its Subsidiaries and (iii) no union representation
question existing with respect to then employees of the Company or any of its
Subsidiaries and no union organizing activities are taking place, except (with
respect to any matter specified in clause (i), (ii) or (iii) above, individually
or in the aggregate) such as would not have a Material Adverse Effect; neither
the Company nor any of its Subsidiaries has violated the requirements of the
Worker's Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101, et
seq., or any similar state or local plant closing law with respect to any of its
employees that is reasonably likely to result, singly or in the aggregate, in a
Material Adverse Effect.
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<PAGE> 16
(bb) Each of the Company and its Subsidiaries is conducting its
business in compliance with all applicable federal, state and local laws, rules,
regulations, codes and ordinances relating to zoning, land use and employee or
occupational safety, except where such noncompliance would not, singly or in the
aggregate, result in a Material Adverse Effect.
(cc) All tax returns and reports required to be filed by the Company
and its Subsidiaries in any jurisdiction have been timely filed, and all taxes,
including, without limitation, withholding taxes, penalties and interest,
assessments, notices of deficiency, fees and other charges due or claimed to be
due from such entities have been paid, other than (i) those being contested in
good faith and for which adequate reserves have been provided in accordance with
GAAP, (ii) those currently payable without penalty or interest that will not
result in any Lien against the assets of the Company or any of its Subsidiaries
or (iii) those which otherwise would not have a Material Adverse Effect; neither
the Company nor any of its Subsidiaries has received any tax assessment, notice
of proposed adjustment or deficiency notice from any taxing authority except for
such assessment or notice as would not have a Material Adverse Effect.
(dd) As of the date hereof, the present fair saleable value of the
assets the Company exceeds, and after giving effect to the transactions
contemplated hereby, the present fair saleable value of the assets of the
Company will exceed, the respective amount that will be required to be paid on
or in respect of its existing debts and other liabilities (including, without
limitation, contingent obligations) as they become absolute and matured; as of
the date hereof, the assets of the Company do not, and after giving affect to
the transactions contemplated by the Note Documents, the assets of each of the
Company will not, constitute unreasonably small capital to carry out its
business as conducted or as proposed to be conducted including, without
limitation, its capital needs, taking into account its capital requirements and
capital availability; the Company does not intend to, nor does it believe that
it will, incur debts beyond its ability to pay such debts as they mature.
(ee) The Company will use the proceeds of the issuance of the Notes
for general corporate purposes; neither the Company nor any agent thereof acting
on its behalf has taken, and none of them will take, any action that is
reasonably likely to cause the transactions contemplated hereby and by the other
Note Documents to violate Regulations T, U or X of the Board of Governors of the
Federal Reserve System.
(ff) Except as set forth in Schedule 5(ff), there are no business
relationships or related party transactions that would be required to be
disclosed in a registration statement filed by the Company under the Securities
Act pursuant to Item 404 of Regulation S-K of the Commission and there are no
documents, agreements or other arrangements not previously provided to Purchaser
which would be required to be filed as exhibits to a registration statement
filed by the Company under the Securities Act pursuant to Item 601 of Regulation
S-K of the Commission.
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<PAGE> 17
(gg) All written information furnished after the date hereof by the
Company and its Subsidiaries to Purchaser pursuant to this Agreement and the
other Note Documents and the transactions contemplated hereby and thereby will
be true, complete and correct in all material respect, or (in the case of
projections) based on assumptions which the Company, acting in good faith,
believes to be reasonable, on the date as of which such information is stated or
certified.
(hh) The Company, each of its Subsidiaries and each of their
respective ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Company, any
of its Subsidiaries or any of their respective ERISA Affiliates. The present
value of all benefit liabilities under each Plan (based on those Assumptions
used to fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed by more than $2,500,000 the fair market value of the assets of
such Plan, and the present value of all benefit liabilities of all underfunded
Plans (based on those assumptions used to fund each such Plan) did not, as of
the last annual valuation dates applicable thereto, exceed by more than
$1,000,000 the fair market value of the assets of all such underfunded Plans.
The Company and its Subsidiaries are each "operating companies" as defined in
Department of Labor Regulation Section 2510.2-101.
(ii) Neither of the Company, nor any of its Subsidiaries nor anyone
authorized to act on their behalf has offered the Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than Purchaser or has taken, or will take, any action which would subject the
issuance or sale of the Notes to Section 5 of the Securities Act or has engaged
in any form of general solicitation or general advertising in connection with
the offer and sale of the Notes; except as permitted by the Securities Act,
neither the Company nor any of its Subsidiaries nor any Person acting on their
behalf has distributed and, prior to the later to occur of the Closing Date and
the Resale Date, will not distribute, any offering material in connection with
the offer and sale of the Notes, other than any such materials delivered to
Purchaser in connection with the transactions contemplated by this Agreement and
the other Note Documents.
(jj) Within the preceding six months, neither the Company nor any of
its Subsidiaries nor any other Person acting on their behalf has offered or sold
to any Person any Notes, or any securities of the same or a similar class as the
Notes, other than the Notes offered or sold to Purchaser hereunder.
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<PAGE> 18
(kk) Assuming the Notes are issued, sold and delivered under the
circumstances contemplated by this Agreement, that the representations and
warranties and covenants of Purchaser contained in Section 6 hereof are true,
correct and complete in all material respects, that Purchaser complies with the
covenants set forth in Section 8 hereof, and that any purchaser to whom
Purchaser resells the Notes receives a copy of an offering or private placement
memorandum, prospectus or similar document prior to such sale, if required by
the Securities Act, registration under the Securities Act of the Notes or
qualification of the Indenture in respect of the Notes under the TIA, is not
required in connection with the offer and sale of the Notes to the Purchasers in
the manner contemplated by this Agreement and resales of the Notes by the
Purchasers in compliance with Rule 144A or Regulation S under the Securities Act
will be exempt from the registration requirements of the Securities Act.
(ll) Neither the Company nor any of its Subsidiaries has made, offered
or agreed to offer anything of value to any government official, political party
or candidate for government office (or any person that the Company knows or has
reason to know, will offer anything of value to any government official,
political party or candidate for political office), nor has it taken any action
which would cause the Company or any of its Subsidiaries to be in knowing
violation of any law of any foreign jurisdiction or the Foreign Corrupt
Practices Act of 1977, as amended; there is not now nor has there ever been any
employment by the Company or any of its Subsidiaries of any governmental or
political official in any country.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
(a) Purchaser acknowledges that the Notes have not been registered
under the Securities Act and that, pending the registration of the Notes
pursuant to the terms of the Registration Rights Agreement, none of the Notes
may be offered or sold within the United States or to, or for the account or
benefit of, U.S. Persons (as defined in Regulation S under the Securities Act)
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, and will be required to notify
each subsequent purchaser of the Notes from it of such resale restrictions.
(b) Purchaser has had access to financial and other information, and
was given the opportunity to ask questions of the Company, regarding the Company
and the Notes as it has deemed necessary in order to evaluate the relative
merits and risks of an investment in the Notes.
(c) Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the risks of an investment in
the Notes and has determined that the Notes are a suitable investment for it and
that at this time Purchaser has no need for liquidity of this investment and
could bear a complete loss of its investment in the Notes.
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<PAGE> 19
(d) Purchaser understands that the Notes will, until the earlier of
such time as the Notes have been registered under the Securities Act pursuant to
the terms of the Registration Rights Agreement or the expiration of the
applicable holding period with respect to the Notes set forth in Rule 144(k)
under the Securities Act, unless otherwise agreed by the Company and Purchaser,
bear a legend substantially to the following effect:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904
OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL
ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER
(IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES."
SECTION 7. COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) If requested by Purchaser in connection with any resale of the
Notes, it will (and will cause each of its Subsidiaries, parent (if any) and
their respective directors, officers and controlling stock holders, if any, to)
(i) fully cooperate with Purchaser and any Person retained by Purchaser to
assist in such resale (including, without limitation, counsel or investment
bankers) (each a "Purchaser Advisor") in the preparation of an offering or
private placement memorandum, prospectus or such other documents as may be
required to satisfy the requirements of Rule 144A(d)(4) of Regulation S-K of
Section 5 of the Securities Act (an "Offering Document") and to take or permit
to be taken any and all actions related thereto in order to facilitate the
preparation of such documents and the resale of the Notes, as the case may be,
(ii) prepare and participate in any rating agency presentations and the
preparation of any presentations or materials in connection therewith, (iii)
participate in a "road show" promoting such resale and the preparation of any
presentations or materials in connection therewith, (iv) list the Notes for
trading on a national securities exchange or for quotation on Nasdaq or such
other automated quotation system as may be specified by Purchaser, and (v) pay
all fees and expenses associated with clauses (i) through (iv) and to furnish to
Purchaser and its Purchaser Advisors, without charge, such number of copies of
any of such documents, as they may then be amended or supplemented, as Purchaser
or its Purchaser Advisors may reasonably request; if requested by
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<PAGE> 20
Purchaser in the case of an underwritten offering, the Company will enter into a
purchase or underwriting agreement with the underwriters, which underwriting or
purchase agreement will contain representations, covenants, indemnifications and
other provisions customary for a transaction of that type.
(b) It will promptly from time to time take such action as Purchaser
or any Purchaser Advisor may reasonably request to qualify the Notes for
offering and sale (whether in an underwritten offering or in secondary
transactions) under the securities laws of such jurisdictions as Purchaser or
such Purchaser Advisor may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the Notes or to facilitate
secondary transactions in the Notes, provided that in connection therewith, the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction.
(c) Until the Resale Date, the Company will promptly advise Purchaser
and, if requested, confirm such advice in writing, of any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor or court or governmental
action, order or decree or any other Material Adverse Change; and since the date
of the Balance Sheet, there has not been any change in the capital stock or
long-term debt of the Company or any of its Subsidiaries or any other Material
Adverse Change.
(d) The Company will not, and will cause its Affiliates not to, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) that would be integrated with the
sale of the Notes in a manner that would require the registration under the
Securities Act of the sale of the Notes to Purchaser or of the initial resale of
Notes by Purchaser pursuant to Rule 144A or Regulation S; provided that
Purchaser shall use commercially reasonable efforts to cooperate with the
Company in complying with this covenant.
(e) It will not be or become, at any time prior to the expiration of
two years after the Issue Date, an open-end investment company, unit investment
trust, closed-end investment company or face-amount certificate company that is
or is required to be registered under Section 8 of the Investment Company Act.
(f) From and after the Closing Date, so long as any of the Notes are
outstanding and during any period in which the Company is not subject to or
filing reports under Section 13 or 15(d) of the Exchange Act, the Company agrees
to make available to holders of the Notes and prospective purchasers of the
Notes designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Act to permit compliance with Rule 144A in connection
with resale of the Notes.
(g) The Company agrees that it will not and it will not cause its
Affiliates to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Securities Act) that
would be integrated with the sale of the Notes in a manner that would require
the registration under the Securities Act of the sale of the Notes to Purchaser.
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<PAGE> 21
(h) Neither the Company nor any of its Affiliates will solicit any
offer to buy or offer to sell the Notes by means of any form of general
solicitation or general advertising.
(i) The Company agrees that in connection with the registration of
the Notes pursuant to the Registration Rights Agreement, or at such earlier time
as may be required, the Indenture will be qualified under the TIA, as amended
and any necessary supplemental indentures will be entered into in connection
therewith.
(j) The Company will not claim the benefit of any usury laws against
any holders of the Notes.
(k) The Company will use the net proceeds received by it from the
sale of the Notes solely for general corporate purposes.
(l) The Company will furnish to the holders of the Notes as soon as
practicable after the end of each fiscal year, but in any event within 90 days
of the end of each fiscal year, an annual report (including an audited balance
sheet and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter ending
after the Closing Date), but in any event with 45 days after the end of each
such fiscal quarter, consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail, and to furnish to
the holders of the Notes all other documents specified in Section 4.03 of the
Indenture, all in the manner so specified;
(m) The Company and the Subsidiaries shall file and use its
reasonable best efforts to cause to be declared or become effective under the
Act, on or prior to the date prescribed by the Registration Rights Agreement, a
registration statement to effectuate the Exchange Offer or a resale of the Notes
as may be required by the Registration Rights Agreement.
(n) Neither the Company nor any of its Subsidiaries will resell any
Notes that have been acquired by them.
SECTION 8. COVENANTS OF THE PURCHASER
Purchaser covenants and agrees with the Company that Purchaser
will not reoffer, resell, transfer or otherwise dispose of the Notes except
pursuant to an effective registration statement or in a transaction exempt from,
or not subject to, the registration requirements of Section 5 of the Securities
Act.
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<PAGE> 22
SECTION 9. CONDITIONS PRECEDENT.
9.1. Conditions to Closing.
The execution and delivery of this Agreement by Purchaser, the
occurrence of each Closing Date and the obligation of the Purchaser to purchase
the Notes on each such Closing Date are subject to the conditions precedent that
the Purchaser shall have received the following documents, each of which shall
be satisfactory to the Purchaser in form and substance, and the satisfaction of
the following conditions:
(a) Representations and Warranties. The representations and
warranties made by the Company in Section 4 hereof, and in each of the other
Note Documents to which it is a party, shall be true and correct in all material
respects on and as of the date hereof and each Closing Date with the same force
and effect as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).
(b) Satisfaction of Obligations. The Company shall have performed all
of its obligations under this Agreement and each of the other Note Documents to
which it is a party to be performed as of the date hereof and each Closing Date
unless otherwise waived by the Purchaser.
(c) No Adverse Proceeding. No action, suit or proceeding shall be
pending against or affecting or, to the knowledge of the Company, threatened
against, the Company or any of its Subsidiaries before any Governmental
Authority that, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect.
(d) No Material Adverse Change. Neither the Company nor any of its
Subsidiaries has sustained since the date of the Balance Sheet any material loss
or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor or court or governmental
action, order or decree, and there shall not have been any change in the Capital
Stock or long term debt of the Company or any of its Subsidiaries or any other
Material Adverse Change.
(e) Notes. The Company shall have executed and delivered to Purchaser
certificates evidencing the Notes to be issued on such Closing Date in the form
of Exhibit A to the Indenture.
(f) Indenture. The Company and the Subsidiaries shall have executed
and delivered to the Trustee the Indenture.
(g) Registration Rights Agreement. The Company and the Subsidiaries
shall have executed and delivered to Purchaser the Registration Rights
Agreement.
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<PAGE> 23
(h) Corporate Documents. Purchaser shall have received good standing
certificates and certified copies of the Certificate of Incorporation and Bylaws
(or equivalent documents) of the Company and of all corporate authority for the
Company (including, without limitation, Board of Director resolutions and
evidence of the incumbency of officers) with respect to the execution, delivery
and performance of the Note Documents and each other document to be delivered by
the Company from time to time in connection herewith (and the Purchaser may
conclusively rely on any such certificate until it receives notice in writing
from the Company to the contrary).
(i) Officers' Certificate. Purchaser shall have received an Officers'
Certificate, dated the date hereof and each such Closing Date, stating that (i)
the representations and warranties of the Company and its Subsidiaries in this
Agreement are true and correct, (ii) the Company and its Subsidiaries have
satisfied all conditions on their part to be performed or satisfied hereunder at
or prior to the date hereof or such Closing Date, as the case may be, and (iii)
to the effect of paragraphs (c) and (d) of this Section 9.
(j) Opinion of Piper & Marbury, L.L.P. The Company shall deliver to
Purchaser and the Trustee, a written opinion of Piper & Marbury, L.L.P., counsel
to the Company and the Subsidiaries, dated the date hereof and such Closing
Date, substantially in the form of Exhibit B hereto.
(k) Further Assurances. Prior to the date hereof and each such
Closing Date, the Company shall have furnished to Purchaser such further
information, certificates and documents as Purchaser may reasonably request.
SECTION 10. RECISSION RIGHTS
Upon the material breach of any representation or warranty
contained in this Agreement, the Purchaser shall have the option, upon written
notice to the Company (the "Recission Notice"), to require the Company to
purchase some or all of the Notes then held by the Purchaser and acquired
pursuant to this Agreement, at a purchase price in cash equal to the purchase
price paid for the notes pursuant tot Section 2.2 of this Agreement, plus
accrued interest and amortization of discount (the "Original Purchase Price"),
or if the Recission Notice shall specify an amount that is less than all of the
Notes originally purchase by the Purchaser hereunder, then such pro rata potion
of the Original Purchase Price. The Company shall pay (by wire transfer) to the
Purchaser such amount no later than 15 days after date of the Recission Notice.
SECTION 11. INDEMNIFICATION AND CONTRIBUTION
(a) The Company hereby agrees to indemnify the Purchaser, its
Affiliates and each Person, if any, who controls Purchaser or such Affiliates
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and their respective directors, officers, employees, attorneys and
agents (each a "Purchaser Indemnified Party") from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred by any of them in connection with, or in any way relating to or arising
out of, the Note Documents or any other documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby, including
any loss, liability, claim, damage or expense arising out of or by reason of any
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<PAGE> 24
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) or otherwise relating to the
Notes or any actual or proposed use by the Company or any of its Subsidiaries of
the proceeds of the Notes, including, but not limited to, the reasonable fees
and disbursement of counsel incurred in connection with any such investigation
or litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason for the gross negligence or
willful misconduct of the Person to be indemnified). The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against any
Purchaser Indemnified Party in respect of which indemnity may be sought against
the Company, the Purchaser Indemnified Party shall promptly notify, in writing,
the parties against whom indemnification is being sought (the "Indemnifying
Parties"), but the omission so to notify the indemnifying party shall not relive
it of any liability it may have against any Purchaser Indemnified Party, and
such Indemnifying Parties shall assume the defense thereof, including the
employment of counsel satisfactory to the Purchaser Indemnified Party and
payment of all fees and expenses. The Purchaser Indemnified Party shall have the
right to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Purchaser Indemnified Party unless (i) the
Indemnifying Parties have agreed in writing to pay such fees and expenses, (ii)
the Indemnifying Parties have failed timely to assume the defense or to employ
counsel satisfactory to the Purchaser Indemnified Party, or (iii) the named
parties to any such action, suit or proceeding (including any impleaded parties)
include both any Purchaser Indemnified Party and the Indemnifying Parties and
the Purchaser Indemnified Party shall have been advised by their counsel that
representation of such Indemnified Party and any Indemnifying Party by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Indemnifying Party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of the Purchaser Indemnifying Party).
It is understood, however, that the Indemnifying Parties shall, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of only one separate firm of attorneys (in addition to any
local counsel at any time for all the Purchaser Indemnified Parties, which firm
shall be designated in writing by the Purchaser, and that all such fees and
expenses shall be reimbursed on a monthly basis. The Indemnifying Parties shall
not be liable for any settlement of any such action, suit or proceeding effected
without their written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Indemnifying Parties agree to indemnify and hold harmless the
Purchaser Indemnified Parties, to the extent provided in paragraph (a), from and
against any loss, claim, damage, liability, expense or judgment by reason of
such settlement or judgment.
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<PAGE> 25
(c) If the indemnification provided for herein is unavailable to any
Purchaser Indemnified Party under paragraphs (a) or (b) hereof in respect of any
losses, claims, damages, liabilities, expenses or judgments referred to therein,
then an indemnifying party, in lieu of indemnifying such Purchaser Indemnified
Party, shall contribute to the amount paid or payable by such Purchaser
Indemnified Party as a result of such losses, claims, damages, liabilities,
expenses or judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Purchaser on
the other hand from the offering and sale of the Notes, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law or if
the Purchaser Indemnified Party failed to give the notice required under
subsection (b) above, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Purchaser on the other in
connection with action or inaction that resulted in such losses, claims damages,
liabilities, expenses or judgment, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Purchaser on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total discounts and commissions received by the
Purchaser as set forth herein.
(d) The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 11 were determined by a pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (c) above. The amount
paid or payable by a Purchaser Indemnified Party as a result of the losses,
claims, damages, liabilities, expenses or judgments referred to in paragraph (c)
above shall be deemed to include, subject to the limitation set forth in this
Section 11, any legal or other expenses reasonably incurred by such Purchaser
Indemnified Party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this Section
11, no Purchaser Indemnified Party shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total discounts and
commissions received by Purchaser exceeds the amount of any damages which such
Purchaser Indemnified Party has otherwise been required to pay. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Any losses, claims, damages, liabilities, expenses or judgments
for which a Purchaser Indemnified Party is entitled to indemnification or
contribution under this Section 11 shall be paid by the indemnifying party to
the Purchaser Indemnified Party as such losses, claims, damages, liabilities,
expenses or judgments are incurred. The indemnity and contribution agreements
contained in this Section 11 and the representations and warranties of the
Company set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Purchaser Indemnified Party, (ii) acceptance of any Notes and payment therefore
hereunder, and (iii) any termination of this Agreement. A successor to any
Purchaser Indemnified Party, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 11.
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<PAGE> 26
(f) No indemnifying party shall, without the prior written consent of
the Purchaser Indemnified Party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any Purchaser
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Purchaser Indemnified Party, unless such settlement
involves solely the payment of money and includes an unconditional release of
such Purchaser Indemnified Party from all liability on claims that are the
subject matter of such action, suit or proceeding.
SECTION 12. MISCELLANEOUS.
12.1. Waiver.
No failure on the part of any party to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power of
privilege under this Agreement, the Notes and any other Note Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement, the Notes or any other Note
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein and in the other
Note Documents are cumulative and not exclusive of any remedies provided by law.
12.2. Notices.
Except as otherwise expressly permitted by this Agreement, all notices,
requests and other communications provided for therein and under the Note
Documents (including, without limitation, any modifications of, or waivers,
requests or consents under, this Agreement) shall be given or made in writing
(including, without limitation, by telecopy) delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature page
hereof); or, as to any party, at such other address as shall be designated by
such party in a notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given when
transmitted by telecopier or personally delivered or, in each case given or
addressed as aforesaid.
12.3. Expenses
The Company agrees to pay or reimburse the Purchaser for: (a) all
out-of-pocket costs and expenses of the Purchaser (including, without
limitation, the fees and expenses of Jones, Day, Reavis & Pogue, counsel to the
Purchaser) in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement and the other Note Documents and the issuance of the
Notes hereunder, and (ii) the negotiation and preparation of any modification,
supplement or waiver of any of the terms of this Agreement or any of the other
Note Documents whether or not consummated; (b) all reasonable out-of-pocket
costs and expenses of the Purchaser (including, without limitation, the
reasonable fees and expenses of legal counsel (or, if the Purchaser is not
represented by outside counsel, the allocated costs of in-house counsel) in
connection with the transactions contemplated hereby and any enforcement or
collection proceedings resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory
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<PAGE> 27
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated); (c) the enforcement of this Section 12.3; (d) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
Governmental Authority in respect of this Agreement or any of the other
Transaction Documents or any other document referred to herein or therein; (e)
the preparation, printing and delivery of an Offering Document, if applicable;
(f) the issuance, transfer and delivery of the Notes; (g) the preparation of
certificates for the Notes; (h) all fees and expenses in connection with
obtaining a rating for the Notes pursuant to Section 7(a) hereof; (i) the
reasonable fees and expenses of the Trustee and any agent of the Trustee and the
reasonable fees and disbursements of counsel for the Trustee in connection with
the Indenture; (j) the reasonable fees and expenses of listing the Notes for
trading on a national securities exchange or for quotation on Nasdaq or such
other automated quotation system as may be specified by Purchaser, if such
trading is requested by Purchaser or its Purchaser Advisors under Section 7(a)
hereof; and (k) all other costs and expenses incident to the performance of the
Company's obligations hereunder and under the other Note Documents, including
the Registration Rights Agreement, which are not otherwise specifically provided
for in this Section 12.3.
12.4. Amendments, Etc.
Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be modified or supplemented only by an
instrument in writing signed by the Company and Purchaser (and if Purchaser has
resold any of the Notes, the Trustee)
12.5. Successors and Assigns.
(a) The Purchaser and each subsequent holder of the Notes may sell,
transfer, negotiate or assign to one or more other Persons all or a portion of
its commitments, loans and its rights and obligations under any Note Document
without the consent of the Company except that assignments to Persons engaged in
the same line of business as the Company.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns and any
transferee of the Purchaser.
12.6. Survival.
The obligations of the Company under Sections 5 and 11 hereof
shall survive the execution and delivery of this Agreement and the Notes. In
addition, all agreements, representations and warranties of the Company herein
and in any certificate or other instrument delivered pursuant to this Agreement
shall (A) be deemed to have been relied upon by the Purchaser, notwithstanding
any investigation heretofore or hereafter made by the Purchaser or on its
behalf, and (B) shall survive the execution and delivery of the Notes to the
Purchaser, and shall continue in effect so long as any Note is outstanding.
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<PAGE> 28
12.7. Captions.
The table of contents and captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provisions of this Agreement.
12.8. Counterparts.
This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
12.9. Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to its conflicts
of laws principles.
12.10. Submission to Jurisdiction; Waivers.
The Company hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, the Notes, and the other Note Documents
to which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of the
States of New York and Texas and the courts of the United States of America for
the Southern District of New York and the Northern District of Texas, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to its address set
forth under its signature below or at such other address of which the Purchaser
shall have been notified; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction.
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<PAGE> 29
12.11. Waiver of Jury Trial.
EACH OF THE COMPANY AND PURCHASER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written above.
NET2000 COMMUNICATIONS, INC.
By: /s/ Clayton A. Thomas, Jr.
--------------------------------
Name: Clayton A. Thomas, Jr.
Title: President and CEO
Address for Notices:
2195 Fox Mill Road
Herndon, Virginia 90171
Attention: Donald E. Clarke
Chief Financial Officer and Treasurer
Telecopy: (703) 793-2525
Telephone: (703) 793-2500
NORTEL NETWORKS INC.
By: /s/ Jay R. Prestipino
--------------------------------
Name: Jay R. Prestipino
Title: Director, Customer Finance
Address for Notices:
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Networks, Finance
Telecopy: (978) 916-4755
Telephone: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082
Attention: Vice President, Customer Finance
North America
Telecopy: (972) 684-3679
Telephone: (972) 684-2271
and
<PAGE> 31
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan Administration
Telecopy: (972) 684-3808
Telephone: (972) 684-7687
<PAGE> 1
EXHIBIT 10.18
WARRANT AGREEMENT
This WARRANT AGREEMENT, dated as of July 30, 1999 (this "Agreement"), is
made and entered into by and between NET2000 COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and NORTEL NETWORKS INC., a Delaware corporation
("Purchaser").
RECITALS
WHEREAS, the Company has authorized the issuance of the Warrants which
are exercisable, pursuant to the terms and conditions hereof, for common stock
of the Company during the Exercise Period, and
WHEREAS, Purchaser now desires to subscribe for, and the Company now
desires to issue to Purchaser, upon the terms and conditions set forth herein,
the Warrants substantially in the form of Exhibit A hereto.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions.
Capitalized terms used herein shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, any other Person that
directly or indirectly controls, or is under common control with, or is
controlled by such Person. As used in this definition, "control" (including,
with its correlative meanings, the terms "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of power to direct or cause the direction of the
management and policies of such Person (whether through ownership of securities
or partnership or other ownership interests, contract or otherwise), provided
that, in any event, any Person which owns, directly or indirectly, more than 10%
of the securities having ordinary voting power for the election of directors or
other governing body of a corporation or more than 10% of the partnership or
their ownership interest of any Person (other than a limited partner of such
other Person) will be deemed to control such corporation or other Person.
Notwithstanding the forgoing, none of Purchaser, any Lender or any of their
respective Affiliates shall be deemed an Affiliate of the Company.
"Balance Sheet" has the meaning assigned to such term in Section 7(f).
"Bankruptcy and Equity" has the meaning assigned to such term in Section
7(c).
"Board of Directors" means, as to any Person, the Board of Directors of
such Person or any duly authorized committee thereof.
<PAGE> 2
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks are required by law or authorized to close
in New York City.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" or "SEC" shall mean the Securities and Exchange Commission.
"Common Stock" means (i) the class of shares designated as the Common
Stock of the Company as of the date of this Agreement, (ii) all shares of any
class or classes (however designated) of the Company, now or hereafter
authorized, the holders of which have the right, without limitation as to
amount, either to all or to a part of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which are ordinarily entitled
to vote generally in the election of directors of the Company, or (iii) any
other class of shares resulting from successive changes or reclassifications of
such shares consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value.
"Company" has the meaning assigned to it in the preamble.
"Conversion Price" shall have the meaning assigned to such term in
Section 12.1(b).
"Convertible Securities" shall have the meaning assigned to such term in
Section 12.1(a).
"Current Market Price" shall mean, as to any security, such security's
closing sales price on the principal nationally recognized domestic securities
exchange (including the Nasdaq Stock Market - National Market tier) on which
such security may, at the time, be listed, or if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all exchanges on which such security may, at the time, be listed, at the end
of such day, or if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ Inter-Dealer Quotation
System (the "NASDAQ System") as of the close of trading in New York, New York on
such day, or if on any day such security is not quoted in the NASDAQ System, the
average of the high and low bid and asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, as reported on the date of
the applicable issuance or sale or deemed issuance or sale, as the case may be,
provided that if such date is not a Trading Day, as reported on the Trading Day
immediately preceding such date.
"Demand Registration" shall have the meaning set forth in Section 5.1.
"Effective Time," shall mean, in the case of any Registration Statement,
the time and date as of which the Commission declares the Registration Statement
effective or as of which the Registration Statement otherwise becomes effective.
"Environmental Laws" has the meaning assigned to such term in Section 7.
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<PAGE> 3
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company or any Guarantor, is treated as a
single employer under Section 414(b) or (c) of the Code, or solely for purposes
of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined Section 4043
of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the
adoption of any amendment to a Plan that would require the provisions of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA
with respect to the termination of any Plan or the withdrawal or partial
withdrawal of the Company, any Guarantor or any of their ERISA Affiliates from
any Plan or Multiemployer Plan; (f) the receipt by the Company, any Guarantor or
any of their ERISA Affiliates from the PBGC or a plan administrator of any
notice relating to the intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (g) the receipt by the Company, any Guarantor or
any of their ERISA Affiliates of any notice concerning the imposition of
liability as a consequence of a withdrawal (within the meaning of Part I of
Subtitle E or Title IV of ERISA) or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect
to which the Company, any Guarantor or any of their subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of the Code) or with
respect to which the Company, any Guarantor or any such Subsidiary could
otherwise be liable; and (i) any other event or condition with respect to a Plan
or Multiemployer Plan that could reasonably be expected to result in liability
of the Company or any Guarantor.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated thereunder, all as the same shall be
in effect from time to time.
"Exempt Transfer" shall mean any transfer of the Warrants or Warrant
Shares exempt form registration under the Securities Act.
"Exercise Period" shall mean the period beginning on the date hereof to
and including the Expiration Date.
"Existing Stockholders" shall mean any of Bruce W. Bedarski, Peter B.
Callowhill, Corlyn A. Marsan, Clayton A. Thomas, Jr. and Mark Mendes.
"Expiration Date" shall mean July 30, 2009.
"Financial Statements" has the meaning assigned to such term in Section
7.
-3-
<PAGE> 4
"Fully Diluted Common Equity" means, at any time, the then outstanding
Common Stock plus (without duplication) all shares of Common Stock issuable,
whether at such time or upon the passage of time or the occurrence of future
events, upon the exercise, conversion or exchange of all rights, warrants,
options, convertible securities or exchangeable securities or indebtedness, or
other rights exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock or securities exercisable for or convertible or
exchangeable into Common Stock then outstanding.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountant.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, the Commission and any
self-regulatory organizations) and any court, tribunal or arbitrator having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective properties or assets.
"Holder" shall mean Purchaser and each other Person who acquires Warrants
or Warrant Shares from time to time (including any successors or assigns), in
each case for so long as such Person owns any Warrants or Warrant Shares.
"Intellectual Property Rights" has the meaning assigned to such term in
Section 7.
"IPO" means an underwritten primary initial public offering of Common
Stock of the Company in the United States of at least $25 million pursuant to an
effective registration statement filed under the Securities Act.
"Material Adverse Effect" means a material adverse effect on, and
"Material Adverse Change" means a materially adverse change, in: (i) the
properties business, results of operations, condition (financial or otherwise),
affairs or prospects of the Company and its Subsidiaries taken as a whole; (ii)
the ability of the Company or any Subsidiary to perform their respective
obligations under the Warrants or this Agreement; (iii) the validity or
enforceability of the Warrants or this Agreement; and (iv) the ability of
Purchaser to enforce its rights and remedies under the Warrants or this
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"Notice and Questionnaire" shall mean a Notice of Registration Statement
and Selling Securityholder Questionnaire substantially in the form of Exhibit D
hereto.
"Notices" has the meaning assigned to such term in Section 19.
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<PAGE> 5
"Option Price" shall have the meaning assigned to such term in Section
12.1(a).
"Options" shall have the meaning assigned to such term in Section
12.1(a).
"Participating Holders" shall have the meaning assigned to such term in
Section 5.1(c).
"Person" means any corporation, association, partnership, joint venture,
limited liability company, joint-stock company, trust, organization, business,
individual or Governmental Authority.
"Piggy-Back Registration" shall have the meaning set forth in Section
6.2.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Company,
the Guarantor or any of their ERISA Affiliates is (or, if such plan were
terminated, would under Section 4069 or ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Proposed Purchaser" has the meaning assigned to such term in Section
5.1.
"Proposed Tag-Along Transfer" has the meaning assigned to such term in
Section 5.1.
"Prospectus" shall mean the prospectus included in any registration
statement filed with the Commission pursuant to the terms hereof as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by any such
registration statement and all other amendments and supplements to the
prospectus, including post-effective amendments and all other material
incorporated by reference in such prospectus.
"Purchase Form" means the Purchase Form substantially in the form of
Exhibit B.
"Records" shall have the meaning set forth in Section 6.4(h).
"Registrable Securities" shall mean the Warrants and the Warrant Shares;
provided, however, that Warrants and Warrant Shares shall cease to be
Registrable Securities when (i) one or more registration statements covering
such Warrants or Warrant Shares has become effective under the Securities Act
and such Warrants or Warrant Shares have been disposed of pursuant to such
effective registration statement; (ii) such Warrants or Warrant Shares have been
sold pursuant to Rule 144 under circumstances in which any legend borne by such
Warrants or Warrant Shares relating to restrictions on transferability under the
Securities Act or otherwise is removed by the Company; (iii) such Warrants or
Warrant Shares are eligible to be sold pursuant to paragraph (k) of Rule 144; or
(iv) such Warrants or Warrant Shares are no longer outstanding.
"Registration Expenses" shall have the meaning set forth in Section 6.5.
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"Required Holders" means the Holder or Holders who hold, in the
aggregate, Warrants exercisable for a majority of the Warrant Shares issuable
upon exercise of the outstanding Warrants.
"Rule 144", "Rule 144A", "Rule 405" and "Rule 415" shall mean, in each
case, such rule promulgated under the Securities Act (or any successor
provision), as the same shall be amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect from time to time.
"Shelf Registration" shall mean a registration statement filed on any
appropriate form with the SEC providing for the registration of, and the sale on
a continuous or delayed basis by the Holders of, Registrable Securities,
pursuant to Rule 415 or any similar rule and any amendment or supplement to any
then-effective shelf registration.
"Suspension Period" shall have the meaning set forth in Section
6.1(b)(iii).
"Tag-Along Notice" has the meaning assigned to such term in Section 5.1.
"Tag-Along Right" has the meaning assigned to such term in Section 5.1.
"Trading Day" has the meaning assigned to such term in Section 5.2.
"Transaction" shall have the meaning assigned to such term in Section
12.1(f).
"Underwritten Offering" means a registration in which securities of the
Company are sold to an underwriter for reoffering to the public.
"Warrant" has the meaning assigned to such term in Section 2.1.
"Warrant Agent" has the meaning assigned to such term in Section 2.3.
"Warrant Certificate" has the meaning assigned to such term in Section
2.2.
"Warrant Price" has the meaning assigned to such term in Section 2.1.
"Warrant Register" has the meaning assigned to such term in Section 3.1.
"Warrant Shares" means the Common Stock of the Company for which the
Warrants are exercisable.
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Section 2. Issuance of Warrants; Form of Warrants.
2.1 Issuance of Warrants. Concurrently with the execution of this
Agreement, the Company will issue and deliver to Purchaser warrants (the
"Warrants") to purchase 895,944 shares of common stock, par value $.01 per
share, of the Company (which represents on the date hereof four percent (4%) of
the Fully Diluted Common Equity of the Company) at an exercise price of $.01 per
share (the "Warrant Price"). The shares of Common Stock purchasable upon
exercise of the Warrants are hereinafter referred to as the "Warrant Shares."
The number and kind of Warrant Shares purchasable upon exercise of the Warrants
are subject to adjustment pursuant to the provisions of Section 11.
2.2 Form of Warrants. Each Warrant, including without limitation any
Warrants that may be issued upon partial exercise, replacement, or transfer of
Warrants, will be evidenced by, and subject to the terms of a Warrant
certificate (including the Exercise Notice attached thereto, a "Warrant
Certificate") in substantially the form of Exhibit A, in each case executed on
behalf of the Company by manual or facsimile signature of the Chairman of the
Board, President, or any Vice President of the Company, and attested by the
Secretary or any Assistant Secretary of the Company.
2.3 Appointment of Warrant Agent. At the request of Purchaser in
connection with the resale of any Warrants or Warrant Shares to any Person other
than an Affiliate of Purchaser, the Company shall promptly (but in any event
within five (5) Business Days) duly appoint a Person who is not an Affiliate of
the Company to serve as the registrar and warrant agent (the "Warrant Agent").
Until such time, the Company may serve as Warrant Agent.
Section 3. Registration, Transfer, and Exchange of Warrants.
3.1 Registration. All Warrant Certificates will be numbered and will be
registered in a register maintained by the Company (the "Warrant Register") as
they are issued. All Warrants will initially be registered in the name of
Purchaser or any of its nominees.
3.2 Transfer. The Warrants will be transferable only on the Warrant
Register, in whole or in part, upon surrender to the Company of the Warrant
Certificate or Warrant Certificates evidencing the Warrants, duly endorsed by
the Holder or by its duly authorized attorney or representative, or accompanied
by proper evidence of succession, assignment, or authority to transfer, which
endorsement will be guaranteed by a bank or trust company or a broker or dealer
that is a member of the NASD. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or a copy thereof, duly certified,
must be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians, or other legal representatives, duly authenticated
evidence of their authority must be produced and, upon the request of the
Company, must be deposited and remain with the Company. Upon any registration of
transfer, the Company will execute and deliver a new Warrant Certificate or
Warrant Certificates to the persons entitled thereto. No service charge will be
assessed in connection with any such transfer, and the Warrant Certificates
surrendered for transfer will be canceled by the Company.
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3.3 Exchange of Warrant Certificates. Each Warrant Certificate may be
exchanged, at the option of Purchaser or any subsequent holder, and upon
surrender of such Warrant Certificate to the Company, for another Warrant
Certificate, or other Warrant Certificates of different denominations, of like
tenor and representing in the aggregate the right to purchase a like number of
Warrant Shares. Any Holder desiring to exchange a Warrant Certificate or Warrant
Certificates must make such request in a writing delivered to the Company, and
must surrender the Warrant Certificate or Warrant Certificates to be so
exchanged, duly endorsed in accordance with the requirements set forth in
Section 3.2. Thereupon, the Company will execute and deliver to the Holder a new
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested. The Warrant Certificates surrendered for exchange will be canceled by
the Company.
3.4 Payment of Taxes. All shares of Common Stock issuable upon the
exercise of the Warrants pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the initial issuance of the
Warrants and the delivery thereof and the initial issuance of the Warrant Shares
upon the exercise of Warrants, unless such tax or charge is imposed by law upon
the Holder, in which case such taxes or charges shall be paid by the Holder. The
Company will not be required to pay any tax or taxes which may be payable in
respect of any transfer of any Warrants or deliver any Warrant Certificates
unless or until the person or persons requesting the issuance thereof has paid
to the Company the amount of such tax or has established to the satisfaction of
the Company that such tax has been paid.
3.5 Payment of Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
Sections 3.2 and 3.3.
Section 4. Exercise of Warrants; Cancellations of Warrants.
The Warrants may be exercised in whole or in part, at any time or from
time to time, during the Exercise Period, by presentation and surrender hereof
to the Company at its principal office at the address set forth on the signature
page hereof (or at such other address as the Company may after the date hereof
notify the Holder in writing), or at the office of its transfer agent or warrant
agent, if any, with the Purchase Form, annexed hereto as Exhibit B, duly
executed.
Upon receipt by the Company of the Warrants to be exercised and such
Purchase Form, the Holder shall be deemed to be the holder of record of the
number of Warrant Shares specified in such Purchase Form, notwithstanding, that
the transfer books of the Company shall then be closed or the certificates (if
any) representing the Warrant Shares shall not then be actually delivered to
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issuance of the Warrant Shares (other than any
such taxes in connection with a transfer of warrants to another Holder). If any
Warrant should be exercised in part only, the Company shall, upon surrender of
such Warrant, execute and deliver a new
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<PAGE> 9
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares issuable hereunder.
Section 5. Tag-Along Rights
5.1 Transfers by Existing Stockholders of the Company.
(a) In the event of any proposed transfer ( a "Proposed Tag-Along
Transfer") of any Common Stock or securities convertible into or exchangeable
for Common Stock (collectively, the "Subject Shares") by any Existing
Stockholders in a single transaction or a series of related transactions
involving Subject Shares aggregating at least 10% of the Fully Diluted Common
Equity of the Company to a Person (the "Proposed Purchaser"), other than
pursuant to an Exempt Transfer, each Holder of the Warrants, shall have the
irremovable and exclusive right, but not the obligation (the "Tag-Along Right"),
to require the purchase from each of them up to such number of Warrants and/or
Warrant Shares as determined in accordance with Section 5.3 below.
(b) Any Warrants or Warrant Shares purchased from a Holder pursuant
to this Section 5.1 shall be paid for at the same price per share and upon the
same terms and conditions as apply to the Proposed Tag-Along Transfer by such
Existing Stockholders, provided that the price payable by the Proposed Purchaser
shall equal the price proposed to be paid per share for which such Warrant is
exercisable, less the Warrant Price of such Warrant;
(c) The Company or an Existing Stockholder shall give written notice
of at least 30 days prior to the date of the Proposed Tag-Along Transfer to each
Holder stating (i) the name and address of the Proposed Purchaser, (ii) the
proposed amount of consideration and terms and conditions of payment offered by
such Proposed Purchaser (if the proposed consideration is not cash, the notice
shall describe the terms of the proposed consideration), (iii) the number of
Subject Shares proposed to be transferred and (iv) that either the Proposed
Purchaser has been informed of the Tag-Along Right and has agreed to purchase
Warrants and Warrant Shares in accordance with the terms hereof or that the
Existing Stockholders will make such purchase. The Tag-Along Right may be
exercised by any and all Holders by giving written notice to the Company and the
Proposed Purchaser (the "Tag-Along Notice"), within 20 Business Days of receipt
of the notice specified an the preceding sentence (such 20 day period being
referred to herein as the "Tag-Along Period"), indicating its election to
exercise the Tag-Along Right (the "Participating Holders"). The Tag-Along Notice
shall state the amount of Warrants and/or Warrant Shares that such selling
Holder proposes to include in the Proposed Tag-Along Transfer. Failure by any
non-selling Holder to give such notice within the Tag-Along Period shall be
deemed an election by such Holder not to sell its Warrants and/or Warrant Shares
in connection with that Proposed Tag-Along Transfer. The closing with respect to
any sale to a Proposed Purchaser pursuant to this Section 5.1 shall be held at
the time and place specified in the Tag-Along Notice, but in any event within 90
days of the end of the Tag-Along Period. Consummation of the sale of Subject
Shares by an Existing Stockholder to a Proposed Purchaser shall be conditioned
upon the consummation of the sale by each participating Holder to such Proposed
Purchaser of the Warrants and Warrant Shares subject to the Tag-Along Right.
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5.2 Purchase Obligation of Existing Stockholders.
In the event that the Proposed Purchaser does not purchase such
Warrants and/or Warrant Shares from the Participating Holders on the same terms
and conditions as purchased from the Existing Stockholders, then the Existing
Stockholders making such transfer shall purchase the Warrants and/or Warrant
Shares from Participating Holders if the transfer occurs on such terms and
conditions.
5.3 Determination of Transferred Interests.
The number of Warrants and/or Warrant Shares purchased from each
Participating Holder shall be determined by multiplying the aggregate amount of
Subject Shares proposed to be sold by the Existing Stockholder to the Proposed
Purchaser by a fraction, the numerator of which is the total number of shares of
Common Stock (including the number of Warrant Shares issuable upon exercise of
the Warrants) owned by such Participating Holder and the denominator of which is
the Fully Diluted Common Equity of the Company.
5.4 Cost of Transfer.
The Existing Stockholders who are parties to a sale to a Proposed
Purchaser shall arrange for payment directly by the Proposed Purchaser to each
Participating Holder, upon delivery of the certificate or certificated
representing the Warrants and/or the Warrant Shares to be sold, duly endorsed
for transfer, together with such other documents as the Proposed Purchaser may
reasonably request. The reasonable costs and expenses incurred by the Existing
Stockholders and Participating Holders in connection with the sale of the Shares
and Warrants subject to this Section 5 shall be allocated pro rata based upon
the proceeds from the securities sold by each Existing Stockholder and
Participating Holder to a Proposed Purchaser.
5.5 Expiration of the Tag-Along Right.
If at the end of 90 days following the end of the Tag-Along Period,
or as otherwise extended pursuant to the provisions of Section 5.1, the sale of
Subject Shares by the Existing Stockholders and the sale of the Warrants or
Warrant Shares by the Participating Holders have not been completed in
accordance with the terms of the Proposed Purchaser's offer, all certificates
representing such Subject Shares, Warrants and Warrant Shares shall be returned
to the Participating Holders, and all the restrictions on sale, transfer, or
assignment contained in this Agreement shall again be in effect.
5.6 Termination.
Tag-Along Rights shall terminate upon the effectiveness of any
registration statement filed with the SEC with respect to an initial public
offering or subsequent public offering of Common Stock if, after giving effect
to such offering, at least 25% of the Fully Diluted Common Stock would be held
by non-Affiliates of the Company and without restriction on transfer under the
Securities Act.
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Section 6. Demand Registration Rights
6.1 Demand Registrations
(a) Demand Procedures. Purchaser, any Holder which is an Affiliate of
Purchaser or the Required Holders may make a written request to the Company for
registration of Registrable Securities under the Securities Act with the
Commission for a public offering of Registrable Securities (a "Demand
Registration"); provided, however, that the Holders shall have the right to only
two Demand Registrations of all or any part of their Registrable Securities.
Whenever the Company shall receive a request for a Demand Registration, the
Company will promptly give written notice of such registration to all Holders,
use its reasonable best efforts to effect the registration under the Securities
Act of the Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 30 days after such notice is
given; provided, however, that the Company will not be required to take any
action pursuant to this Section 6.1:
(i) if the Company has effected a registration pursuant to
Section 6.1 or 6.2 within the 180-day period preceding such request which
permitted Holders of Registrable Securities to register Registrable Securities;
(ii) if the Company shall at the time have effective a Shelf
Registration pursuant to which the Holder or Holders that requested registration
could effect the disposition of such Holder's or Holders' Registrable Securities
in the manner requested; or
(iii) during the pendency of any Suspension Period permitted
under Section 6.1(c);
and provided further that the Company will be permitted to satisfy its
obligations under this Section 6.1 by amending (to the extent permitted by
applicable law) any registration statement previously filed by the Company under
the Securities Act so that such registration statement (as amended) will permit
the disposition in accordance with the intended methods of disposition as
specified as aforesaid) of all of the Registrable Securities for which a demand
for registration has been made under this Section 6.1. If the Company so amends
a previously filed registration statement, it will be deemed to have effected a
registration for purposes of this Section 6.1. All requests made pursuant to
this Section 6.1(a) will specify the number of shares of Registrable Securities
to be registered and will also specify the intended methods of disposition
thereof.
(b) Effective Registration. A registration initiated as a Demand
Registration shall not be deemed a Demand Registration until such registration
has become effective and (except in the case of a Shelf Registration) has been
maintained effective by the Company until the earlier of (i) 180 days and (ii)
the date on which all Registrable Securities included in such registration have
actually been sold; provided, however, that a registration that does not become
effective after the Company has filed a registration statement with respect
thereto solely by reason of the refusal to proceed by the Holders shall be
deemed to have been effected by the
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Company unless the Holders shall have elected (without any obligation) to pay,
and in fact pay (within 30 days after the Company receives notice of such
refusal to proceed of the Holders), all reasonable Registration Expenses in
connection with such registration.
(c) Suspension of Obligation. The Company may postpone, for a period
not to exceed 90 days (each a "Suspension Period"), filing, supplementing or
amending the Registration Statement (each a "Demand Registration Statement")
required to be filed under this Section 6.1 or suspend the effectiveness of any
Registration Statement filed pursuant to this Section 6.1 (or, without
suspending such effectiveness, instruct the Holders that no offers or sales of
Registrable Securities include din such Registration Statement may be made (and
the Holders shall forthwith discontinue disposition of any such Registrable
Securities) if (i) the Company is a party to a transaction involving the
purchase, sale, conversion or issuances of securities of the Company which would
be prohibited pursuant to Regulation M under the Exchange Act during a
distribution of the Registrable Securities to be registered under such
registration statement; or (ii) the Company is in possession of material
non-public information related to a proposed financing, recapitalization,
acquisition, business combination or other material transaction and the Board of
Directors of the Company determines (in good faith in a written resolution) that
disclosure of such information would have a material adverse effect on the
business or operations of the Company and its subsidiaries and disclosure of
such information is not otherwise required by law and the Company delivers
notice (which shall include a copy of the resolution of the Board of Directors
with respect to such determination) to the requesting Holders and any placement
agent or underwriting as contemplated by Section 6.4(f) of the delay, the
reasons therefor, the proposed length thereof; provided, however, that the
Company may deliver only two such notices within any twelve-month period.
Promptly upon the earlier of (w) the time when the purchase, sale, conversion or
issuances of securities of the Company would no longer be prohibited pursuant to
Regulation M, (x) public disclosure of such material non-public information, (y)
the date on which such non-public information is no longer material and (z) 90
days after the date notice is given by the Company pursuant to this Section
6.1(c), the Company shall file, supplement or amend the Demand Registration
Statement as required by the immediately preceding sentence and, in the case of
the suspension of effectiveness or resales of Registrable Securities give notice
to the Holders of Registrable Securities included therein that offers and sales
under the Demand Registration Statement may be resumed. The Company shall give
prompt written notice to the Holders of the termination of any Suspension
Period.
(d) No Right of Company or Other Person to Piggyback on Demand
Registrations. If any Person owning any securities of the Company (other than
any Holder) registers securities of the Company in a Demand Registration (in
accordance with the provisions of this Section 6.1(d)), such Person shall pay
the fees and expenses of counsel to such Person and its pro rata share of the
Registration Expenses if the Registration Expenses for such registration are not
paid by the Company for any reason. The Company covenants that it shall not
grant any registration rights to any Person which rights would, in the
reasonable judgment of the Required Holders, conflict or be inconsistent with
the provisions of this Section 6.1(d), and in the event of such a conflict or
inconsistency, the terms of this Section 6.1(d) shall prevail.
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(e) Selection of Underwriters and Counsel, Etc. The Company shall not
be required to provide an Underwritten Offering of the Registrable Securities.
If the Required Holders so elect and the Company agrees to participate in its
sole discretion, the offering of such Registrable Securities pursuant to such
Demand Registration shall be in the form of an Underwritten Offering. If a
Demand Registration involves an Underwritten Offering, (i) the Required Holders
shall have the right to select the investment banker or bankers and manager or
managers to administer the offering (provided that such investment bankers and
managers must be reasonably satisfactory to the Company), and (ii) the Required
Holders shall have the right to select one counsel to represent the Holders
reasonably acceptable to the Company.
6.2 Piggy-Back Registration. If, at any time or from time to time while
any Registrable Securities are outstanding, the Company proposes to register any
of its securities (whether for its own or others' account) under the Securities
Act (other than by a registration statement on Form S-8 or Form S-4 or other
form that does not include substantially the same information as would be
required in a form for the general registration of securities or that would not
be available for registration of Registrable Securities), the Company shall
promptly give written notice to the Holders of the Company's intention to effect
such registration. If, within 15 days after receipt of such notice, any Holder
submits a written request to the Company specifying the Registrable Securities
such Holder proposes to sell or otherwise dispose of (a "Piggy-Back
Registration"), the Company shall, subject to Section 6.3 below, include the
number of shares of Registrable Securities specified in such Holder's request in
such registration statement and the Company shall use its reasonable best
efforts to keep each such registration statement in effect and to maintain
compliance with Federal and state securities and Blue Sky laws and regulations
for the period necessary for such Holder to effect the proposed sale or other
disposition. Any Holder participating in an Underwritten Offering pursuant to
this Section 6.2 shall, if required by the managing underwriter or underwriters
of such offering, enter into an underwriting agreement in a form customary for
underwritten offerings of the same general type as such offering.
Unless a Holder, or a person acting on behalf of a Holder, has commenced
a distribution thereunder, nothing in this Section 6.2 will create any liability
on the part of the Company to the Holders of Registrable Securities if the
Company for any reason should decide not to file a registration statement
proposed to be filed under the preceding paragraph or to withdraw such
registration statement subsequent to its filing, regardless of any action
whatsoever that a Holder may have taken, whether as a result of the issuance by
the Company of any notice hereunder or otherwise.
6.3 Reduction of Offering. Notwithstanding anything contained herein, if
the managing underwriter or underwriters of an offering described in Section 6.1
or 6.2 hereof delivers a written opinion to the Holders that the size of the
offering that the Holders, the Company or any other Person intends to make or
the kind or combination of securities that the Holders, the Company and any
other Persons intend to include in such offering are such that the success of
the offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, then the amount of any
securities proposed to be offered shall be reduced or excluded for the offering
as follows:
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(i) in the case of a Demand Registration, (x) all securities
proposed to be included in such offering by Persons other than the Holders shall
be reduced or excluded from such offering on a pro rata basis (or on another
basis agreed to by such other Persons) before any Registrable Securities of the
Holders are reduced or excluded from such offering, and (y) in the event that
any Registrable Securities of the Holders are required to be reduced or excluded
from such offering (which will only be required after all securities of Persons
other than the Holders have been excluded entirely as provided in immediately
preceding clause (x)), then the number of Registrable Securities of the Holders
shall be reduced or excluded from such offering on a pro rata basis.
(ii) in the case of a Piggy-Back Registration initiated by a
Person other than the Company, all securities (including Registrable Securities)
to be included in such offering by the Company, the Holders and the holders of
similar "piggy-back" registration rights shall be reduced or excluded from such
offering on a pro rata basis before any securities of the Persons initiating the
Piggy-Back Registration are reduced or excluded; and
(iii) in the case of a Piggy-Back Registration initiated by the
Company, all securities (including Registrable Securities) to be included in
such offering by the Holders, and any other holders of similar "piggy-back"
registration rights shall be reduced or excluded from such offering on a pro
rata basis before any securities of the Company are reduced or excluded.
6.4 Registration Procedures. If the Company files a Registration
Statement pursuant to Section 6.1 or 6.2, the Company shall:
(a) (A) prepare and file with the Commission, (as soon as
practicable, but in any case within the time periods prescribed by Section 6.1
or 6.2, as applicable, a registration statement (including all exhibits and
financial statements required by the Commission to be filed therewith) on any
form for which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and (B) use its best efforts to cause
such registration statement to become effect as soon as practicable after
filing, but in any event within the time periods specified in Section 6.1 or
6.2, as applicable; prepare and file with the Commission such amendments,
post-effective amendments and supplements to such registration statement as may
be required by the Required Holders or as may be necessary to keep the
registration statement effective for the period specified in Section 6.1 or 6.2,
as applicable (or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold or withdrawn),
or, if such registration statement relates to an Underwritten Offering, or such
longer period as in the opinion of counsel for the underwriters a Prospectus is
required by law to be delivered in connection with sales of Registrable
Securities by an underwriter or dealer, cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
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such registration statement or supplement to the Prospectus; provided that if
the Holders specify that such registration shall be a Shelf Registration and the
Company is eligible to use a Registration Statement on Form S-3, the Company
shall use its best effort to effect such Shelf Registration and to keep such
Shelf Registration effective for a period of not less than two years (or such
shorter period which will terminate when all Registrable Shares covered by such
Shelf Registration have been sold or may be resold reasonable without
registration under the Securities Act pursuant to Rule 144(k) or the equivalent
thereunder);
(b) not less than 30 calendar days prior to the Effective Time of the
registration statement, mail the Notice and Questionnaire to the Holders of
Registrable Securities; no Holder shall be entitled to be named as a selling
securityholder in the registration statement as of the Effective Time, and no
Holder shall be entitled to use the Prospectus forming a part thereof for
resales of Registrable Securities at any time, unless such Holder has returned a
completed and signed Notice and Questionnaire to the Company by the deadline for
response set forth therein; provided, however, Holders of Registrable Securities
shall have at least 30 days from the date on which the Notice and Questionnaire
is first mailed to such Holders to return a completed and signed Notice and
Questionnaire to the Company;
(c) prior to filing a registration statement or Prospectus or any
amendment or supplement thereto, furnish to the Holders of Registrable
Securities and each underwriter, if any, of the Registrable Securities covered
by such registration statement copies of such registration statement as proposed
to be filed, and thereafter furnish to the Holders requesting registration of
Registrable Securities and the underwriters, if any, such number of copies of
such registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the Prospectus included in such registration statement (including preliminary
Prospectus) and such other documents as such Holders or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Holders prior to its filing or being used;
(d) comply with the provisions of the Securities Act with respect to
the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the intended methods of disposition
provided for therein;
(e) provide each Holder and the underwriters (which term, for
purposes of this Agreement, shall include a person deemed to be an underwriter
within the meaning of Section 2(a) (11) of the Securities Act), if any, thereof,
the sales or placement agent, if any, therefor, and one counsel (and any local
counsel) for such underwriters, the opportunity to participate in the
preparation of such registration statement, each Prospectus included therein or
filed with the Commission and each amendment or supplement thereto;
(f) promptly notify the selling Holders of Registrable Securities and
the underwriters, if any, and (if requested) confirm such advice in writing, as
soon as practicable after notice thereof is received by the Company (i) when the
registration statement or the Prospectus included therein or any amendment or
supplement thereto has been filed or becomes effective, and to furnish such
selling Holders and underwriters with executed copies thereof and
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of any documents incorporated by reference therein, (ii) of any comments by the
Commission and by the Blue Sky or securities commissioner or regulator of any
State with respect thereto or of any request by the Commission or any other
federal or state governmental authority for amendments or supplements to the
registration statement or the Prospectus or for additional information, (iii) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for offering or sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (iv) if at any time the representations and warranties of the Company
contemplated by Section 7 cease to be true and correct in all material respects
and (v) if at any time when a Prospectus is required to be delivered under the
Securities Act, that such registration statement, Prospectus, amendment or
supplement does not conform in all material respects to the applicable
requirements of the Securities Act and the rules and regulations of the
Commission thereunder or contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances the
existing;
(g) after the filing of the registration statement, promptly notify
the Holders of any stop order issued or threatened by the Commission suspending
the effectiveness of the registration statement or any order preventing or
suspending the use of any preliminary or final Prospectus or the initiation or
threatening of any proceedings for such purpose, and use its best efforts to
prevent the entry of such stop order or to remove it if entered;
(h) in the event that the Company would be required to provide notice
pursuant to Section 6.4(f) or (g) to the Holders, without unreasonable delay,
prepare and furnish to each Holder a reasonable number of copies of a Prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Securities covered by such Prospectus, such Prospectus shall confirm in all
material respects to the applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder and shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(i) use its best efforts to (i) register or qualify the Registrable
Securities to be included in the registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as the
Required Holders or the underwriters, if any, request, (ii) keep such
registrations or qualifications in effect and comply with such laws so as to
permit the continuance of offers, sales and dealings therein in such
jurisdictions during the period the registration statement is required to remain
effective under Section 6.1 or 6.2, as applicable, and for so long as may be
necessary to enable the Holders of Registrable Securities included in such
registration statement or, if an Underwritten Offering, the underwriters, to
complete their distribution of Registrable Securities pursuant to the
registration statement and (iii) take any and all other actions as may be
reasonably necessary or advisable to enable the Holders to consummate the
disposition of the Registrable Securities; provided that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (i), (B)
subject itself to taxation in any such jurisdiction or (C) consent to general
service of process in any jurisdiction;
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<PAGE> 17
(j) if requested by the managing underwriter or underwriters or a
Holder of Registrable Securities being sold in connection with an Underwritten
Offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the Required Holders
agree should be included therein relating to the plan of distribution with
respect to such Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the Underwritten (or best efforts
underwritten) Offering of the Registrable Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after being notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(k) make available for inspection by the Holders of Registrable
Securities any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other professional
retained by Holders or such underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause appropriate
officers, directors and employees of the Company to make available all
information reasonably requested by any Inspectors in connection with such
registration statement. Records which the Company determines, in good faith, to
be confidential and which it notifies the Inspectors are confidential shall not
be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such registration
statement or (ii) the release of such records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction. Each Holder agrees that
information obtained by it as a result of such inspections shall be deemed
confidential and, upon the reasonable request of the Company, shall execute a
confidentiality agreement with the Company in form and substance reasonably
satisfactory to the Company and the Holder, and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public;
(l) furnish to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, one executed copy and as many conformed
copies as they may reasonably request, of the registration statement and any
amendment or post-effective amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
(m) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) and any amendment or supplement thereto
as such Persons may reasonably request (it being understood that the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Securities and the underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by the Prospectus or any amendment or supplement thereto) and such other
documents
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<PAGE> 18
as such selling Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities by such Holder;
(n) cooperate with the selling Holders of Registrable Securities and
the underwriter, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the underwriters may request;
(o) use its best efforts to cause the Registrable Securities covered
by the applicable registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwrites, if any, to consummate the
disposition of such Registrable Securities;
(p) not later than the Effective Time of the applicable registration
statement, provide a CUSIP number for all Registrable Securities and provide the
applicable transfer agent with printed certificates for the Registrable
Securities which are in a form eligible for deposit with The Depository Trust
Company;
(q) make such representations and warranties to the Holders of
Registrable Securities being registered, and the underwriters or agents, if any,
in form, substance and scope as are customarily made by issuers in primary
underwritten public offerings;
(r) enter into such customary agreements (including underwriting
agreements) and take all such other appropriate actions as the Required Holders
or the underwriters, if any, reasonably request in order to expedite or
facilitate the registration and disposition of such Registrable Securities;
(s) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriters, if any, an opinion or opinions from
counsel for the company in customary form, scope and substance covered in
opinions in comparable offerings, which counsel and opinions shall be reasonably
satisfactory to such Holders, underwriters or agents and their respective
counsel;
(t) obtain for delivery to the Company and the underwriters, if any,
with copies to the Holders of Registrable Securities, a cold comfort letter from
the Company's independent certified public accountants in customary form and
covering such matters of the type customarily covered by cold comfort letters as
the underwriters or reasonably request, dated the Effective Time of the
registration statement and brought down to the closing date;
(u) cooperate with each seller of Registrable Securities and each
underwriter, if any, participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the NASD;
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<PAGE> 19
(v) use its best efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its
securityholders, as soon as reasonably practicable (but not more than fifteen
months) after the effective time of the Registration statement, an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act and
the rules and regulations promulgated thereunder;
(w) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from and
after a date not later than the Effective Time of such registration statement;
(x) use best efforts to cause all Registrable Securities covered by
the registration statement to be listed on each securities exchange on which any
of the Company's securities are then listed or quoted and on each inter-dealer
quotation system on which any of the Company's securities are then quoted; and
(y) use reasonable efforts to make available the senior executive
officers of the Company to participate in the customary "road show"
presentations that may be reasonably requested by the Holders and the
underwriters in any Underwritten Offering; provided that the participation of
such senior executive officers shall not unreasonably interfere with the conduct
of their duties to the Company.
The Company may require the Holders including of Registrable
Securities in the registration statement to promptly furnish in writing to the
Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration.
The Holders agree that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 6.4(f) or (g)
hereof, the Holders will forthwith discontinue disposition of any Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Holders' receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6.4(h) hereof, and, if so directed by
the Company, the Holders will deliver to the Company all copies, other than
permanent file copies then in such Holders' possession, of the most recent
Prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective pursuant to Section 3.1 or 3.2 hereof, as applicable, by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 6.4(f) or (g) hereof to the date when the Company shall make
available to the Holder a Prospectus supplemented or amended to conform with the
requirements of Section 6.4(h) hereof.
6.5 Registration Expenses All Expenses incident to the Company's
performance of or compliance with this Agreement will be paid by the Company,
regardless of whether the registration statement becomes effective (unless it
does not become effective as a result of any act or omission on the part of any
Holder whose Registrable Securities are included therein, in
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<PAGE> 20
which case such Expenses shall be paid by such Holder and, upon payment of such
Expenses, if the registration was a Demand Registration, such registration shall
not count as a Demand Registration for purposes of the Holders' demand
registration rights under Section 6.1 hereof), including without limitation (i)
all registration and filing fees, and any other fees and expenses associated
with filings required to be made with the SEC or the NASD (including, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel as may be required by the rules and regulations of the NASD), (ii)
all fees and expenses of compliance with state securities or blue sky laws
(including fees and disbursements or counsel for the underwriters or selling
holders in connection with blue sky qualifications of the Registrable Securities
and determination of their eligibility for investment under the laws of such
jurisdictions as the managing underwriters or holders of a majority of the
Registrable Securities being sold may designate), (iii) all printing, messenger,
telephone and delivery expenses (including, if applicable, expenses of printing
certificates for the Registrable Securities in a form eligible for deposit with
The Depository Trust Company and of printing Prospectuses), (iv) all fees and
disbursements incurred in connection with the listing of the Registrable
Securities on any securities exchange or quotation of the Registrable Securities
on any inter-dealer quotation system, including all rating agency fees, (vii)
all reasonable fees and disbursements of one counsel selected by the holders of
a majority of the Registrable Securities being registered, (viii) all fees and
disbursements of underwriters customarily paid by the issuers or sellers of
securities, excluding underwriting discounts and commissions and transfer taxes,
if any, attributable to the sale of Registrable Securities and the fees and
expenses of counsel to the underwriters other than as provided in clause (ii)
above, (ix) all fees and expense of accountants to the holders of Registrable
Securities being sold and (x) fees and expenses of other Persons retained by the
Company without limitation (all such expenses being herein called "Registration
Expenses"). The Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any audit and
the fees and expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any audit and the fees and expenses of any Person, including special
experts, retained by the Company.
6.6 Indemnification and Contribution. (a) In connection with each
registration statement relating to the disposition of the Registrable
Securities, the Company shall indemnify and hold harmless each of the Holders,
each underwriter of Registrable Securities, each partner, officer, director or
employee of each of the Holders or any such underwriter and each Person, if any,
who controls (within the meaning of either the Securities Act or the Exchange
Act) any of the Holders or any such underwriter against all losses, claims,
damages, liabilities, joint or several, to which any of the holders, such
underwriter or any such Person may be subject to arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement or the Prospectus included therein (or
any supplement or amendment thereto) or a preliminary Prospectus, or (B) any
omission or alleged omission to state therein or necessary to make the
statements therein not misleading, and the Company shall reimburse each of the
Holders and each of such other Persons for any reasonable legal or other
expenses incurred in connection with the investigation or defense thereof (any
such reimbursement to be made as such expenses are incurred upon presentation of
any requested
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documentation); provided, however, that the Company shall not be liable in any
such instance to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission or alleged
untrue statement or omission made in any such registration statement,
preliminary Prospectus, or Prospectus (or amendment or supplement) in reliance
upon and in conformity with information relating to any Person referred to above
who would be indemnified by the Company pursuant to this Section 6.6(a)
furnished in writing to the Company by such Person expressly for use therein.
Notwithstanding the foregoing provisions of this Section 6.6(a), the Company
will not be liable to any Holder of Registrable Securities (or any partner,
officer, director or employee thereof), any underwriter or any other Person, if
any, who controls (within the meaning of the Securities Act or the Exchange Act)
any of the Holders or any such underwriter, under the indemnification
obligations in this Section 6.6(a) for any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense that arises out of such
Holder's or other Person's failure to send or deliver a copy of the final
Prospectus to the person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of the Registrable Securities to such person if such
statement or omission was corrected in such final Prospectus and the Company had
previously furnished copies thereof to such Holder or such other Person in
accordance with this Agreement.
(b) In connection with each registration relating to the disposition
of Registrable Securities, each Holder shall furnish to the Company in writing
such information, including the name and address of, and the amount of
Registrable Securities held by, such Holder, as the Company reasonably requests
for use in such Registrable Securities or the related Prospectus. The Company
may require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 6.1 or 6.2 hereof and to
entering into any underwriting agreement with respect thereto, that the Company
shall have received an undertaking reasonably satisfactory to it from the
selling Holders and from each underwriter named in any such underwriting
agreement, severally and not jointly, to (i) indemnify and hold harmless the
Company, and all other Holders of Registrable Securities, against any losses,
claims, damages or liabilities to which the Company, or such other Holders of
Registrable Securities may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement, or
any preliminary, final or summary Prospectus contained therein or furnished by
the Company to any such Holder or underwriter, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Holder or underwriter expressly for
use therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred. The maximum liability of
any Holder under this Section 6.6(b) shall be limited to the aggregate amount of
all sales proceeds actually received by such Holder upon the sale of such
Holder's Registrable Securities in connection with such registration.
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<PAGE> 22
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to subsections (a) or (b) of this Section 6.6, such person the
(the "indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
part to such indemnified of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under these
indemnification provisions for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof, unless in the reasonable judgment of any
indemnified party a conflict of interest is likely to exist, based on the
written opinion of counsel, between such indemnified party will be obligated to
pay the reasonable fees and expenses of such additional counsel. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its prior written consent (which shall not be unreasonably
withheld) but if settlement with such consent, the indemnifying party agrees to
indemnify the indemnified part from and against any loss or liability by reason
of such settlement. No indemnifying party shall, without the prior written
consent (which shall not be unreasonably withheld) of the indemnified party,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
arising out of such proceeding.
(d) If the indemnification provided for in this Section 6.6 is
unavailable to the indemnified parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and the respective Holder or
underwriter on the other, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and such Holder or underwriter on
the other in connection with the statements or omissions which resulted in such
loses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
respective Holder or underwriter on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 6.6(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding
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paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6.6(d), (i) no Holder shall be
required to contribute any amount in excess of the amount of all sales proceeds
actually received by such Holder upon the sale of such Holder's Registrable
Securities in connection with such registration and (ii) no underwriter shall
be required to contribute any amount in excess of the amount of the
underwriting discount or commission applicable to the Registrable Securities
underwritten by it. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company under this Section 6.6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each Holder, agent and underwriter and each person, if any, who controls any
Holder, agent or underwriter within the meaning of the Securities Act.
6.7 Participation in Underwritten Registrations.
(a) Selection of Underwriters. If any of the Registrable Securities in a
Demand Registration are to be sold pursuant to an Underwritten Offering, the
managing underwriter or underwriters thereof shall be designated by the Required
Holders, provided that such designated managing underwriter or underwriters is
or are reasonably acceptable to the Company.
(b) Participation by Holders. Each Holder of Registrable Securities
hereby agrees with each other such Holder that no such Holder may participate in
any Underwritten Offering hereunder unless such Holder (i) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
6.8 Holdback Agreement. The Company and its Affiliates agree (i) not to
effect any public sale or distribution of any Registrable Securities or any
securities similar to the Registrable Securities, or any securities convertible
into or exchangeable or exercisable for Registrable Securities or any securities
similar to the Registrable Securities, during the 14 days prior to, and during
the 90-day period beginning on, or (in each case) such shorter period of time as
may be required by the managing underwriter in an Underwritten Offering, the
effective date of any registration statement filed pursuant to Section 6.1 or
6.2 of this Agreement with respect to an underwritten public offering of any
such securities (except as part of such registration statement where the Holders
consents) or the commencement of a public distribution of Registrable
Securities; and (ii) to use their best efforts to ensure that any agreement
entered into after the date of the agreement pursuant to which the Company
issues or agrees to issue any privately placed securities shall contain a
provision under which holders of such securities agree not to effect any public
sale or distribution of any such securities during the periods described in
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<PAGE> 24
(i) above, in each case including a sale pursuant to Rule 144 under the
Securities Act (except as part of any such registration, if permitted);
provided, however, that the provisions of this paragraph shall not prevent the
(x) conversion or exchange of any securities pursuant to their terms into or for
other securities, (y) the issuance of securities pursuant to the Company's
employee benefit plans, (z) sale or distribution of securities in connection
with any merger or consolidation by the Company, or the acquisition by the
Company of the capital stock or substantially all of the assets of any other
Person.
6.9 Specific Enforcement. The Company and each of the Holders acknowledge
that remedies at law for the enforcement of this Section 5 may be inadequate and
intend that this Section 6 shall be specifically enforceable in accordance with
Section 19.5 hereof.
Section 7. Representations And Warranties.
The Company represents and warrants to, and agrees with, Purchaser
that:
(a) The Company and each of its Subsidiaries has been duly
incorporated and is validly existing as a corporation or other entity in good
standing under the laws of its jurisdiction of incorporation or organization,
with the power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as it is currently being conducted, and is
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the law of each other jurisdiction in which it owns,
leases or operates properties or conducts any business so as to require such
qualification, except where the failure to so qualify would not, individually or
in the aggregate, have a Material Adverse Effect.
(b) The Company has all requisite corporate or partnership power (as
the case may be) and authority to execute, deliver and perform its obligations
under this Agreement and each other document related thereto to which it is, or
will be, a party and to consummate the transactions contemplated hereby and
thereby, including without limitation the corporate power and authority to
issue, sell and deliver the Warrants.
(c) The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement and countersigned by the Warrant Agent as
provided herein, will have been duly executed, countersigned, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or laws of general applicability relating to
or affecting creditors' rights and to general equity principles ("Bankruptcy and
Equity") and will be entitled to the benefits of the Warrant Agreement; this
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by Bankruptcy and Equity.
(d) The Company has furnished to Purchaser (i) its audited balance
sheet as of December 31, 1998, and the related audited consolidated statements
of operations, shareholders'
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equity and cash flows for the year then ended, together with the opinion thereon
of Ernst & Young LLP, the Company's independent auditors, and (ii) its unaudited
balance sheet as of June 30, 1999 (the "Balance Sheet") and the related
unaudited consolidated statements of operations, shareholders' equity and cash
flows for the three-month period then ended (collectively the "Financial
Statements"). The Financial Statements (i) are complete and correct in all
material respects, (ii) are in accordance with and derived from the Company's
books and records, (iii) present fairly the Company's consolidated financial
position as of the dates and for the periods indicated, and (iv) have been
prepared in conformity with GAAP throughout the periods indicated, subject to
year-end adjustments which will not be material. The Company maintains and will
continue to maintain a standard system of accounting established and
administered according to GAAP.
(e) Neither the Company nor any of its Subsidiaries has sustained
since the date of the Balance Sheet any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree; and, since the date of the Balance Sheet, there has not been any
change in the Capital Stock or long-term debt of the Company or any of its
Subsidiaries or any Material Adverse Change, or any development involving a
prospective Material Adverse Change.
(f) The Company and its Subsidiaries have good and marketable title
in fee simple to all real property owned by them and good and marketable title
to all personal property owned by them, in each case free and clear of all Liens
and defects except for such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries; and any real property and
buildings held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Subsidiaries.
(g) The Warrant Shares have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with the
provisions of the Warrant Certificate and this Agreement, will be duly and
validly issued, fully paid and non-assessable.
(h) Prior to the date hereof, neither the Company nor any of its
Subsidiaries nor any of their respective affiliates has taken any action which
is designed to or which has constituted or which might reasonably have been
expected to cause or result in stabilization or manipulation of the price of any
security of the Company or any of its Subsidiaries in connection with the
offering of the Warrants or the Warrant Shares.
(i) The issue and sale of the Warrants and the compliance by the
Company and its Subsidiaries with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
sale/leaseback agreement, loan agreement or other similar financing agreement or
instrument or
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<PAGE> 26
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries is bound or to which
any of the property or assets of the Company or any of its Subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or Bylaws or other constituent documents of the
Company or any of its Subsidiaries or any statute or any order, rule or
regulation of any court or Governmental Authority having jurisdiction over the
Company or any of its Subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or with any
such court or Governmental Authority is required for the issuance and sale of
the Warrants or the Warrant Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except such as have been obtained
or may be required in connection with the registration under the Securities Act
of the Warrants and the Warrant Shares in accordance with Section 6 hereof, and
such consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws in connection with the
purchase and resale of the Warrants and the Warrant Shares by Purchaser.
(j) Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation or Bylaws or other constituent documents or
in default in the performance or observance of any material obligation, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or by
which it or any its properties may be bound, except to the extent that such
failure or default would not have a Material Adverse Effect.
(k) There are no legal or governmental proceedings pending to which
the Company or any of its Subsidiaries is a party or of which any property of
the Company or any of its Subsidiaries is the subject which, if determined
adversely to the Company or any of its Subsidiaries, would, individually or in
the aggregate, have a Material Adverse Effect and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(l) Neither the Company nor any of its Subsidiaries is a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
(m) None of the Company, its subsidiaries or any of their affiliates
does business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes.
(n) Ernst & Young LLP, who have certified the audited Financial
Statements of the Company and its Subsidiaries, are independent public
accountants as required by the Securities Act and the rules and regulations of
the Commission thereunder and by Rule 101 of the AICPA's Code of Professional
Conduct and their respective interpretations and rulings.
(o) The Company has reviewed its operations and those of its
Subsidiaries and any third parties with which the Company or any of its
Subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its Subsidiaries
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<PAGE> 27
will be affected by Year 2000 issues. As a result of such review, the Company
represents and warrants that the disclosure set forth in Schedule 7(o) hereto
relating to Year 2000 issues is accurate and complies in all material respects
with the rules and regulations under the Securities Act. Based on the results of
such review to the date hereof, the Company has no reason to believe, and does
not believe, that Year 2000 issues will have a Material Adverse Effect. "Year
2000 issues" as used herein means Year 2000 issues described in or contemplated
by the Commission's Interpretation: Disclosure of Year 2000 Issues and
Consequences by Public Companies, Investment Advisers, Investment Companies, and
Municipal Securities Issuers (Release No. 33-7558).
(p) Except as set forth in Schedule 7(p), the Company and each of its
Subsidiaries (a) have all licenses, certificates, permits, authorizations,
approvals, franchises and other rights from, and has made all declarations and
filings with all federal, state and local authorities (including, without
limitation, the Federal Communications Commission), all self-regulatory
authorities and all courts and other tribunals (each an "Authorization")
necessary to engage in the business currently conducted by the Company and its
Subsidiaries conducted, except insofar as the failure to obtain any such
Authorization would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect, and no such Authorization
contains a materially burdensome restriction and (b) have not received any
notice that any Governmental Authority is considering limiting, suspending or
revoking any such Authorization; except where the failure to be in full force
and effect would not, individually or in the aggregate, result in a Material
Adverse Effect, all such Authorizations are valid and in full force and effect
and the Company and each of its Subsidiaries are in compliance in all material
respects with the terms and conditions of all such Authorizations and with the
rules and regulations of the regulatory authorities having jurisdiction with
respect thereto.
(q) The Company and its Subsidiaries have complied in all material
respects with all laws, regulations and orders applicable to it or its
businesses the violation of which would have a Material Adverse Effect.
(r) Except as set forth in Schedule 7(r), the Company and its
Subsidiaries own, possess or have the right to employ sufficient patents, patent
rights, licenses, (including all Federal Communications Commission, state, local
or other jurisdictional regulatory licenses), inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, software, systems or procedures), trademarks, service
marks and trade names, inventions, computer programs, technical data and
information (collectively, the "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted; and the expected
expiration of any such Intellectual Property Rights would not, individually or
in the aggregate, result in a Material Adverse Change, or any development that
could reasonably be expected to result in a Material Adverse Change; the
Intellectual Property Rights presently employed by the Company and its
Subsidiaries in connection with the businesses now operated by them or which are
proposed to be operated by them are owned, to the Company's knowledge, free and
clear of and without violating any right, claimed rights, restriction or Lien of
any kind of any other person and neither the Company nor any of its Subsidiaries
has received any notice of infringement of or conflict with asserted rights
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<PAGE> 28
of others with respect to any of the foregoing except as would not reasonably be
expected to, individually or in the aggregate, result in a Material Adverse
Effect; the use of the Intellectual Property in connection with the business and
operations of the Company and its Subsidiaries does not infringe on the rights
of any person, except as could not reasonably be expected to individually or in
the aggregate result in a Material Adverse Effect.
(s) The Company and its Subsidiaries (i) are in compliance in all
material respects with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(t) No labor dispute with the employees of the Company or any of its
Subsidiaries exists, or, to the knowledge of the Company, is imminent that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that would reasonably be
expected to result in a Material Adverse Effect.
(u) The Company and its Subsidiaries maintain insurance with insurers
of recognized financial responsibility covering its properties, operations,
personnel and businesses against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; neither
the Company nor any of its Subsidiaries has been refused any insurance coverage
sought or applied for; neither the Company nor the Subsidiaries has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other expenditures will have to be made in order to continue
such insurance; all such insurance is outstanding and duly in force on the date
hereof ; and neither the Company nor any of its Subsidiaries has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not result in
a Material Adverse Effect.
(v) Neither the Company nor any of its Subsidiaries has violated any
federal, state or local law, statute, rule or regulation relating to
discrimination in the hiring, promotion or pay of employees pursuant to any
applicable wage or hour laws or any provisions of ERISA or the rules and
regulations promulgated thereunder, and neither the Company nor any of its
Subsidiaries has engaged in any unfair labor practice, which in each case could
reasonably be expected to result, singly or in the aggregate, in a Material
Adverse Effect; there is (i) no significant unfair labor practice complaint
pending against the Company or any of its Subsidiaries or, to the Company's
knowledge, threatened against any of them before the National Labor Relations
Board or any state
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<PAGE> 29
or local labor relations board, and no significant grievance or significant
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its Subsidiaries or, to
the Company's knowledge, threatened against any of them, (ii) no significant
strike, labor dispute, slowdown or stoppage pending against the Company or any
of its Subsidiaries and (iii) no union representation question existing with
respect to then employees of the Company or any of its Subsidiaries and no union
organizing activities are taking place, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, individually or in the aggregate)
such as would not have a Material Adverse Effect; neither the Company nor any of
its Subsidiaries has violated the requirements of the Worker's Adjustment and
Retraining Notification Act, 29 U.S.C. Sections 2101, et seq., or any similar
state or local plant closing law with respect to any of its employees that is
reasonably likely to result, singly or in the aggregate, in a Material Adverse
Effect.
(w) Each of the Company and its Subsidiaries is conducting its
business in compliance with all applicable federal, state and local laws, rules,
regulations, codes and ordinances relating to zoning, land use and employee or
occupational safety, except where such noncompliance would not, singly or in the
aggregate, result in a Material Adverse Effect.
(x) All tax returns and reports required to be filed by the Company
and its Subsidiaries in any jurisdiction have been timely filed, and all taxes,
including, without limitation, withholding taxes, penalties and interest,
assessments, notices of deficiency, fees and other charges due or claimed to be
due from such entities have been paid, other than (i) those being contested in
good faith and for which adequate reserves have been provided in accordance with
GAAP, (ii) those currently payable without penalty or interest that will not
result in any Lien against the assets of the Company or any of its Subsidiaries
or (iii) those which otherwise would not have a Material Adverse Effect; neither
the Company nor any of its Subsidiaries has received any tax assessment, notice
of proposed adjustment or deficiency notice from any taxing authority except for
such assessment or notice as would not have a Material Adverse Effect.
(y) Except as set forth in Schedule 7(y), there are no business
relationships or related party transactions that would be required to be
disclosed in a registration statement filed by the Company under the Securities
Act pursuant to Item 404 of the Regulation S-K of the Commission and there are
no documents, agreements or other arrangements not previously provided to
Purchaser which would be required to be filed as exhibits to a registration
statement filed by the Company under the Securities Act pursuant to Item 601 of
Regulation S-K of the Commission.
(z) All written information furnished after the date hereof by the
Company and its Subsidiaries to Purchaser pursuant to this Agreement and the
transactions contemplated hereby will be true, complete and correct in all
material respect, or (in the case of projections) based on assumptions which the
Company, acting in good faith, believes to be reasonable, on the date as of
which such information is stated or certified.
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<PAGE> 30
(aa) The Company, each of its Subsidiaries and each of their
respective ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Company, any
of its Subsidiaries or any of their respective ERISA Affiliates. The present
value of all benefit liabilities under each Plan (based on those Assumptions
used to fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed by more than $2,500,000 the fair market value of the assets of
such Plan, and the present value of all benefit liabilities of all underfunded
Plans (based on those assumptions used to fund each such Plan) did not, as of
the last annual valuation dates applicable thereto, exceed by more than
$1,000,000 the fair market value of the assets of all such underfunded Plans.
The Company and its Subsidiaries are each "operating companies" as defined in
Department of Labor Regulation Section 2510.2-101.
(bb) Neither of the Company, nor any of its Subsidiaries nor anyone
authorized to act on their behalf has offered the Warrants, the Warrant Shares
or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
Person other than Purchaser or has taken, or will take, any action which would
subject the issuance or sale of the Warrants or the Warrant Shares to Section 5
of the Securities Act or has engaged in any form of general solicitation or
general advertising in connection with the offer and sale of the Warrants or the
Warrant Shares; except as permitted by the Securities Act, neither the Company
nor any of its Subsidiaries nor any Person acting on their behalf has
distributed and, prior to the later to occur of the Closing Date and the resale
of all of the Warrants and/or the Warrant Shares by Purchaser, will not
distribute, any offering material in connection with the offer and sale of the
Warrants or the Warrant Shares, other than any such materials delivered to
Purchaser in connection with the transactions contemplated by this Agreement.
(cc) Within the preceding six months, neither the Company nor any of
its Subsidiaries nor any other Person acting on their behalf has offered or sold
to any Person any Warrants or Warrant Shares, or any securities of the same or a
similar class as the Warrants or Warrant Shares, other than the Warrants and
Warrant Shares offered or sold to Purchaser hereunder.
(dd) Assuming the Warrants are issued, sold and delivered under the
circumstances contemplated by this Agreement, that the representations and
warranties of Purchaser contained in Section 8 hereof are true, correct and
complete in all material respects, that Purchaser complies with the covenants
set forth in Section 10 hereof, and that any purchaser to whom Purchaser resells
the Warrants and/or the Warrant Shares receives a copy of an offering or private
placement memorandum, Prospectus or similar document prior to such sale, if
required by the Securities Act or registration under the Securities Act of the
Warrants and the Warrant Shares is not required in connection with the offer and
sale of the Warrants and Warrant Shares to Purchaser in the manner contemplated
by this Agreement and resales of the Warrants or Warrant Shares by Purchaser in
compliance with Rule 144A or Regulation S under the Securities Act will be
exempt from the registration requirements of the Securities Act.
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<PAGE> 31
(ee) Neither the Company nor any of its Subsidiaries has made,
offered or agreed to offer anything of value to any government official,
political party or candidate for government office (or any person that the
Company knows or has reason to know, will offer anything of value to any
government official, political party or candidate for political office), nor has
it taken any action which would cause the Company or any of its Subsidiaries to
be in knowing violation of any law of any foreign jurisdiction or the Foreign
Corrupt Practices Act of 1977, as amended; there is not now nor has there ever
been any employment by the Company or any of its Subsidiaries of any
governmental or political official in any country.
(ff) The Company's authorized Capital Stock consists of 30,000,000
shares of common stock, par value $.01 per share, and 12,000,000 shares of
preferred stock, par value $.01 per share, of which 8,087,592 shares of common
stock are outstanding, 4,087,592 shares of Series A preferred stock are
outstanding, 5,510,535 shares of Series B preferred stock are outstanding and
2,140,310 shares of Series C preferred stock are outstanding; all of the issued
and outstanding shares of Capital Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and are not
subject to any preemptive or other similar right; all of the issued shares of
Capital Stock of each Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned directly
or indirectly by the Company, free and clear of all Liens except for Liens
granted to Purchaser, as Administrative Agent, under the Amended and Restated
Credit Agreement, dated as of July 30, 1999, by and among the Company, Purchaser
and the Lenders named therein; there are not outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale or Liens
related to or entitling any Person to purchase or otherwise acquire any shares
of Capital Stock of, or other ownership interest in, the Company or any of its
Subsidiaries other than those listed on Schedule 7(ff); the Company has no
Subsidiaries other than those listed on Schedule 7(ff) hereto; no holder of any
security of the Company or its Subsidiaries has or will have any right to
require the registration of such security by virtue of the transactions
contemplated by the Note Documents, except as provided for in the Registration
Rights Agreement.
(gg) When the Warrants are issued and delivered pursuant to this
Agreement, neither the Warrants nor the Warrant Stock will not be of the same
class (within the meaning of Rule 144A under the Securities Act) as securities
which are listed on a national securities exchange registered under Section 6 of
the Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
(hh) The Company is not and, after giving effect to the offering and
sale of the Notes, will not be an "investment company" or an entity "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act").
Section 8. Representations and Warranties of Purchaser
Purchaser represents and warrants to the Company as follows:
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<PAGE> 32
(a) Purchaser acknowledges that neither the Warrants nor the Warrant
Shares have been registered under the Securities Act and that, pending the
registration of the Warrants and the Warrant Shares pursuant to the terms of
Section 6, none of the Warrants or Warrant Shares may be offered or sold within
the United States or to, or for the account or benefit of, U.S. Persons (as
defined in Regulation S under the Securities Act) except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, and will be required to notify each
subsequent purchaser of the Warrants or Warrant Shares from it of such resale
restrictions.
(b) Purchaser has had access to financial and other information, and was
given the opportunity to ask questions of the Company, regarding the Company,
the Warrants and the Warrant Shares as it has deemed necessary in order to
evaluate the relative merits and risks of an investment in the Warrants and the
Warrant Shares.
(c) Purchaser has such knowledge and experience in financial and business
matters as to be capable of evaluating the risks of an investment in the
Warrants and the Warrant Shares and has determined that the Warrants and the
Warrant Shares are each a suitable investment for it and that at this time
Purchaser has no need for liquidity of this investment and could bear a complete
loss of its investment in the Warrants and the Warrant Shares.
(d) Purchaser understands that the Warrants and the Warrant Shares will,
until the earlier of such time as the Warrants and the Warrant Shares, as the
case may be, have been registered under the Securities Act pursuant to the terms
of Section 6 hereof or the expiration of the applicable holding period with
respect to the Warrants or the Warrant Shares, as the case may be, set forth in
Rule 144(k) under the Securities Act, unless otherwise agreed by the Company and
Purchaser, bear a legend substantially to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY NOT
BE RESOLD UNLESS REGISTERED UNDER SUCH ACT AND QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN APPLICABLE EXEMPTION FROM THE
REGISTRATION AND QUALIFICATION REQUIREMENTS OF SUCH ACT AND LAW IS
AVAILABLE."
Section 9. Covenants of the Company.
The Company covenants and agrees that:
(a) The Company will promptly advise Purchaser and, if requested, confirm
such advice in writing, of any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor or court or governmental action, order or decree or
any other Material Adverse Change; and since the date of
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<PAGE> 33
the Balance Sheet, there has not been any change in the capital stock or
long-term debt of the Company or any of its Subsidiaries or any other Material
Adverse Change.
(b) The Company is not to be or become, at any time prior to the
expiration of two years after the date hereof, an open-end investment company,
unit investment trust, closed-end investment company or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act.
(c) From and after the Closing Date, so long as any of the Warrants or
Warrant Shares are outstanding and during any period in which the Company is not
subject to or filing reports under Section 13 or 15(d) of the Exchange Act, the
Company agrees to make available to Holders of the Warrants and Warrant Shares
and prospective purchasers of the Warrants and Warrant Shares designated by such
Holders, upon request of such Holders or such prospective purchasers, the
information required to be delivered pursuant to Rule 144A(d)(4) under the Act
to permit compliance with Rule 144A in connection with resale of the Warrants or
the Warrant Shares, as the case may be.
(d) From and after March 31, 2000 or the consummation by the Company of
an IPO, whichever is earlier, the Company agrees that it will not and it will
not cause its Affiliates to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act) that would be integrated with the sale of the Warrants or the Warrant
Shares in a manner that would require the registration under the Securities Act
of the sale of the Warrants or the Warrant Shares to Purchaser or the initial
resale of the Warrants or the Warrant Shares by Purchaser pursuant to Rule 144A
or Regulation S; provided that Purchaser shall use commercially reasonable
efforts to cooperate with the Company in complying with this covenant.
(e) Neither the Company nor any of its Affiliates will solicit any offer
to buy or offer to sell the Warrants or the Warrant Shares by means of any form
of general solicitation or general advertising.
(f) The Company will not claim the benefit of any usury laws against any
holders of the Warrants or the Warrant Shares.
(g) The Company will use the net proceeds received by it from the sale of
the Warrants solely for general corporate purposes.
(h) The Company will furnish to the Holders, as soon as practicable after
the end of each fiscal year, but in any event within 90 days of the end of each
fiscal year, an annual report (including an audited balance sheet and statements
of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the Closing Date),
but in any event with 45 days after the end of each such fiscal quarter,
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail, and to furnish to the Holders all other
documents specified in this Agreement, as applicable all in the manner so
specified;
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<PAGE> 34
(i) The Company will reserve and keep available at all times, free of
preemptive rights, Warrant Shares for the purpose of enabling the Company to
satisfy any obligations to issue shares of Warrant Shares upon exercise of the
Warrants.
(j) Neither the Company nor any of its Subsidiaries will resell any
Warrants or Warrant Shares that have been acquired by them.
Section 10. Covenants of Purchaser
Purchaser covenants and agrees with the Company that Purchaser will
not reoffer, resell, transfer or otherwise dispose of the Warrants or the
Warrant Shares except pursuant to an effective registration statement or in a
transaction exempt from, or not subject to, the registration requirements of
Section 5 of the Securities Act.
Section 11. Adjustments of Number of Warrant Shares.
The number and kind of Warrant Shares purchasable upon exercise of the
Warrants will be subject to adjustment from time to time upon the happening of
certain events as provided in this Section 11.
11.1 Mechanical Adjustments. The number and kind of Warrant Shares
purchasable upon exercise of a Warrant will be subject to adjustment as follows:
(a) Subject to Section 11.1(e), if the Company (i) pays a dividend or
otherwise distributes to holders of its Common Stock, as such, shares of its
capital stock (whether Common Stock or capital stock of any other class), (ii)
subdivides its outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iv) issues any shares of
its capital stock in a reclassification of its outstanding shares of Common
Stock (including any such reclassification in connection with a consolidation,
merger, or other business combination transaction in which the Company is
continuing or surviving corporation), then the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior thereto will be
adjusted so that the Holder of each Warrant Shares or other securities of the
Company that it would have owned or it would have been entitled to receive after
the happening of any of the events described above, had such Warrant been
exercised immediately prior to the record date, in the case of a dividend or
distribution, or the effective date, in the case of a subdivision, combination,
or reclassification. An adjustment made pursuant to this paragraph (a) will
become effective immediately after the record date in the case of a dividend or
distribution and will become effective immediately after the effective date in
the case of a subdivision, combination, or reclassification.
(b) Subject to Section 11.1(e), if the Company distributes to holders of
its Common Stock, as such, (i) evidences of indebtedness or assets (excluding
cash dividends or cash distributions payable out of consolidated retained
earnings) of the Company or any of its
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<PAGE> 35
subsidiaries, (ii) shares of capital stock of any of the Company's subsidiaries,
(iii) securities convertible or exchangeable for capital stock of any other
class or of any subsidiary, or (iv) any rights, options, or warrants (other than
the Warrants) to purchase any of the foregoing (excluding those described in
Section 11.1(c)), then, the number of Warrant Shares thereafter purchasable upon
exercise of each Warrant will be adjusted to the number that results from
multiplying the number of Warrant Shares purchasable upon the exercise of each
Warrant immediately prior to such distribution by a fraction, the numerator of
which will be the then Current Market Price per share (as defined in Section
11.1(d)) of Common Stock on the date of such distribution, and the denominator
of which will be the then Current Market Price per share of Common Stock less
the then Fair Market Value (as determined in the good faith and reasonable
judgment of the Board of Directors of the Company and described in a statement
transmitted by facsimile, mailed by certified mail, delivered in person, or sent
by a nationally recognized delivery service to the holders of the Warrants) of
the portion of the evidences of indebtedness, assets, securities, or rights,
options, or warrants so distributed applicable to one share of Common Stock.
Such adjustment will be made whenever any such distribution is made, and will
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) Subject to Section 11.1(e), if the Company issues shares of Common
Stock or securities convertible into or exchangeable for shares of Common Stock
(excluding (i) shares of Common Stock or convertible or exchangeable securities
issued in any of the transactions described in paragraphs (a), (b), or (c) of
this Section 11.1 and (ii) Warrant Shares issued upon exercise of the Warrants)
for a price per share of Common Stock in the case of an issuance of shares of
Common Stock initially deliverable upon conversion or exchange of such
securities, that is less than the Current Market Price per share of Common Stock
on the date the Company fixed the offering, conversion, or exchange price of
such additional shares of Common Stock, then the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant will be adjusted to the
number that results from multiplying the number of Warrant Shares purchasable
upon exercise of each Warrant immediately prior to such date by a fraction (not
to be less than one), the numerator of which will be the number of shares of
Common Stock outstanding on such date plus the number of additional shares of
Common Stock so issued or issuable upon such conversion or exchange, and the
denominator of which will be the number of shares of Common Stock outstanding on
such date plus the number of shares of Common Stock which the aggregate offering
price received or receivable by the Company for such additional shares of Common
Stock would purchase at the Current Market Price per share of Common Stock on
such date. Such adjustment will be made whenever such shares of Common Stock or
convertible securities are issued, and will become effective immediately after
the effective date of such event. Except as provided in this Section 11.1, no
further adjustment will be made upon the actual issue of shares of Common Stock
upon conversion or exchange of such securities convertible into or exchangeable
for shares of Common Stock.
(d) In the event that at any time, as a result of an adjustment made
pursuant to Section 11.1(a), the Holders of Warrants become entitled to purchase
any securities of the Company other than Common Stock, thereafter the number of
such other shares so purchasable upon exercise of each Warrant will be subject
to adjustment from time to time in a manner and on terms as nearly
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equivalent as practicable to the provision with respect to the Warrant Shares
contained in this Section 11.1.
(e) Upon the expiration of any rights, options, warrants, or conversion
or exchange privileges, if any thereof have not been exercised, the number of
Warrant Shares purchasable upon the exercise of each Warrant will, upon such
expiration, be readjusted and will thereafter be such as it would have been had
it been originally adjusted (or had the original adjustment not been required,
as the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (ii) such
shares of Common Stock if any, were issued or sold for the consideration
actually received by the Company upon such exercise, conversion, or exchange
plus the aggregate consideration, if any, actually received by the Company for
the issuance, sale, or grant of all such rights, options, warrants, or
conversion or exchange rights whether or not exercised; provided, however, that
no such readjustment will have the effect of decreasing the number of Warrant
Shares purchasable upon the exercise of each Warrant by an amount in excess of
the amount of the adjustment initially made in respect of the issuance, sale, or
grant of such rights, options, warrants, or conversion or exchange privileges.
Section 12. Effect of Certain Events on Adjustment of Number of Warrant Shares.
12.1 For purposes of determining the number of Warrant Shares purchasable
under Section 11 hereof (except in the case of securities and transactions
described in section 12.2(c) hereof), the following will be applicable:
(a) Warrants, Options or Other Rights. If the Company issues, sells
or grants any warrants, options or other rights to subscribe for, purchase or
otherwise acquire Common Stock or any stock, evidences of indebtedness or other
securities, directly or indirectly, convertible into or exchangeable for Common
Stock (such warrants, options or other rights being herein called "Options" and
such convertible or exchangeable stock or securities being herein called
"Convertible Securities") and the price per share of Common Stock issuable upon
exercise of such Options and/or upon conversion or exchange of such Convertible
Securities (the "Option Price") is less than the Trading Price of the Common
Stock at the time of the granting of such Options, or, if there is no such
Trading Price at such time, at a price per share less than the Fair Market Value
of the Common Stock at such time, then the total maximum number of shares of
Common Stock issuable upon exercise of such Options and/or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options will be deemed to be outstanding and to have
been issued and sold by the Company for the Option Price. For purposes of this
paragraph (i), the Option Price will be determined by dividing (a) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon exercise of all such Options,
plus, in the case of Options that relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance of all such Convertible Securities and the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of all such Options. Except as otherwise provided in
paragraphs (iii)
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and (v) of this Section 12.2(a), no adjustment to the number of Warrant Shares
will be made when Convertible Securities are actually issued upon exercise of
such Options or when Common Stock is actually issued upon exercise of such
Options or the conversion or exchange of such Convertible Securities. For
purposes of this paragraph (i) and paragraph (ii) of Section 12.2(a) hereof,
Fair Market Value means an amount per share of Common Stock determined, in good
faith, by the Board of Directors; provided that, if the Majority Holders notify
the Company in writing, within thirty (30) days after the date of the notice
described in Section 12.4 hereof, that they disagree with the Fair Market Value
of the Common Stock as determined by the Board of Directors and that they desire
a determination of Fair Market Value in accordance with clauses (a) through (e)
of this paragraph (i), the following shall apply:
(i) the Majority Holders shall select a nationally recognized
investment banking firm which shall be identified in the notice described above;
(ii) the Company within thirty (30) days thereafter shall select
a nationally recognized investment banking firm and notify the Majority Holders;
(iii) the two investment banking firms shall each make a
determination of the Fair Market Value of the Common Stock and if the two
determinations differ by no more than five percent (5%) of the higher of the two
determinations, the Fair Market Value of the Common Stock shall be the average
of the two determinations;
(iv) if the two determinations made under clause (c) differ by
more than five percent (5%) of the higher of the two determinations, the two
investment banking firs shall select a third nationally recognized investment
banking firm which will determine the Fair Market Value of the Common Stock
within the range of the two determinations made under clause (c); and
(v) the Company and the Majority Holders shall bear the costs
of their respective investment banking firms and, if applicable, the cost of the
third investment banking firm shall be borne by the Company or the Majority
Holders, as the case may be, whose determination made under clause c is the
furthest from the determination made under clause d.
(b) Convertible Securities. If the Company issues or sells (or
otherwise creates) Convertible Securities (other than Convertible Securities
deemed to be outstanding and to have been issued and sold as described in
paragraph(1) of this section 12.1(b) and in respect of which adjustment to the
number of Warrant Shares has been made in accordance with said paragraph), and
the price per share for which Common Stock is issuable upon conversion or
exchange of such Convertible Securities (the "Conversion Price") is less than
the Trading Price of the Common Stock at the time of issuance or sale or deemed
issuance or sale, or, if there is no such Trading Price of the Common Stock at
such time, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities will be deemed to be
outstanding and to have been issued and sold by the Company for the Conversion
Price. For purposes of this paragraph (ii) the Conversion price will be
determined by dividing (a) the total amount, if any, received or receivable by
the Company as consideration of the issuance
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or sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities.
Except as otherwise provided in paragraphs (iii) and (iv) of this Section
12.1(b), no adjustment to the number of Warrant Shares will be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible
Securities.
(c) Change in Option Price, Conversion Price or Conversion Rate. If
the Option Price provided for in any Options, the Conversion Price provided for
in any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock changes at any time (other
than under or by reason of provisions of the type set forth in this Section 12
that are designed to protect against dilution and that have no more favorable
effect on the holder of such Options or Convertible Securities than this Section
12 would have if this Section 12 were included in the instrument representing
such Options or Convertible Securities), then the number of Warrant Shares
purchasable at the time of such change will be readjusted at such time to the
number of Warrant Shares that would have been purchasable had such Options or
Convertible Securities outstanding at the time of such change provided for such
changed Option Price, Conversion Price or conversion rate at the time of the
original grant, issuance or sale.
(d) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option, or the termination of any right
to convert or exchange any Convertible Security, without the exercise of such
Option or the right to convert or exchange such Convertible Security, the number
of Warrant Shares then purchasable will be adjusted at the time of such
expiration or termination to the number of Warrant Shares that would have been
purchasable had such Option or Convertible Security never been granted or
issued.
(e) Calculation of Consideration. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold,
as the case may be, for considerations that includes cash, then the amount of
cash consideration received and/or receivable by the Company will be deemed to
be the cash portion thereof. If any Common Stock, Options of Convertible
Securities are issued or sold or deemed to have been issued or sold, as the case
may be, for consideration part or all of which is other than cash, then the
amount of the consideration other than cash received and/or receivable by the
Company will be the fair value thereof, except where such consideration consists
of securities for which there is a Trading Price in which case the amount of
such consideration received and/or receivable by the Company will be the Trading
Price thereof, in each case determined as of the date that such Common Stock
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold, as the case may be. If any Common Stock, Options or Convertible
Securities are issued in connection with any merger, consolidation or other
business combination in which the Company is the surviving or resulting entity,
then the amount of consideration therefor will be deemed to be the fair value of
such portion of the net assets and business of the non-surviving or
non-resulting entity or entities as is attributable to such Common Stock Options
or Convertible Securities, as the case may be. For purposes of this paragraph
12.1(e) of Section 12, the determination of fair value and any
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attribution of fair value to any Common Stock, Options or Convertible Securities
shall be made by the Board of Directors in good faith.
(f) Certain Transactions. If the Company shall be a party to any
transaction, including without limitation, any merger consolidation, sale of all
or substantially all of the Company's assets, liquidation, or recapitalization
of the Common Stock (a "Transaction"), in which the Common Stock outstanding
immediately prior to the consummation of the Transaction shall be changed into,
or exchanged for, (a) different securities of the Company, (b) common stock or
other securities of another company, (c) interests in a noncorporate entity, or
(d) other property (including cash) of any combination of the foregoing, then,
as a condition of the consummation of any such Transaction, lawful and adequate
provision shall be made so that each holder of Warrants shall be entitled, upon
exercise of such Warrants, to receive an amount per Warrant Share so converted
equal to (Y) the aggregate amount of securities, interests, cash and/or other
property (payable in kind), as the case may be, into which or for which a share
of Common Stock was changed or exchanged in such Transaction times (Z) the
number of shares of Common Stock for which such Warrant Share was exercisable
immediately prior to such Transaction.
12.2 Other Events. If any event occurs as to which the foregoing
provisions of Section 12.1 or 12.2 are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board of Directors of
the Company, fairly and adequately protect the purchase rights represented by
the Warrants in accordance with the essential intent and principles of such
provisions, then such Board of Directors shall make such adjustments in the
application of such provision, in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of such
Board of Directors, to protect such purchase rights as aforesaid.
12.3 Treasury Shares. The number of shares of the Common Stock outstanding
at any time shall not include shares owned or held by or for the account of the
Company or any of its Subsidiaries, and the disposition of any such shares shall
be considered an issue or sale of the Common Stock for the purposes of this
Section 12.
12.4 Notice of Adjustment.
Whenever the number of Warrant Shares issuable upon exercise of the
Warrant or the Warrant Price of the Warrants is adjusted pursuant to any of the
provisions of this Agreement, the Company will, within 30 days thereafter, give
notice to each Holder of such adjustment or adjustments, together with a
certificate of a firm of independent public accountants selected by the Company
(who may be the regular accountants employed by the Company) setting forth the
adjustments in the Warrant Price and in the number of Warrant Shares purchasable
upon exercise of each Warrant, and also setting forth a brief statement of the
facts requiring such adjustments and the computations upon which such
adjustments are based. Such certificate will be conclusive evidence of the
correctness of such adjustments. If the Company shall fail to so timely deliver
any notice required pursuant to this Section 12.4, the Exercise Period shall be
extended until Purchaser shall have received the proper notification under this
Section 12.4.
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12.5 Warrant Certificates.
Whether or not any adjustments in the Warrant Price or the number or
kind of shares purchasable upon the exercise of the Warrants has been made,
Warrant Certificates theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrant
Certificate initially issued.
Section 13. Fractional Interests.
The Company will not be required to issue fractional Warrant Shares on the
exercise of the Warrants. If any fraction of a Warrant Share would, except for
the provisions of this Section 13, be issuable upon the exercise of the
Warrants, Warrant Shares will be rounded upward to the nearest whole share.
Section 14. No Rights as a Stockholder; Notices to Holders.
(a) Nothing contained in this Agreement or in the Warrant Certificate
will be construed as conferring upon the Holders of Warrants or their
transferees the right to vote, or to receive dividends, or to consent or to
receive notice as a stockholder in respect of any meeting of stockholders for
the election of directors of the Company or any other matter, or any rights
whatsoever as a stockholder of the Company; provided, however, that if, at any
time prior to the Expiration Date and prior to the exercise of all of the
Warrants, any of the following events occur:
(i) The Company declares any dividend payable in any securities
upon its shares of Common Stock or makes any distribution (other than a cash
dividend payable out of consolidated retained earnings) to the holders of its
shares of Common Stock;
(ii) The Company offers to the holders of its Common Stock any
shares of capital stock of the Company or any subsidiary or securities
convertible into or exchangeable for shares of capital stock of the Company or
any subsidiary or any option, right or warrant to subscribe for or purchase any
thereof;
(iii) The Company distributes to the holders of its Common Stock
evidences of indebtedness or assets (including any cash dividend which would
result in an adjustment under Section 11.1) of the Company or any subsidiary;
(iv) Any reclassification of the Common Stock, any consolidation of
the Company with or merger of the Company into another corporation, or any sale,
transfer, or lease to another corporation of all or substantially all the
property of the Company; or
(v) A dissolution, liquidation, or winding up of the Company is
proposed;
then in any one or more of such events the Company will give notice in writing
of such event to the Holders of Warrants, as provided in Section 12.4 hereof,
such giving of notice to be completed at least thirty (30) days prior to the
date fixed as a record date or the date of closing the transfer
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books for the determination of the shareholders entitled to such dividend,
distribution or subscription rights, or for the determination of shareholders
entitled to vote on such proposed reclassification, consolidation, merger, sale,
transfer or lease, dissolution, liquidation, or winding up.
(b) The Company will give notice to each Holder on a date no earlier
than 30 days and no later than 60 days prior to the Expiration Date stating
that, subject to the provisions hereof, the Warrants will expire at 5:00 p.m.
Eastern Standard time on July 30, 2009; provided, however, that in no event will
the failure by the Company to give such notice, or any defect in such notice,
give rise to any obligation or liability on the part of the Company or otherwise
affect the rights and obligations of the Company, Purchaser, or any Holder.
Section 15. Reservation of Common Stock.
The Company will, for so long as Warrants remain outstanding, reserve and
keep available, solely for issuance and delivery upon the exercise of the
Warrants, free of any preemptive rights, a number of shares of Common Stock (or,
if applicable, other securities) sufficient to provide for the exercise of all
outstanding Warrants. The transfer agent for the Common Stock (or, if
applicable, other securities) will be irrevocably authorized and directed at all
times until the exercise or expiration of the Warrants to reserve such number of
authorized shares of Common Stock (or, if applicable, other securities) as
necessary for such purpose. The Company will keep copies of this Agreement on
file with the transfer agent and will supply the transfer agent with duly
executed stock certificates for such purpose.
Section 16. Pro Rata Purchase. If at any time the Company or any of tits
Affiliates shall offer to purchase any shares of Common Stock, other than shares
purchased from any employees of the Company or any of its subsidiaries as
permitted by the terms of any employee benefit plan or stockholders or similar
agreement that has been approved by the Board of Directors of the Company, the
Company shall, as a part of such offer, also make an offer to purchase the
Warrants and Warrant Shares from the holders of all outstanding Warrant Shares
and Warrants, and with any purchase pursuant to each offer to be allocated pro
rata among the holders of Warrant Shares and Warrants and the other holders of
Common Stock accepting each offer to purchase.
Section 17. Replacement of Warrant Certificate.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant Certificate and, in the
case of any such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, upon surrender and cancellation of such Warrant
Certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant Certificate of like tenor.
Section 18. Conditions to Closing. The execution and delivery of this Agreement
and the obligation of the Purchaser to purchase the Warrants are subject to the
conditions precedent that
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the Purchaser shall have received the following documents, each of which shall
be satisfactory to the Purchaser in form and substance, and the satisfaction of
the following conditions:
(a) Representations and Warranties. The representations and
warranties made by the Company in Section hereof shall be true and correct in
all material respects on and as of the date hereof with the same force and
effect as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).
(b) Satisfaction of Obligations. The Company shall have performed all
of its obligations under this Agreement to be performed as of the date hereof
unless otherwise waived by the Purchaser.
(c) No Adverse Proceeding. No action, suit or proceeding shall be
pending against or affecting or, to the knowledge of the Company, threatened
against, the Company or any of its Subsidiaries before any Governmental
Authority that, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect.
(d) No Material Adverse Change. Neither the Company nor any of its
Subsidiaries has sustained since the date of the Balance Sheet any material loss
or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor or court or governmental
action, order or decree, and there shall not have been any change in the Capital
Stock or long term debt of the Company or any of its Subsidiaries or any other
Material Adverse Change.
(e) Warrants. The Company shall have executed and delivered to
Purchaser certificates evidencing the Warrants in the form of Exhibit A hereto.
(f) Corporate Documents. Purchaser shall have received good standing
certificates and certified copies of the Certificate of Incorporation and Bylaws
(or equivalent documents) of the Company and of all corporate authority for the
Company (including, without limitation, Board of Director resolutions and
evidence of the incumbency of officers) with respect to the execution, delivery
and performance of this Agreement and each other document to be delivered by the
Company from time to time in connection herewith (and the Purchaser may
conclusively rely on any such certificate until it receives notice in writing
from the Company to the contrary).
(g) Officers' Certificate. Purchaser shall have received an Officers'
Certificate, dated the date hereof stating that (i) the representations and
warranties of the Company and its Subsidiaries in this Agreement are true and
correct, (ii) the Company has satisfied all conditions on their part to be
performed or satisfied hereunder at or prior to the date hereof, and (iii) to
the effect of paragraphs (c) and (d) of this Section 18.
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(h) Opinion of Piper & Marbury, L.L.P. The Company shall deliver to
Purchaser and the Trustee, a written opinion of Piper & Marbury, L.L.P., counsel
to the Company and the Subsidiaries, dated the date hereof, substantially in the
form of Exhibit C hereto.
(i) Further Assurances. Prior to the execution and delivery of this
Agreement, the Company shall have furnished to Purchaser such further
information, certificates and documents as Purchaser may reasonably request. The
execution and delivery of this Agreement and the obligation of the Purchaser to
purchase the Warrants are subject to the conditions precedent that the Purchaser
shall have received the following documents, each of which shall be satisfactory
to the Purchaser in form and substance, and the satisfaction of the following
conditions: (a)Representations and Warranties. The representations and
warranties made by the Company in Section hereof shall be true and correct in
all material respects on and
Section 19. Miscellaneous.
19.1 Waiver.
No failure on the part of any party to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power of
privilege under this Agreement, the Warrants and any other Transaction Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement, the Warrants or any other
Transaction Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
and in the other Transaction Documents are cumulative and not exclusive of any
remedies provided by law.
19.2 Notices.
Except as otherwise expressly permitted by this Agreement, all
notices, requests and other communications provided for herein (including,
without limitation, any modifications of, or waivers, requests or consents
under, this Agreement) shall be given or made in writing (including, without
limitation, by telecopy) delivered to the intended recipient at the "address for
Notices" specified below its name on the signature page hereof; or, if to any
Holder other than Purchaser, at the address of such Holder set forth in the
security register or other records of the Company; or at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telecopier or personally delivered or,
in each case given or addressed as aforesaid.
19.3 Expenses
The Company agrees to pay or reimburse Purchaser for: (a) all
out-of-pocket costs and expenses of Purchaser (including, without limitation,
the fees and expenses of Jones, Day, Reavis & Pogue, counsel to Purchaser) in
connection with (i) the negotiation, preparation, execution and delivery of this
Agreement the issuance of the Warrants hereunder, and (ii) the negotiation and
preparation of any modification, supplement or waiver of any of the terms of
this Agreement whether or not consummated; (b) all reasonable out-of-pocket
costs and expenses of Purchaser (including, without limitation, the reasonable
fees and expenses of legal counsel (or, if Purchaser is not represented by
outside counsel, the allocated costs of in-house counsel) in connection with the
transactions contemplated hereby and any enforcement or collection proceedings
resulting therefrom, including, without limitation, all manner of participation
in or
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other involvement with (x) bankruptcy, insolvency, receivership, foreclosure,
winding up or liquidation proceedings, (y) judicial or regulatory proceedings
and (z) workout, restructuring or other negotiations or proceedings (whether or
not the workout, restructuring or transaction contemplated thereby is
consummated); (c) the enforcement of this Section 19.3; (d) all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
Governmental Authority in respect of this Agreement or any other document
referred to herein; (e) the preparation, printing and delivery of an Offering
Document, if applicable; (f) the issuance, transfer and delivery of the
Warrants; (g) the preparation of certificates for the Warrants; (h) the
reasonable fees and expenses of listing the Warrants for trading on a national
securities exchange or for quotation on NASDAQ or such other automated quotation
system as may be specified the Required Holders, if such trading is requested by
the Required Holders; and (i) all other costs and expenses incident to the
performance of the Company's obligations hereunder , which are not otherwise
specifically provided for in this Section 19.3.
19.4 Amendments, Etc.
Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be modified or supplemented only by an
instrument in writing signed by the Company and the Required Holders.
19.5 Specific Performance.
The Company acknowledges and agrees that in the event of any breach of this
Agreement or the terms and provisions of the Warrants by the Company, the
Holders would be irreparably harmed and could not be made whole by monetary
damages. The Company accordingly agrees (i) to waive the defense in any action
for specific performance that a remedy at law would be adequate, and (ii) that
the Holders, in addition to any other remedy to which they may be entitled at
law or in equity, shall be entitled to compel specific performance of this
Agreement or the Warrants in any action instituted in the state courts of New
York or Texas, or, in the event such Court would not have jurisdiction for such
action, in any court of the United States or any state thereof having subject
matter jurisdiction for such action.
19.6 Indemnification and Contribution.
(a) The Company hereby agrees to indemnify Purchaser, its Affiliates and
each Person, if any, who controls Purchaser or such Affiliates within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and their respective directors, officers, employees, attorneys and agents (each
a "Purchaser Indemnified Party") from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages or expenses incurred by any of
them in connection with, or in any way relating to or arising out of, the
Warrant Certificates or this Agreement or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby, including any loss, liability, claim, damage or expense arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) or otherwise
relating to the Warrants or any actual or proposed use by the Company or any of
its Subsidiaries of the proceeds of the Warrants,
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including, but not limited to, the reasonable fees and disbursement of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason for the gross negligence or willful misconduct of
the Person to be indemnified). The foregoing indemnity agreement shall be in
addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Purchaser Indemnified Party in respect of which indemnity may be sought against
the Company, The Purchaser Party shall promptly notify, in writing, the parties
against whom indemnification is being sought (the "Indemnifying Parties"), but
the omission so to notify the indemnifying party shall not relive it of any
liability it may have against any Purchaser Indemnified Party, and such
Indemnifying Parties shall assume the defense thereof, including the employment
of counsel satisfactory to The Purchaser Party and payment of all fees and
expenses. The Purchaser Indemnified Party shall have the right to employ
separate counsel in any such action, suit or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Purchaser Indemnified Party unless (i) the Indemnifying Parties
have agreed in writing to pay such fees and expenses, (ii) the Indemnifying
Parties have failed timely to assume the defense or to employ counsel
satisfactory to the Purchaser Indemnified Party, or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both any Purchaser Indemnified Party and the Indemnifying Parties and the
Purchaser Indemnified Party shall have been advised by their counsel that
representation of such Indemnified Party and any Indemnifying Party by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Indemnifying Party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of the Purchaser Indemnifying Party).
It is understood, however, that the Indemnifying Parties shall, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of only one separate firm of attorneys (in addition to any
local counsel at any time for all the Purchaser Indemnified Parties, which firm
shall be designated in writing by Purchaser, and that all such fees and expenses
shall be reimbursed on a monthly basis. The Indemnifying Parties shall not be
liable for any settlement of any such action, suit or proceeding effected
without their written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Indemnifying Parties agree to indemnify and hold harmless the
Purchaser Indemnified Parties, to the extent provided in paragraph (a), from and
against any loss, claim, damage, liability, expense or judgment by reason of
such settlement or judgment.
(c) If the indemnification provided for herein is unavailable to any
Purchaser Indemnified Party under paragraphs (a) or (b) hereof in respect of any
losses, claims, damages, liabilities, expenses or judgments referred to therein,
then an indemnifying party, in lieu of indemnifying such Purchaser Indemnified
Party, shall contribute to the amount paid or payable by such Purchaser
Indemnified Party as a result of such losses, claims, damages, liabilities,
expenses or judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and Purchaser on the
other hand from the offering and sale of the
-45-
<PAGE> 46
Warrants, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or if the Purchaser Indemnified Party failed to give
the notice required under subsection (b) above, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and Purchaser
on the other in connection with action or inaction that resulted in such losses,
claims damages, liabilities, expenses or judgment, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and Purchaser on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total discounts and commissions received by Purchaser
as set forth herein.
(d) The Company and Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 19.6 were determined by a pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (c) above. The amount
paid or payable by a Purchaser Indemnified Party as a result of the losses,
claims, damages, liabilities, expenses or judgments referred to in paragraph (c)
above shall be deemed to include, subject to the limitation set forth in this
Section 19.6, any legal or other expenses reasonably incurred by such Purchaser
Indemnified Party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this Section
19.6, no Purchaser Indemnified Party shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total discounts and
commissions received by Purchaser exceeds the amount of any damages which such
Purchaser Indemnified Party has otherwise been required to pay. No person guilty
of fraudulent misrepresentation (within the meaning of Section 19.6(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Any losses, claims, damages, liabilities, expenses or judgments for
which a Purchaser Indemnified Party is entitled to indemnification or
contribution under this Section 19.6 shall be paid by the indemnifying party to
the Purchaser Indemnified Party as such losses, claims, damages, liabilities,
expenses or judgments are incurred. The indemnity and contribution agreements
contained in this Section 19 and the representations and warranties of the
Company set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Purchaser Indemnified Party, (ii) acceptance of any Warrants and payment
therefore hereunder, and (iii) any termination of this Agreement. A successor to
any Purchaser Indemnified Party, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
19.6.
(f) No indemnifying party shall, without the prior written consent of the
Purchaser Indemnified Party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any Purchaser Indemnified Party
is or could have been a party and indemnity could have been sought hereunder by
such Purchaser Indemnified Party, unless such settlement involves solely the
payment of money and includes an unconditional release of such Purchaser
Indemnified Party from all liability on claims that are the subject matter of
such action, suit or proceeding.
-46-
<PAGE> 47
19.7 Successors and Assigns.
Purchaser and any Holder of the Warrants may sell, transfer,
negotiate or assign to one or more other Persons all or a portion of its
commitments, loans and its rights and obligations under this Agreement without
the consent of the Company except with respect to assignments to Persons engaged
in the same line of business as the Company.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns and any
transferee of Purchaser.
19.8 Survival.
The obligations of the Company under Sections 7 and 9 hereof shall
survive the execution and delivery of this Agreement and the Warrants. In
addition, all agreements, representations and warranties of the Company herein
and in any certificate or other instrument delivered pursuant to this Agreement
shall (A) be deemed to have been relied upon by Purchaser, notwithstanding any
investigation heretofore or hereafter made by Purchaser or on its behalf, and
(B) shall survive the execution and delivery of the Warrants to Purchaser, and
shall continue in effect so long as any Warrant is outstanding.
19.9 Captions.
The captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provisions of this Agreement.
19.10 Counterparts.
This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
19.11 Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to its conflicts
of laws principles.
19.12 Submission to Jurisdiction; Waivers.
The Company hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the Warrants Certificates, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the States of New York and
Texas and the courts of the United States of America for the Southern District
of New York and the Northern District of Texas, and appellate courts from any
thereof;
-47-
<PAGE> 48
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to its address set
forth under its signature below or at such other address of which Purchaser
shall have been notified; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction.
19.13 Waiver of Jury Trial.
EACH OF THE COMPANY AND NORTEL HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
-48-
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written above.
NET2000 COMMUNICATIONS, INC.
By: /s/ Clayton A. Thomas, Jr.
------------------------------------
Name: Clayton A. Thomas, Jr.
Title: President and CEO
Address for Notices:
Net2000 Communications, Inc.
2195 Fox Mill Road
Herndon, Virginia 90171
Attention: Donald E. Clarke
Chief Financial Officer and Treasurer
Telecopy: (703) 793-2525
Telephone: (703) 793-2500
with a copy to:
Piper & Marbury, LLP
1251 Avenue of the Americas
New York, New York 10020-1104
Attention: David Fisher, Esq.
Telecopy: (212) 835-6001
Telephone: (212) 835-6000
<PAGE> 50
NORTEL NETWORKS INC.
By: /s/ Jay R. Prestipino
-------------------------------
Name: Jay R. Prestipino
Title: Director, Customer Finance
Address for Notices:
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Networks, Finance
Telecopy: (978) 916-4755
Telephone: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082
Attention: Vice President, Customer Finance
North America
Telecopy: (972) 684-3679
Telephone: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan Administration
Telecopy: (972) 684-3808
Telephone: (972) 684-7687
with a copy to:
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Christopher Kelly, Esq.
Telecopy: (216) 579-0212
Telephone: (216) 586-1238
<PAGE> 1
EXHIBIT 10.19
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER CONTAINED IN THE WARRANT AGREEMENT (AS HEREINAFTER DEFINED), A COPY
OF WHICH WILL BE MADE AVAILABLE BY THE ISSUER UPON REQUEST.
THE TRANSFER OR EXCHANGE OF THESE WARRANTS MUST BE REGISTERED IN ACCORDANCE WITH
THE WARRANT AGREEMENT.
No. 001 July 30, 1999
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME
ON JULY 30, 2009 OR EARLIER
AS PROVIDED IN THE WARRANT AGREEMENT
Net2000 Communications, Inc.
Warrant Certificate
THIS CERTIFIES THAT for value received, Nortel Networks Inc. or its
registered assigns (the "Holder"), is the owner of Warrants that initially
entitle it to purchase from Net2000 Communications, Inc., a Delaware corporation
(the "Company"), at any time and from time to time after the date hereof and on
or prior to 5:00 p.m. Eastern Standard time on July 30, 2009, or such earlier
date as described in the Warrant Agreement (the "Expiration Date"), 895,944
fully paid and nonassessable shares of the Common Stock, par value $0.01 per
share, of the Company (the "Common Stock") at an exercise price of $.01 per
share (the "Warrant Price"). The shares of Common Stock purchasable upon
exercise of the Warrants, as such number of shares may be adjusted pursuant to
Sections 11 and 12 of the Warrant Agreement, are hereinafter referred to as the
"Warrant Shares." Subject to the terms and conditions of the Warrant Agreement,
the Warrants may be exercised by (a) surrendering to the Company this Warrant
Certificate with the Exercise Notice attached hereto duly executed, and (b)
delivering payment to the Company, in cash, in lawful money of the United States
of America, or by certified bank check payable to the order of the Company, in
an amount equal to the product of (i) the number of Warrants designated in the
Exercise Notice multiplied by (ii) the Warrant Price; provided, however, that
the number of Warrants exercised by the Holder at any one time may not be less
than 100,000 and must be an integral multiple of 1,000.
Capitalized terms used herein and not otherwise defined shall have the
meaning assigned to them in the Warrant Agreement.
This Warrant Certificate and the Warrants it represents are subject to, and
entitled to the benefits of, all of the terms, provisions, and conditions of the
Warrant Agreement, dated as of July 30, 1999 (the "Warrant Agreement") by and
between the Company and Nortel Networks Inc., which Warrant Agreement is hereby
incorporated herein by reference and made a part
<PAGE> 2
rights, limitation of rights, obligations, duties and immunities hereunder of
the Company and the Holder. A copy of the Warrant Agreement will be made
available by the Company upon request.
Subject to the restrictions upon transfer set forth in the Warrant
Agreement, each Warrant Certificate may be exchanged, at the option of the
Holder, for another Warrant Certificate, or other Warrant Certificates of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Warrant Shares upon surrender to the Company.
Any Holder of a Warrant Certificate desiring to exchange a Warrant Certificate
must make such request in writing delivered to the Company, and must surrender
the Warrant Certificate to be so exchanged, duly endorsed in accordance with the
Warrant Agreement.
Subject to the restrictions upon transfer set forth in the Warrant
Agreement, the Warrants will be transferable only on the Warrant Register, upon
surrender to the Company of this Warrant Certificate, duly endorsed by the
Holder or by its duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment, or authority to transfer, which
endorsement must be guaranteed by a bank or trust company or a broker or dealer
which is a member of the NASD In all cases of transfer by an attorney, the
original power of attorney, duly approved, or a copy thereof, duly certified,
must be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority must be produced, and may be required to be
deposited and remain with the Company in its discretion.
The Company will not be required to issue fractional Warrant Shares upon
the exercise of any Warrants evidenced by this Warrant Certificate. If any
fraction of a Warrant Share would, except for the provision of Section 12 of the
Warrant Agreement, be issuable upon the exercise of the Warrants, Warrant Shares
will be rounded upward to the nearest whole share.
Nothing contained in the Warrant Agreement or in this Warrant Certificate
will be construed as conferring upon the holder of this Warrant Certificate the
right to vote, or to receive dividends, or to consent or (except as provided in
the Warrant Agreement) to receive notice in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as a stockholder of the Company.
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed on this 30th day of July, 1999, in Herdon, Virginia, by its corporate
officers duly authorized.
Net2000 COMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
Attest:
- -------------------------------
Secretary
<PAGE> 1
EXHIBIT 10.20
NET2000 COMMUNICATIONS, INC.
SENIOR DISCOUNT NOTES DUE 2009
INDENTURE
Dated as of July 30, 1999
ALLFIRST TRUST COMPANY,
NATIONAL ASSOCIATION
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
310(a)(1)........................................................ 7.10
(a)(2) ........................................................7.10
(a)(3) ......................................................N.A.
(a)(4) ....................................................... N.A.
(a)(5) ...................................................... 7.10
(b) .......................................................... 7.10
(c). ..........................................................N.A.
311(a) .......................................................... 7.11
(b)........................................................... 7.11
(c) ..........................................................N.A.
312(a). ......................................................... 2.05
(b). .........................................................10.03
(c) ..........................................................10.03
313(a) ...........................................................7.06
(b)(1).........................................................N.A.
(b)(2) ....................................................... 7.07
(c) ....................................................7.06;10.02
(d) ...........................................................7.06
314(a)......................................................4.03;10.02
(b)............................................................N.A.
(c)(1)........................................................10.04
(c)(2)........................................................10.04
(c)(3)........................................................ N.A.
(d)........................................................... N.A.
(e).......................................................... 10.05
(f)........................................................... N.A.
315(a)............................................................7.01
(b)......................................................7.05,10.02
(c)........................................................... 7.01
(d)............................................................7.01
(e)............................................................6.11
316(a)(last sentence).............................................2.09
(a)(1)(A)......................................................6.05
(a)(1)(B)..................................................... 6.04
(a)(2).........................................................N.A.
(b)........................................................... 6.07
(c)............................................................2.12
317(a)(1)........................................................ 6.08
(a)(2)........................................................ 6.09
(b)............................................................2.04
318(a)...........................................................10.01
(b)............................................................N.A.
(c).......................................................... 10.01
N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions...............................................................................1
-----------
Section 1.02. Other Definitions........................................................................19
-----------------
Section 1.03. Incorporation by Reference of Trust Indenture Act........................................19
-------------------------------------------------
Section 1.04. Rules of Construction....................................................................20
---------------------
ARTICLE 2 THE NOTES
Section 2.01. Form and Dating..........................................................................20
---------------
Section 2.02. Execution and Authentication.............................................................21
----------------------------
Section 2.03. Registrar and Paying Agent...............................................................22
---------------------------
Section 2.04. Paying Agent to Hold Money in Trust......................................................22
------------------------------------
Section 2.05. Holder Lists.............................................................................22
-------------
Section 2.06. Transfer and Exchange....................................................................22
----------------------
Section 2.07. Replacement Notes........................................................................34
-----------------
Section 2.08. Outstanding Notes........................................................................34
-----------------
Section 2.09. Treasury Notes...........................................................................34
--------------
Section 2.10. Temporary Notes..........................................................................35
---------------
Section 2.11. Cancellation.............................................................................35
------------
Section 2.12. Defaulted Interest.......................................................................35
------------------
Section 2.13. CUSIP Numbers............................................................................35
-------------
ARTICLE 3 REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.......................................................................36
------------------
Section 3.02. Selection of Notes to Be Redeemed........................................................36
---------------------------------
Section 3.03. Notice of Redemption.....................................................................36
--------------------
Section 3.04. Effect of Notice of Redemption...........................................................37
------------------------------
Section 3.05. Deposit of Redemption Price..............................................................37
---------------------------
Section 3.06. Notes Redeemed in Part...................................................................38
----------------------
Section 3.07. Optional Redemption......................................................................38
-------------------
Section 3.08. Mandatory Redemption.....................................................................39
--------------------
Section 3.09. Offer to Purchase by Application of Excess Proceeds......................................39
---------------------------------------------------
ARTICLE 4 COVENANTS
Section 4.01. Payment of Notes.........................................................................41
----------------
Section 4.02. Maintenance of Office or Agency..........................................................41
-------------------------------
Section 4.03. Reports..................................................................................42
-------
Section 4.04. Compliance Certificate...................................................................42
----------------------
Section 4.05. Taxes....................................................................................43
-----
Section 4.06. Stay, Extension and Usury Laws...........................................................43
------------------------------
Section 4.07. Restricted Payments......................................................................44
-------------------
Section 4.08. Designation of Restricted and Unrestricted Subsidiaries..................................46
-------------------------------------------------------
Section 4.09. Limitation on Indebtedness...............................................................46
---------------------------
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 4.10. Asset Sales..............................................................................48
-----------
Section 4.11. Transactions with Affiliates.............................................................49
----------------------------
Section 4.12. Corporate Existence......................................................................50
-------------------
Section 4.13. Payments for Consent.....................................................................50
--------------------
Section 4.14. Offer to Repurchase Upon Change of Control...............................................50
------------------------------------------
Section 4.15. Dividend and Other Payment Restrictions Affecting Restricted
------------------------------------------------------------
Subsidiaries.............................................................................52
------------
Section 4.16. Liens....................................................................................52
-----
Section 4.17. Business Activities......................................................................53
-------------------
Section 4.18. Sale and Leaseback Transactions..........................................................53
-------------------------------
Section 4.19 Limitations on Issuances and Sales of Capital Stock of Restricted Subsidiaries..........53
-------------------------------------------------------------------------------
Section 4.20 Limitations on Issuances of Certain Guarantees by and Debt
----------------------------------------------------------
Securities of, Restricted Subsidiaries...................................................53
--------------------------------------
ARTICLE 5 SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.................................................54
----------------------------------------
Section 5.02. Successor Corporation Substituted........................................................55
---------------------------------
ARTICLE 6 DEFAULTS AND REMEDIES
Section 6.01. Events of Default........................................................................55
-----------------
Section 6.02. Acceleration.............................................................................57
------------
Section 6.03. Other Remedies...........................................................................57
--------------
Section 6.04. Waiver of Past Defaults..................................................................58
-----------------------
Section 6.05. Control by Majority......................................................................58
-------------------
Section 6.06. Limitation on Suits......................................................................58
-------------------
Section 6.07. Rights of Holders of Notes to Receive Payment. ..........................................59
---------------------------------------------
Section 6.08. Collection Suit by Trustee...............................................................59
--------------------------
Section 6.09. Trustee May File Proofs of Claim.........................................................59
--------------------------------
Section 6.10. Priorities...............................................................................60
----------
Section 6.11. Undertaking for Costs....................................................................60
---------------------
ARTICLE 7 TRUSTEE
Section 7.01. Duties of Trustee........................................................................60
-----------------
Section 7.02. Rights of Trustee........................................................................61
-----------------
Section 7.03. Individual Rights of Trustee.............................................................62
----------------------------
Section 7.04. Trustee's Disclaimer.....................................................................63
--------------------
Section 7.05. Notice of Defaults.......................................................................63
------------------
Section 7.06. Reports by Trustee to Holders of the Notes...............................................63
------------------------------------------
Section 7.07. Compensation and Indemnity...............................................................63
--------------------------
Section 7.08. Replacement of Trustee...................................................................64
----------------------
Section 7.09. Successor Trustee by Merger, etc.........................................................65
---------------------------------
Section 7.10. Eligibility; Disqualification............................................................65
-----------------------------
Section 7.11. Preferential Collection of Claims Against Company........................................66
-------------------------------------------------
Section 7.12. Trustee's Application for Instructions from the Company. ................................66
-------------------------------------------------------
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. .................................66
--------------------------------------------------------
Section 8.02. Legal Defeasance and Discharge.............................................................66
------------------------------
Section 8.03. Covenant Defeasance........................................................................67
-------------------
Section 8.04. Conditions to Legal or Covenant Defeasance. ...............................................67
------------------------------------------
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
--------------------------------------------------------------
Other Miscellaneous Provisions.............................................................68
------------------------------
Section 8.06. Repayment to Company.......................................................................69
--------------------
Section 8.07. Reinstatement..............................................................................69
-------------
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes........................................................70
-----------------------------------
Section 9.02. With Consent of Holders of Notes...........................................................70
--------------------------------
Section 9.03. Compliance with Trust Indenture Act........................................................72
-----------------------------------
Section 9.04. Revocation and Effect of Consents..........................................................72
---------------------------------
Section 9.05. Notation on or Exchange of Notes...........................................................72
--------------------------------
Section 9.06. Trustee to Sign Amendments, etc............................................................73
--------------------------------
ARTICLE 10 MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls...............................................................73
----------------------------
Section 10.02. Notices....................................................................................73
-------
Section 10.03. Communication by Holders of Notes with Other Holders of Notes. ............................75
--------------------------------------------------------------
Section 10.04. Certificate and Opinion as to Conditions Precedent. .......................................75
--------------------------------------------------
Section 10.05. Statements Required in Certificate or Opinion. ............................................75
---------------------------------------------
Section 10.06. Rules by Trustee and Agents................................................................75
---------------------------
Section 10.07. No Personal Liability of Directors, Officers, Employees and
-----------------------------------------------------------
Stockholders...............................................................................76
------------
Section 10.08. Governing Law..............................................................................76
-------------
Section 10.09. No Adverse Interpretation of Other Agreements. ............................................76
---------------------------------------------
Section 10.10. Successors.................................................................................76
----------
Section 10.11. Severability...............................................................................76
------------
Section 10.12. Counterpart Originals......................................................................76
---------------------
Section 10.13. Table of Contents, Headings, etc...........................................................76
---------------------------------
Section 10.14. Benefits of Indenture......................................................................76
---------------------
Section 10.15. No Recourse Against Others.................................................................77
--------------------------
Section 10.16. Exhibits and Schedules.....................................................................77
----------------------
Section 10.17. Incorporation by Reference of TIA. ........................................................77
---------------------------------
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING
INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
v
<PAGE> 7
INDENTURE dated as of July 30, 1999 between Net2000 COMMUNICATIONS, INC.
a Delaware corporation (the "Company") and ALLFIRST TRUST COMPANY, NATIONAL
ASSOCIATION, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the Company's
Senior Discount Notes due 2009 (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount at Stated Maturity of the Notes sold in reliance on
Rule 144A.
"Accreted Value" means, as of any date of determination, the sum (rounded
to the nearest whole dollar) of (a) the initial offering price of each $1,000 in
principal amount at Stated Maturity of Notes and (b) the portion of the excess
of the principal amount of Notes over such initial offering price which shall
have been accreted thereon through such date, such amounts to be so accreted on
a daily basis at the Applicable Rate (computed on a semi-annual bond equivalent
basis) compounded semi-annually on each January 15 and July 15 from the date of
issuance of the Notes through the date of determination. On and after July 15,
2004, the Accreted Value of each Note shall be equal to its principal amount at
Stated Maturity.
"Acquired Debt" means, with respect to any specified Person:
(a) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(b) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Additional Notes" means Notes (other than the Initial Notes and Exchange
Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09
hereof, as part of the same series as the Initial Notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control",
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
<PAGE> 8
agreement or otherwise; provided that (i) beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control and (ii) Nortel
Networks Inc. and its Affiliates shall not be deemed to be an Affiliate of the
Company solely by virtue of clause (i) of this proviso. For purposes of this
definition, the terms "controlling", "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Applicable Rate" shall initially be 13.5% per annum; provided that if
the sum of the Treasury Rate on the Resale Date plus 8% is greater than 13.5%,
the Applicable Rate shall be reset on and as of the Resale Date to equal such
Treasury Rate plus 8%.
"Asset Acquisition" means:
(a) any transaction pursuant to which any Person shall become a
Restricted Subsidiary of the Company or shall be consolidated or merged with the
Company or any Restricted Subsidiary of the Company;
(b) the acquisition by the Company or any Restricted Subsidiary of the
Company of assets of any Person comprising a division or line of business of
such Person.
"Asset Sale" means (i) the sale, conveyance, transfer or other
disposition (whether in a single transaction or a series of related
transactions) of property or assets (including by way of a sale and leaseback)
of the Company or any Restricted Subsidiary to any Person other than the Company
or any Restricted Subsidiary of the Company (each referred to in this definition
as a "disposition") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary to any Person other than the Company or any Restricted
Subsidiary of the Company (whether in a single transaction or a series of
related transactions), in each case, other than (a) a disposition of Cash
Equivalents or goods held for sale in the ordinary course of business or
obsolete equipment in the ordinary course of business of the Company or the
applicable Restricted Subsidiary; (b) the disposition of all or substantially
all of the assets of the Company in a manner permitted pursuant to and in
accordance with the provisions of Section 5.01 hereof or any disposition that
constitutes a Change of Control pursuant to this Indenture; (c) any disposition
that is a Restricted Payment or Permitted Investment that is permitted under the
provisions of Section 4.07 hereof; and (d) any disposition, or related series of
dispositions, of assets with an aggregate Fair Market Value of less than $1.0
million.
"Attributable Debt" means, in respect of a sale and leaseback
transaction, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
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<PAGE> 9
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP and the Stated Maturity thereof shall be the date of the
last payment of rent or any amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means (a) in the case of a corporation, corporate stock;
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B"
or better, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in
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<PAGE> 10
clause (iii) above and (v) commercial paper rated A-1 or higher by Standard &
Poor's Corporation or P-1 by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following:
(a) the sale, lease or transfer, in one or a series of related
transactions (other than by merger or consolidation), of all or substantially
all of the assets of the Company and its Restricted Subsidiaries, taken as a
whole, to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act);
(b) the adoption of a plan relating to the liquidation or dissolution of
the Company; or
(c) the acquisition by any Person or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) of more than 50% of the Voting Stock
of the Company by way of merger or consolidation or otherwise; or
(d) a majority of the members of the Board of Directors of the Company
cease to be Continuing Directors.
"Company" means Net 2000 Communications, Inc., and any and all successors
thereto.
"Consolidated Capital Ratio" of any Person as of any date means the ratio
of (i) the aggregate consolidated principal amount of Debt (or in the case of
Indebtedness issued at a discount the accreted amount thereof) of such Person
then outstanding (which amount of Indebtedness shall be reduced by any amount of
cash or cash equivalent collateral securing on a perfected basis and dedicated
for disbursement exclusively to the payment of principal of and interest on such
Indebtedness to (ii) the aggregate consolidated Capital Stock (other than
Disqualified Stock) and paid in capital (other than in respect of Disqualified
Stock) of such Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period, increased by the sum of, to the extent reducing Consolidated Net
Income for such period, (i) Consolidated Interest Expense of the Company and its
Restricted Subsidiaries for such period, plus (ii) Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries for such period, plus
(iii) consolidated depreciation and amortization expense and any other non-cash
items (other than any such non-cash item to the extent that it represents an
accrual of or reserve for cash expenditures in any future period); provided,
however, that there shall be excluded therefrom the Consolidated Cash Flow
Available for Fixed Charges (if positive) of any Restricted Subsidiary
(calculated separately for such Restricted Subsidiary in the same manner as
provided above for the Company) that is subject to a restriction which prevents
the payment of dividends or the making of distributions to the Company or
another Restricted Subsidiary to the extent of such restriction.
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"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of the Company and its Restricted Subsidiaries for such period
calculated on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of
Indebtedness discounts; (ii) any payment or fees with respect to letters of
credit, bankers' acceptances or similar facilities; (iii) fees with respect to
interest rate swap or similar agreement or foreign currency hedge, exchange or
similar agreements; (iv) Preferred Dividends of the Company and its Restricted
Subsidiaries (other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable; (v) accrued Disqualified Stock
dividends of the Company and its Restricted Subsidiaries, whether or not
declared or paid; (vi) interest on Debt guaranteed by the Company and its
Restricted Subsidiaries; and (vii) the portion of any Capital Lease Obligation
paid or accrued during such period that is allocable to interest expense.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded, to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries,
(vi) any restoration to income of any contingency reserve, except to the extent
the provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date and (vii) income or loss attributable to
discontinued operations (whether or not classified as such if disposed of during
the period).
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum, determined on a consolidated basis in accordance with GAAP, of
(i) the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries as of such date (provided that the Consolidated Net
Worth of any Person shall exclude the effect of non-cash charges relating to the
acceleration of stock options or similar securities of such Person or another
Person with which such Person is merged or consolidated) plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of Preferred Stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of
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<PAGE> 12
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such Person upon issuance of such preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of this Indenture in the book value of any asset owned by
such Person or a consolidated Subsidiary of such Person, (y) all investments as
of such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Consolidated Non-Cash Charges" means, with respect to any Person, for
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries for such period, in each case,
determined on a consolidated basis in accordance with GAAP (excluding any such
charge that requires an accrual of or a reserve for cash charges for any future
period).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of this Indenture or (ii) was nominated for election or elected to such
Board of Directors with, or whose election to such Board of Directors was
approved by, the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Debt Rating" shall mean the rating assigned to the Notes by Moody's or
S&P, as the case may be.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, substantially
in the form of Exhibit A hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
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<PAGE> 13
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, or transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets or Capital Stock.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature.
"Domestic Subsidiary" means, with respect to the Company, any Subsidiary
of the Company that (a) was formed under the laws of the United States of
America, any state thereof or the District of Columbia; or (b) guarantees or
otherwise becomes obligated with respect to any Indebtedness of the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to
Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, in
cash, between an informed and willing seller and an informed and willing and
able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair Market Value shall be determined by the Board of Directors
of the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution delivered to the Trustee; provided, however, that, in the case
of any determination of Fair Market Value for purposes of the covenant described
under Section 4.07 hereof, if the aggregate Fair Market Value could be
reasonably likely to exceed $5.0
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<PAGE> 14
million, the Fair Market Value shall be determined by an accounting, appraisal
or investment banking firm of nationally recognized standing that is, in the
reasonable and good faith judgment of the Board of Directors of the Company,
qualified to perform the task for which such firm has been engaged.
"Final Issue Date" means the earlier to occur of (i) the first date on
which Purchaser resells any of the Notes to any Person which is not an Affiliate
of Purchaser and (ii) July 15, 2000.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period, and (ii) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of Preferred Stock of such Person, times
(b) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantor" means each Restricted Subsidiary of the Company that has
executed a Restricted Subsidiary Guarantee.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements; and (b) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
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<PAGE> 15
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any specified Person, (a) all
obligations of such Person for borrowed money; (b) all Obligations of such
Person evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof); (c) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction; (d) Capital Lease Obligations; (e)
the deferred and unpaid of the purchase price of any property, all conditional
sale Obligations and all Obligations under any title retention agreement, except
any such balance that constitutes an accrued expense or trade payable if it is
not overdue by 90 days or more or is being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted; (f)
representing any Hedging Obligations; (g) the maximum fixed redemption or
repurchase price of Disqualified Capital Stock of such Person at the date of
determination; and (h) Attributable Debt of such Person with respect to any sale
and leaseback transaction to which such Person is a party. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture; provided,
however, that if such Disqualified Capital Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Capital Stock.
In addition, the term "Indebtedness" includes all Indebtedness of others
secured by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person).
The amount of any Indebtedness outstanding as of any date shall be (a)
the accreted value thereof, in the case of any Indebtedness issued with original
issue discount; and (b) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
For purposes of calculating the amount of any Indebtedness hereunder, (a)
there shall be no double-counting of direct obligations and reimbursement
obligations for letters of credit; (b) the principal amount of any Indebtedness
of any Person arising by reason of such Person having granted or assumed a Lien
on its property to secure Indebtedness of others shall be the lower of the Fair
Market Value of such property and the principal amount of such Indebtedness
outstanding (or committed to be advanced) at the time of determination; (c) the
principal amount of any Indebtedness of any Person arising by reason of such
Person having guaranteed Indebtedness of others where the amount of such
guarantee is limited to an amount less than the principal amount of the
Indebtedness guaranteed, shall be such amount as so limited; (d) the payment
obligation for non-interest rate Hedging Obligations shall be equal to (i) zero,
to the extent the notional amount of the Hedging Obligation is not greater than
the reasonably anticipated requirements of the Company and its Subsidiaries for
the asset that is the subject of the Hedging Obligation, as such needs are
projected by management of the Company at the time the Hedging Obligation is
entered into or (ii) the notional amount of such Hedging Obligation, to the
extent such notional amount exceeds such reasonably anticipated requirements.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
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<PAGE> 16
"Indirect Participant" means a Person who holds a beneficial interest in
a Global Note through a Participant.
"Initial Issue Date" means the first Issue Date to occur.
"Initial Notes" means the Notes issued under this Indenture on the date
hereof.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Invested Capital" means the sum of (a) 20% of the aggregate net cash
proceeds received by the Company from the issuance or sale of (or capital
contributions with respect to) any Qualified Capital Stock prior to the Issue
Date, plus (b) the aggregate net cash proceeds received by the Company from the
issuance or sale of (or capital contributions with respect to) any Qualified
Capital Stock (including Preferred Stock, but only if any redemption thereof is
permitted only after the Stated Maturity of the Notes) or Subordinated
Stockholder Debt subsequent to the Issue Date and (c) all net cash proceeds from
the issuance or sale of Indebtedness of the Company or any Restricted Subsidiary
subsequent to the Issue Date convertible or exchangeable into Qualified Capital
Stock, in each case upon conversion or exchange thereof into Capital Stock of
the Company subsequent to the Initial Issue Date; provided, however, that the
net proceeds from the issuance or sale of Capital Stock or Indebtedness
described in clause (b) or (c) shall be excluded from any computation of
Invested Capital to the extent (i) utilized to make a Restricted Payment or
Permitted Investment or (ii) such Capital Stock or Indebtedness shall have been
issued or sold to the Company, a Subsidiary of the Company or any employee stock
ownership plan or trust established by the Company or any such Subsidiary for
the benefit of their employees.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Equity Interests of such Subsidiary not sold or disposed of.
"IPO" means, with respect to any Person, the first Public Equity Offering
by such Person.
"Issue Date" means each date on which any Notes are issued under this
Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive
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<PAGE> 17
order to remain closed. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue on such payment for the
intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
securing Indebtedness, whether or not filed, recorded or otherwise perfected
under applicable law, including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Cash Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
(i) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and brokerage and sales
commissions) actually incurred, (ii) taxes paid or payable as a result thereof
(actually incurred after taking into account any available tax credits or
deductions and any tax sharing arrangements), (iii) amounts required to be
applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such Asset Sale and (iv) any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"New York Trust Office of the Trustee" shall be the office of the Trustee
maintained in New York City at AIB Bank, c/o Allfirst Trust Company-MC 101-591,
405 Park Avenue, Attn: Cormac Daly, or such other address in New York City as to
which the Trustee may give notice to the Company.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on
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<PAGE> 18
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and (iii) as to which the lenders have
been notified in writing that they shall not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this Indenture.
The Initial Notes, the Additional Notes and the Exchange Notes shall be treated
as a single class for all purposes under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 10.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Optional Redemption Rate" means one-half the Applicable Rate divided by
three.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in
right of payment to the Notes.
"Participant" means, with respect to the Depositary, Euroclear or Cedel,
a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Debt" means:
(a) Vendor Debt in an aggregate principal amount not to exceed
$50.0 million outstanding at any one time;
(b) Indebtedness permitted to be borrowed under the Credit
Facilities in an aggregate principal amount not to exceed $75.0 million
outstanding at any time;
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(c) Telecommunications Assets Debt;
(d) Indebtedness of the Company to any of its Restricted
Subsidiaries or Indebtedness of a Restricted Subsidiary of the Company to
the Company or to another Restricted Subsidiary of the Company (but only
so long as such debt is held by a Person who is the Company or such a
Restricted Subsidiary);
(e) Indebtedness represented by the Notes, any Additional Notes
and any Exchange Notes issued pursuant to this Indenture (including, in
each case, any Guarantees thereof);
(f) Indebtedness in respect of (i) letters of credit, bankers'
acceptances or other similar instruments or obligations, issued in
connection with liabilities incurred in the ordinary course of business
(including those issued to governmental entities in connection with
self-insurance under applicable workers' compensation statutes) or (ii)
surety, judgment, appeal, performance and other similar bonds,
instruments or obligations provided in the ordinary course of business;
(g) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees, or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company, in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition;
(h) Indebtedness in existence on the Issue Date;
(i) Indebtedness incurred in connection with Hedging Obligations
that are incurred for the purpose of fixing or hedging interest rate risk
with respect to any Indebtedness that is permitted by the terms of this
Indenture to be outstanding or currency exchange risk other than solely
for speculative purposes;
(j) Acquired Debt which was not incurred in connection with, or in
contemplation of, merging with or into, or becoming a Subsidiary of, the
Company or a Restricted Subsidiary; and
(k) Indebtedness incurred in connection with or given in exchange
for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement of any Indebtedness referred to in clauses
(c), (e), (h) and (j) and not incurred in violation of this Indenture
("Refinancing Debt"); provided, however, that (x) the principal amount of
such Refinancing Debt shall not exceed the principal amount of the
Indebtedness so renewed, extended, substituted, refunded, defeased,
refinanced or replaced (plus the premiums paid, and the expenses
incurred, in connection therewith), (y) with respect to Refinancing Debt
of any debt, if the Average Life of the debt being renewed, extended,
substituted, refunded, defeased, refinanced or replaced is equal to or
greater than the Average Life of the Notes, the Refinancing Debt shall
have an Average Life equal to or greater than the
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Average Life of the Notes and shall not mature prior to the Stated
Maturity of the Notes, and (z) with respect to Refinancing Debt of any
Indebtedness, such Refinancing Debt shall rank no more senior (including
as a result of structural subordination of the Notes), and shall be at
least as subordinated, in right of payment to the Notes as the
Indebtedness being renewed, extended, substituted, refunded, defeased,
refinanced or replaced.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary of the Company or (B) such Person, in one
transaction or a series of related transactions, is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Restricted Investment made as a result of the receipt of
consideration not constituting cash or Cash Equivalents from an Asset Sale that
was made pursuant to and in compliance with the provisions set forth in Section
4.10 hereof; (e) any Investment existing on the date of this Indenture; (f) any
Investment by Restricted Subsidiaries in other Restricted Subsidiaries and
Investments by Subsidiaries that are not Restricted Subsidiaries in other
Subsidiaries that are not Restricted Subsidiaries; (g) any Investment acquired
by the Company or any of its Restricted Subsidiaries (A) in exchange for any
other Investment or receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
receivable or (B) as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default; (h) Hedging
Obligations; (i) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar expenses, in
each case, incurred in the ordinary course of business consistent with past
practice not to exceed $1.0 million in any twelve-month period at any one time
outstanding; and (j) Investments made after the Issue Date in Persons engaged in
the Telecommunications Business in an aggregate amount not to exceed Invested
Capital.
"Permitted Liens" means:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or any Restricted Subsidiary
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters
of credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the
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<PAGE> 21
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment
of borrowed money);
(d) judgement Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall
not have been finally determined or the period within which such
proceedings may be initiated shall not have expired;
(e) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not impairing
in any material respect the ordinary conduct of business of the Company
or any Restricted Subsidiary;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which are not leased property subject to such Capitalized Lease
Obligation;
(g) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(h) Liens securing Hedging Obligations;
(i) Liens securing Acquired Debt incurred in accordance with
Section 4.17, provided that (i) such Liens secure the Acquired Debt at
the time of and prior to the incurrence of such Acquired Debt by the
Company or a Restricted Subsidiary and were not granted in connection
with, or created in anticipation of, the incurrence of such Acquired Debt
by the Company or a Restricted Subsidiary and (ii) such Liens do not
extend to other property or assets of the Company or any Restricted
Subsidiary other than the property or assets that secure the Acquired
Debt prior to the time such Indebtedness became Acquired Debt;
(j) Liens securing Vendor Debt and Indebtedness incurred under the
Credit Facilities, provided that such Indebtedness was incurred in
compliance with clauses (a) and (b), respectively, of the definition of
Permitted Debt; and
(k) Liens securing Telecommunications Assets Debt.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
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"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means, with respect to any Person, an
underwritten primary public offering of Common Stock of such Person in the
United States of at least $25 million pursuant to an effective registration
statement filed under the Securities Act.
"Purchaser" means Nortel Networks Inc.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Stock.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement, dated as of July 30, 1999, by and among the Company and the
other parties named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Global Note bearing the Private
Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Resale Date" means the first date on which Purchaser sells, transfers or
otherwise disposes of all of the Notes to any Person or Persons that are not
Affiliates of Purchaser.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the Private
Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Note" means a Restricted Definitive Note and a Restricted
Global Note.
"Restricted Investments" means any Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Restricted Subsidiary Guarantee" means a supplemental indenture to this
Indenture providing for an unconditional Guarantee of payment in full of the
Accreted Value of, premium, if any, and interest on the Notes. Any such
Restricted Subsidiary Guarantee shall not be subordinate to any Indebtedness of
the Restricted Subsidiary providing the Restricted Subsidiary Guarantee. The
obligations of each Restricted Subsidiary under a Restricted Subsidiary
Guarantee shall be limited to the maximum amount, as shall, after giving effect
to all other contingent and fixed liabilities of such Restricted Subsidiary,
result in the obligations of such Restricted Subsidiary under the Restricted
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under applicable law. Notwithstanding the foregoing, any Restricted
Subsidiary Guarantee by a Restricted Subsidiary of the Notes shall provide by
its terms that it shall be automatically and unconditionally released and
discharged upon the sale or other disposition, by way of merger or otherwise, to
any Person not an Affiliate of the Company, of all of the Company's and its
Restricted Subsidiaries' Capital Stock in such Restricted Subsidiary. In
addition, any Restricted Subsidiary Guarantee shall be automatically and
unconditionally released and discharged upon the merger or consolidation of the
applicable Restricted Subsidiary with and into the Company or another Restricted
Subsidiary that has guaranteed the Notes and that is the surviving Person in
such merger or consolidation.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or any successor to the rating agency business thereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Restricted Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of this Indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Special Interest" means, as liquidated damages, all special interest
then accruing pursuant to Section 2(d) of the Registration Rights Agreement.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person (a) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and (b) any partnership (i) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (ii) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Telecommunications Assets" means (a) any Property (other than cash, Cash
Equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in the Telecommunications Business; (b) for purposes of
Section 4.09 and 4.16 only, Capital Stock of any Person primarily engaged in the
Telecommunications Business; or (c) for all other purposes of this Indenture,
Capital Stock of a Person primarily engaged in the Telecommunications Business
that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by the Company or another Restricted Subsidiary from any Person
other than an Affiliate of the Company.
"Telecommunications Assets Debt" means any Debt of the Company or any of
its Restricted Subsidiaries (including Acquired Debt and Capital Lease
Obligations, mortgage financings and purchase money obligations) incurred for
the purpose of financing all or any part of the cost of acquisition,
construction, installation, expansion, lease, improvement or development of
Telecommunications Assets.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, creating, developing
or marketing communications networks, related network transmission equipment,
software and other devices for use in a communications business, (iii) computer
outsourcing, data center management, computer systems integration, reengineering
of computer software for any purpose (including, without limitation, for the
purposes of porting computer software from one operating environment or computer
platform to another or to address issues commonly referred to as "Year 2000
issues") or (iv) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in (i), (ii) or (iii)
above; provided that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors.
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"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Treasury Rate" means, as of any date, the yield to maturity at the time
of computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least five Business Days prior
to such date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to 10
years.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Global Note" means a permanent global Note substantially in
the form of Exhibit A hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes that do
not bear and are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means each Subsidiary of the Company created
after the date of this Indenture and so designated by a resolution adopted by
the Board of Directors pursuant to Section 4.08 hereof.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Vendor Debt" means any Debt (including Acquired Debt and Capital Lease
Obligations, mortgage financings and purchase money obligations) incurred
pursuant to any agreement with one or more other vendors, suppliers or lessors
of equipment (including any facility entered into with any vendor, supplier or
lessor or any financial institution acting on behalf of any vendor, supplier or
lessor) as such agreement may be amended, modified, supplemented, refunded,
refinanced, restructured, renewed or replaced from time to time (whether in
whole or in part, whether with the original agent or lenders or other agents or
lenders and whether provided under the original agreement or otherwise).
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date
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and the making of such payment by (b) the then outstanding principal amount of
such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction"........................... 4.11
"Authentication Order"............................ 2.02
"Change of Control Offer"......................... 4.15
"Change of Control Payment"....................... 4.15
"Change of Control Payment Date".................. 4.15
"Covenant Defeasance"............................. 8.03
"DTC"............................................. 2.03
"Event of Default"................................ 6.01
"incur"........................................... 4.09
"Legal Defeasance"................................ 8.02
"Payment Default"................................. 6.01
"Paying Agent".................................... 2.03
"Permitted Debt".................................. 4.09
"Registrar"....................................... 2.03
"Restricted Payments"............................. 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company, and any successor obligor upon
the Notes.
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All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement or successor sections or rules adopted
by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby. However, to the extent any provision of
any Note conflicts with the express provisions of this Indenture, the provisions
of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in
the form of Exhibit A hereto (including the Global Note Legend thereon and the
"Schedule of Exchanges of Interests in the Global Note" attached thereto). Each
Global Note shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount
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of outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with written
instructions given by the Holder thereof as required by Section 2.06 hereof.
(c) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in any Regulation S Global Notes that are held by
Participants through Euroclear or Cedel Bank.
(d) Book-Entry Provisions. This Section 2.01(d) shall apply only to
Global Notes deposited with or on behalf of the Depositary. The Company shall
execute and the Trustee shall, in accordance with this Section 2.01(d),
authenticate and deliver the Global Notes that (i) shall be registered in the
name of the Depositary or the nominee of the Depositary and (ii) shall be
delivered by the Trustee to the Depositary or pursuant to the Depositary's
instructions or held by the Trustee as custodian for the Depositary.
Participants and Indirect Participants shall have no rights either under this
Indenture with respect to any Global Note held on their behalf by the Depositary
or by the Trustee as custodian for the Depositary or under such Global Note, and
the Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices of such Depositary governing the exercise of
the rights of an owner of a beneficial interest in any Global Note.
(e) Definitive Notes. Notes issued in definitive form shall be
substantially in the form of Exhibit A attached hereto (but without the Global
Note Legend thereon and without the "Schedule of Exchanges of Interests in the
Global Note" attached thereto).
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Notes and may be in
facsimile form. If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
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The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"), in
each case, in accordance with Section 4.02 hereof. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents. The
term "Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional paying agent. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company may act as Paying Agent or
Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to any Global Notes and initially appoints the
Trustee to act as the Registrar and Paying Agent and to act as custodian with
respect to any Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium and Special Interest, if any or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company) shall have no
further liability for the money. If the Company or a Subsidiary acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent. Upon any bankruptcy or
reorganization proceedings relating to the Company, the Trustee shall serve as
Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).
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Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company, in its sole discretion, determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee. Upon the occurrence of either of
the preceding events in clause (i) or (ii) above, Definitive Notes shall be
issued in such names as the Depositary shall instruct the Trustee. Global Notes
also may be exchanged or replaced, in whole or in part, as provided in Sections
2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or
in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06
or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided,
however, that prior to the expiration of the Restricted Period, transfers
of beneficial interests in the Regulation S Global Note may not be made
to a U.S. Person or for the account or benefit of a U.S. Person (other
than an Initial Purchaser). Beneficial interests in any Unrestricted
Global Note may be transferred to Persons who take delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note. No
written orders or instructions shall be required to be delivered to the
Registrar to effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the Registrar
either (A) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary
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to credit or cause to be credited a beneficial interest in another Global
Note in an amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given in accordance with the Applicable
Procedures containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a Participant
or an Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above. Upon consummation of an Exchange Offer
by the Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in
the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global
Notes contained in this Indenture and the Notes or otherwise applicable
under the Securities Act, the Trustee shall adjust the principal amount
of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note
or transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
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<PAGE> 32
(B) such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted
Global Note, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item
(1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit
B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D),
if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain
compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global
Note cannot be exchanged for, or transferred to Persons who take delivery
thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, or to transfer such beneficial interest to a
Person who takes delivery thereof in the form of a Restricted Definitive
Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a
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<PAGE> 33
certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof, the
Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in
the instructions a Definitive Note in the appropriate principal
amount. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall
bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such
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<PAGE> 34
beneficial interest for an Unrestricted Definitive Note or may transfer
such beneficial interest to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b)
thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Applicable Procedures so require, an Opinion of Counsel in form
reasonably acceptable to the Registrar to the effect that such
exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial interest
for a Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in
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<PAGE> 35
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest
shall instruct the Registrar in writing through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes
are so registered. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear
the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note
or to transfer such Restricted Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the form
of Exhibit C hereto, including the certifications in item (2)(b)
thereof;
(B) if such Restricted Definitive Note is being transferred
to a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred
to a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities Act
other than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications, certificates and Opinion of Counsel required
by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred
to the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
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<PAGE> 36
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof, the
Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the
case of clause (A) above, the appropriate Restricted Global Note,
in the case of clause (B) above, the 144A Global Note, or in the
case of clause (C) above, the Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in
the form of a beneficial interest in the Unrestricted Global Note,
a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Applicable Procedures so require, an Opinion of Counsel in form
reasonably acceptable to the Registrar to the effect that such
exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
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<PAGE> 37
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes
and increase or cause to be increased the aggregate principal amount of
the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note at any time. Upon receipt of a written request for such an
exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial
interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above
at a time when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon
request by a Holder of Definitive Notes and such Holder's compliance with the
provisions of this Section 2.06(e), the Registrar shall register the transfer or
exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder shall present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes.
Any Restricted Definitive Note may be transferred to and registered in
the name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
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<PAGE> 38
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for
an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration
Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Registration Statement in accordance with
the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Company to
the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required
in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer,
the Registrar shall register the Unrestricted Definitive Notes pursuant
to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an
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<PAGE> 39
Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes tendered for acceptance by Persons that certify in the
applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they
are not participating in a distribution of the Exchange Notes and (z) they are
not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate
principal amount equal to the principal amount of the Restricted Definitive
Notes accepted for exchange in the Exchange Offer. Concurrently with the
issuance of such Notes, the Trustee shall cause the aggregate principal amount
of the applicable Restricted Global Notes to be reduced accordingly, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend. (A) Except as permitted by subparagraph
(B) below, each Global Note and each Definitive Note (and all Notes
issued in exchange therefor or substitution thereof) shall bear the
legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN
OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN
A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES."
(B) Notwithstanding the foregoing, any Global Note or Definitive
Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all
Notes issued in exchange therefor or substitution thereof) shall not bear
the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
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<PAGE> 40
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON
AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND
(IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF NET2000 COMMUNICATIONS, INC."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer
taxes or similar governmental charge payable upon exchange or transfer
pursuant to Sections 2.10, 3.06, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this
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<PAGE> 41
Indenture, as the Global Notes or Definitive Notes surrendered upon such
registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at the
opening of 15 Business Days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to the due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of principal of
and interest on such Notes and for all other purposes, and none of the
Trustee, any Agent or the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a registration of transfer or exchange may be submitted by
facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the reasonable judgment of the Trustee and the Company to protect
the Company, the Trustee, any Agent and any authenticating agent from any loss
that any of them may suffer if a Note is replaced. The Company may charge such
Holder for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section 2.08
as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Note.
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If a Note is replaced pursuant to Section 2.07 hereof (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07 hereof.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue or
accrete, as the case may be.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue or accrete
interest, as the case may be.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that a Responsible Officer of the Trustee actually knows are so owned
shall be so disregarded.
Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee, upon receipt of an Authentication Order, shall authenticate
temporary Notes upon a written order of the Company signed by one Officer of the
Company. Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for temporary
Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Notes in exchange for temporary Notes. Holders of temporary Notes shall be
entitled to all of the benefits of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes in its customary manner (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all
canceled Notes shall be delivered to the Company. The Company may not issue new
Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.
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Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
Section 2.13. CUSIP Numbers.
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company shall promptly notify the Trustee of any
change in the "CUSIP" numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in an offer
to purchase at any time, the Trustee shall select the Notes to be redeemed or
purchased among the Holders of the Notes in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or such
method as the Trustee shall deem fair and appropriate. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called
for redemption.
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The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes (including applicable CUSIP Numbers)
to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price and the amount of accrued interest and Special
Interest, if any;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon surrender of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue or accrete, as the case
may be, on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed;
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes; and
(i) if fewer than all the Notes are to be redeemed, the identification of
the particular Notes (or portions thereof) to be redeemed as well as the
aggregate principal amount of Notes to be redeemed and the aggregate principal
amount of Notes to be outstanding after such partial redemption.
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At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest and Special Interest, if any, on all Notes to be
redeemed on that date. The Trustee or the Paying Agent shall promptly return to
the Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on and Special Interest, if any, all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest and Special Interest, if any, shall
cease to accrue or accrete, as the case may be, on the Notes or the portions of
Notes called for redemption whether or not such Notes are presented for payment.
If a Note is redeemed on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest and Special
Interest, if any, shall be paid to the Person in whose name such Note was
registered at the close of business on such record date. If any Note called for
redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest and
Special Interest, if any, shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest and Special Interest, if any, not paid on such unpaid principal, in
each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as otherwise set forth in Sections 3.07(b), 3.07(c), 3.08,
4.10 or 4.15 hereof, the Notes shall not be redeemable at the Company's option
prior to July 15, 2004. After July 15, 2004, the Company may redeem all or part
of the Notes upon not less than 30 nor more
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<PAGE> 46
than 60 days' notice at the redemption prices (expressed as percentages of the
principal amount at Stated Maturity) plus accrued and unpaid interest (including
Special Interest, if any) thereon to the redemption date if redeemed during the
12-month period beginning on July 15 of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................... 100% plus 3 times the Optional Redemption Rate
2005........................................... 100% plus 2 times the Optional Redemption Rate
2006........................................... 100% plus the Optional Redemption Rate
2007 and thereafter............................ 100%
</TABLE>
(b) At any time or from time to time prior to the earlier of the Resale
Date or July 15, 2004, the Company may redeem the Notes held by Purchaser, at
its option, in whole or in part, at a redemption price equal to 100% of the
Accreted Value thereof plus accrued and unpaid interest not otherwise included
in such Accreted Value (including Special Interest, if any) to but excluding the
redemption date.
(c) Subject to the provisions of Section 3.08(b), at any time prior to
July 15, 2002, the Company may on any one or more occasions redeem up to 35% of
the Accreted Value of Notes issued under this Indenture at a redemption price
equal to 100% plus the Applicable Rate of the Accreted Value thereof (plus
Special Interest, if any, to but excluding the redemption date), with the Net
Cash Proceeds of one or more Public Equity Offerings; provided, however, that at
least 65% of the aggregate principal amount of Notes at Stated Maturity
originally issued under this Indenture remains outstanding immediately after the
occurrence of each such redemption (excluding Notes held by the Company and its
Subsidiaries); and provided, further, that any such redemption must occur within
60 days of the date of the closing of such Public Equity Offering.
(d) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
(a) Other than as expressly provided in Section 3.08(b), 41.0 or 4.15,
the Company will not be required to make mandatory or sinking fund redemption
payments with respect to the Notes.
(b) Until the Resale Date, in the event of an IPO by the Company, its
parent (if any) or one or more of its subsidiaries, or the sale or distribution
by any of them of any of their respective debt securities, the Company shall, on
the closing date of such sale or distribution, redeem all Notes held by
Purchaser (and only Purchaser) at a redemption price in cash equal to 100% of
their Accreted Value plus accrued and unpaid interest not otherwise included in
such Accreted Value (including Special Interest, if any) to but excluding the
redemption date.
(c) Any redemption pursuant to this Section 3.08 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
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In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes, it shall follow
the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Asset Sale
Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Asset Sale Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest and Special Interest, if any, shall be paid to the Person in whose name
a Note is registered at the close of business on such record date, and no
additional interest or Special Interest, if any, shall be payable to Holders who
tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section 3.09
and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the Asset Sale Purchase Date, the purchase price
and the amount of accrued and unpaid interest and Special Interest, if any, as
of the Asset Sale Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrete or accrue interest and Special Interest, if any;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or
accrue interest and Special Interest, if any, after the Asset Sale Purchase
Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any Asset
Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer the Note by book-entry transfer, to the Company, a
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<PAGE> 48
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Asset Sale Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his or her election to have such Note purchased;
(h) that, if the principal amount of Notes surrendered by Holders exceeds
the Offer Amount, the Company shall select the Notes to be purchased on a pro
rata basis (with such adjustments as may be deemed appropriate by the Company so
that only Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(i) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
On the Asset Sale Purchase Date for any Asset Sale Offer, the Company
shall (i) accept for payment the maximum principal amount of Notes tendered
pursuant to such Asset Sale Offer than can be purchased out of Excess Proceeds
from such Asset Sales, (ii) deposit with the Paying Agent the aggregate purchase
price of all Notes accepted for payment and any accrued and unpaid interest and
Special Interest, if any, on such Notes as of the Asset Sale Purchase Date, and
(iii) deliver or cause to be delivered to the Trustee all Notes tendered
pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to
any Asset Sale Offer are accepted for payment by the Company for any reason,
selection of the Notes to be purchased by the Trustee shall be in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, by lot or by such
method as the Trustee shall deem fair and appropriate; provided that Notes
accepted for payment in part shall only be purchased in integral multiples of
$1,000. The Paying Agent shall promptly mail to each Holder of Notes accepted
for payment an amount equal to the purchase price for such Notes plus any
accrued and unpaid interest and Special Interest thereon, if any, and the
Trustee shall promptly authenticate and mail to such Holder of Notes accepted
for payment in part a new Note equal in principal amount to any unpurchased
portion of the Notes, and any Note not accepted for payment in whole or in part
shall be promptly returned to the Holder of such Note. On and after an Asset
Sale Purchase Date, interest and Special Interest, if any, shall cease to
accrete or accrue, as applicable, on the Notes accepted for payment. The Company
shall announce the results of the Offer to Holders of the Notes on or as soon as
practicable after the Asset Sale Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Special Interest, if any, in the same manner on the dates and in the amounts set
forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Special Interest, if any, (without regard to any applicable grace period) at the
same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the New York Trust Office or
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the New York Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03 hereof.
Section 4.03. Reports.
(a) Whether or not required by the SEC, so long as any Notes are
outstanding, the Company shall furnish to the Holders of Notes and to the
Trustee, within the time periods specified in the SEC's rules and regulations
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the
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<PAGE> 50
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report on the annual financial statements by
the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. If the Company has designated any of its
Subsidiaries as Unrestricted Subsidiaries and if any of its Unrestricted
Subsidiaries would constitute a Significant Subsidiary or any group of
Unrestricted Subsidiaries taken as a whole, would constitute a Significant
Subsidiary, then the quarterly and annual financial information required by this
Section shall include a reasonably detailed presentation, either on the face of
the financial statements or in the footnotes thereto, and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations", of
the financial condition and results of operations of the Company and its
Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company. The Company shall at
all times comply with Section 314(a) of the TIA. Delivery of such reports,
information and documents to the Trustee is for informational purposes only and
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
(b) Following the consummation of the Exchange Offer or the effectiveness
of any other Registration Statement, whether or not required by the SEC, the
Company shall file a copy of all of the information and reports referred to in
clauses (a)(i) and (a)(ii) above with the SEC for public availability within the
time periods specified in the SEC's rules and regulations (unless the SEC will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
(c) For so long as any Notes remain outstanding, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
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<PAGE> 51
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon, but in any event within five Business
Days, of any Officer becoming aware of any Default or Event of Default, an
Officers' Certificate specifying such Default or Event of Default and what
action the Company is taking or proposes to take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes. The Company will not, and will not permit any
Restricted Subsidiary to, file or consent to the filing of any consolidated
income tax return with any Person other than the Company and the Restricted
Subsidiaries.
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's Equity Interests
(including, without limitation, any payment in connection with any
merger or consolidation involving the Company) or to the direct or
indirect holders of the Company's Equity Interests in their
capacity as
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such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the
Company);
(b) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company;
(c) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Notes, except a payment of interest or
principal at the Stated Maturity thereof; or
(d) make any Restricted Investment
(all such payments and other actions set forth in clauses (a) through (d) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness (other than Permitted Debt) pursuant to
the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date of this
Indenture shall not exceed, at the date of determination, the sum
of:
(i) an amount equal to 50% of the Company's cumulative
Consolidated Net Income (or if the Company's cumulative
Consolidated Net Income shall be a loss, minus 100% of such
loss) for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after
the date hereof to the end of the Company's most recently
ended fiscal quarter for which internal financial
statements are available at the time of such Restricted
Payment, plus
(ii) an amount equal to 100% of the aggregate net cash proceeds
received by the Company from the sale of Equity Interests
since the date of this Indenture (other than (A) sales of
Disqualified Stock, and (B) Equity Interests sold to any of
the Company's Subsidiaries), plus
(iii) without duplication of any amount included in clause
(c)(ii) above, 100% of the aggregate net cash proceeds
received by the Company as a capital contribution since the
date of this Indenture, plus
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(iv) to the extent that any Restricted Investment that was made
after the date hereof was sold for cash, the lesser of (A)
the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B)
the initial amount of such Restricted Investment, plus
(v) without duplication of any amount included in clause (iv)
above, to the extent that any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary, the aggregate fair
market value of all outstanding Investments owned by the
Company and its Restricted Subsidiaries in the Subsidiary
so redesignated.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of this Indenture;
(b) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of the Company or of any Equity
Interests of the Company in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in which cash
is paid in lieu of fractional shares or scrip), or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of, Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph;
(c) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Company with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of the Company or any Subsidiary of the Company
held by any employee, director or consultant of the Company (or any of
its Subsidiaries) pursuant to any equity subscription agreement or stock
option or similar agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $1.0 million in any twelve-month period at any one time
outstanding;
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or such Subsidiary, as
the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant shall
be determined by the Board of Directors in good faith whose resolution with
respect thereto shall be delivered to the Trustee.
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To the extent the issuance of Capital Stock and the receipt of capital
contributions are applied to permit the issuance of Indebtedness pursuant to
clause (l) of the definition of Permitted Debt, the issuance of such Capital
Stock and the receipt of such capital contributions shall not be applied to
Restricted Payments under this covenant.
Section 4.08. Designation of Restricted and Unrestricted Subsidiaries.
The Board of Directors may designate any Subsidiary (other than a
Subsidiary that owns Equity Interests in a Restricted Subsidiary) to be an
Unrestricted Subsidiary only if (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such Subsidiary has total assets grater than
$1,000 and (a) such designation would not cause a Default, (b)after giving
effect to such designation, the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Debt) pursuant to the first paragraph of
Section 4.09 hereof and (c) the Company could make an Investment at the time of
designation equal to the sum of (x) the Fair Market Value of the Equity
Interests of such Subsidiary owned by the Company and/or Restricted Subsidiaries
at such time and (y) the aggregate amount of Indebtedness of such Subsidiary
owed to the Company and the Restricted Subsidiaries at such time. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated shall be deemed to be a
Restricted Investment made as of the time of such designation and shall either
reduce the amount available for Restricted Payments under the first paragraph of
Section 4.07 hereof or reduce the amount available for future Permitted
Investments, as the Company shall determine. That designation shall only be
permitted if such Restricted Investment would be permitted at that time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (i) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Debt) pursuant to the first paragraph of
Section 4.09 hereof and (ii) no Default or Event of Default shall have occurred
or be continuing.
Any designation pursuant to this Section 4.08 by the Board of Directors
shall be evidenced to the Trustee by the filing with the Trustee of a certified
copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
Section 4.09. Limitation on Indebtedness.
(a) Limitation on Incurrence of Indebtedness. The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt) unless, after giving pro
forma effect to such Incurrence and the receipt and application of the net
proceeds thereof, no Default or Event of Default would occur as a consequences
of such incurrence or be continuing following such incurrence and either (i) the
ratio of (A) the aggregate consolidated principal amount (or, in the case of
Indebtedness issued at a discount, the then Accreted Value) of
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Indebtedness of the Company outstanding as of the most recent available
quarterly or annual balance sheet, after giving pro forma effect to the
incurrence of such Indebtedness and any other Indebtedness incurred or repaid
since such balance sheet date and the receipt and application of the net
proceeds thereof, to (B) Consolidated Cash Flow Available for Fixed Charges for
the four full fiscal quarters next preceding the Incurrence of such Debt for
which consolidated financial statements are available, would be less than 5.0 to
1.0, or (ii) the Company's Consolidated Capital Ratio as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect to
(x) the incurrence of such Indebtedness and any other Indebtedness incurred or
repaid since such balance sheet date, (y) the issuance of any Capital Stock
(other than Disqualified Stock) of the Company since such balance sheet date,
including the issuance of any Capital Stock to be issued concurrently with the
incurrence of such Indebtedness, and (z) the receipt and application of the net
proceeds of such Indebtedness or Capital Stock, as the case may be, is less than
2.0 to 1.0 or (iii) such Indebtedness is Permitted Debt.
For purposes of determining compliance with this Section 4.09(a), in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (a) through (k) of the
definition thereof, or is entitled to be incurred pursuant to the first
paragraph of this Section 4.09, the Company shall be permitted to classify such
item of Indebtedness on the date of its incurrence, or later reclassify all or a
portion thereof, in any manner that complies with this Section 4.09.
Indebtedness under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under this Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (a) of the
definition of Permitted Debt.
(b) Limitation on Indebtedness of Restricted Subsidiaries. The Company
shall not permit any Restricted Subsidiary that is not a Guarantor to incur any
Indebtedness except the following (each of which shall be given independent
effect):
(i) Restricted Subsidiary Guarantees;
(ii) Indebtedness outstanding on the Issue Date;
(iii) Vendor Debt of Restricted Subsidiaries permitted to be
incurred pursuant to clause (a) of the definition of Permitted Debt;
(iv) Indebtedness of Restricted Subsidiaries under Credit
Facilities permitted to be incurred pursuant to clause (b) of the
definition of Permitted Debt;
(v) Telecommunications Assets Debt of Restricted Subsidiaries
under Credit Facilities permitted to be incurred pursuant to clause (c)
of the definition of Permitted Debt;
(vi) Indebtedness owned by a Restricted Subsidiary to the Company
or another Restricted Subsidiary permitted to be incurred pursuant to
clause (d) of the definition of Permitted Debt;
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(vii) Indebtedness of Restricted Subsidiaries in respect of
Hedging Obligations permitted to be incurred pursuant to clause (i) of
the definition of Permitted Debt;
(viii) Indebtedness of Restricted Subsidiaries in respect of
Acquired Debt permitted to be incurred pursuant to clause (j) of the
definition of Permitted Debt;
(ix) Indebtedness of Restricted Subsidiaries permitted to be
incurred pursuant to clause (f) of the definition of Permitted Debt; and
(x) Indebtedness which is incurred to refinance any
Indebtedness of a Restricted Subsidiary permitted to be refinanced
pursuant to clause (k) of the definition of Permitted Debt.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (evidenced by a resolution of the Board of Directors set forth in an
Officer's Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents (or, if less than 75%, the remainder of
such consideration consists of Telecommunications Assets); provided that the
amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Restricted Subsidiary from further liability and (y) any notes or other
Obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after the Company's or any Restricted Subsidiary's
receipt of the Net Cash Proceeds of any Asset Sale, the Company or such
Restricted Subsidiary may apply the Net Cash Proceeds from such Asset Sale, at
its option, (i) to permanently reduce Pari Passu Indebtedness (other than
Indebtedness owed to the Company or any Affiliate of the Company) or (ii) to
invest in Telecommunications Assets. Pending the final application of any such
Net Cash Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Cash Proceeds in Cash Equivalents. Any Net Cash Proceeds from
the Asset Sale that are not invested as provided and within the time period set
forth in the first sentence of this paragraph shall be deemed to constitute
"Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes, that is an
integral multiple of $1,000, that may be purchased out of the Excess Proceeds at
an offer price in cash in an amount equal to (i) for any
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Asset Sale Purchase Date occurring prior to July 15, 2004, 100% of the Accreted
Value thereof, plus accrued and unpaid interest not otherwise included in the
Accreted Value thereof (plus Special Interest) to the date fixed for the closing
of such Asset Sale Offer (the "Asset Sale Purchase Date") or (ii) for any Asset
Sale Purchase Date occurring on or after July 15, 2004, 100% of the principal
amount of such Notes, plus accrued and unpaid interest (plus Special Interest)
thereon to such Asset Sale Purchase Date, in accordance with the procedures set
forth herein. The Company shall commence an Asset Sale Offer with respect to
Excess Proceeds within ten Business Days after the date that the aggregate
amount of Excess Proceeds exceeds $10.0 million by mailing the notice required
pursuant to the terms of this Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purpose not otherwise prohibited by this
Indenture. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased in accordance with Section 3.02 hereof. Upon completion of
any such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate in any single transaction or series of related transactions
(each, an "Affiliate Transaction"), unless:
(a) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and
(b) (i) with respect to any transaction or series of related transactions
involving aggregate consideration in excess of in excess of $5 million, the
Company delivers to the Trustee a resolution of the Board of Directors set forth
in an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (a) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (ii) with
respect to any transaction or series of related transactions involving aggregate
consideration in excess of in excess of $10 million, an opinion from a
nationally recognized investment banking firm, accounting firm or appraisal firm
stating that the transaction or series of related transactions is fair to the
Company and to the Holders of the Notes from a financial point of view.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(a) transactions entered into by the Company with Restricted Subsidiaries
or among Restricted Subsidiaries;
(b) Restricted Payments or Permitted Investments that are permitted by
the provisions of Section 4.07 hereof;
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(c) the payment of reasonable and customary directors' fees,
indemnification and similar arrangements and payments thereunder;
(d) any obligations of the Company under any employment agreement,
noncompetition or confidentiality agreement with any officer of the Company, as
in effect on the date of this Indenture (provided that each amendment of any of
the foregoing agreements shall be subject to the limitations of this Section
4.11);
(e) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors; and
(f) loans or advances to employees in the ordinary course of business of
the Company or any of its Restricted Subsidiaries consistent with past practice
in an aggregate amount not to exceed $1.0 in any twelve-month period at any one
time outstanding;
Section 4.12. Corporate Existence.
Subject to Article 5 and Section 4.10 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (i) its corporate existence, and the corporate, partnership or other
existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of the Company and its Subsidiaries; provided, however,
that the Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders of the Notes.
Section 4.13. Payments for Consent.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
and is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
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Section 4.14. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall make an
offer (a "Change of Control Offer") to each Holder to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price (the "Change in Control Payment") in cash equal to (i) as of any
Change of Control Payment Date occurring prior to July 15, 2004, 101% of the
Accreted Value of such Notes plus accrued and unpaid interest (including Special
Interest) not otherwise included in the Accreted Value to the Change of Control
Payment Date and (ii) as of any Change of Control Payment Date occurring on or
after July 15, 2004, 101% of the aggregate principal amount of such Notes plus
accrued and unpaid interest (including Special Interest) to the Change of
Control Payment Date. Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder stating: (i) that the Change of
Control Offer is being made pursuant to this Section 4.15 and that all Notes
tendered will be accepted for payment; (ii) the purchase price and the Change of
Control Payment Date, which shall be no earlier than 30 days and no later than
60 days from the date such notice is mailed (the "Change of Control Payment
Date"); (iii) that any Note not tendered will continue to accrue or accrete
interest, as the case may be; (iv) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue or accrete, as the
case may be, interest after the Change of Control Payment Date; (v) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (vi) that Holders
will be entitled to withdraw their election, in whole or in part, if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes in connection with a Change of Control. To the extent that
the provisions of any Securities laws or regulations conflict with this Section
4.15, the Company shall comply with the applicable Securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.15 by virtue of such conflict.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The
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Paying Agent shall promptly mail to each Holder of Notes the Change of Control
Payment for such Notes, and the Trustee shall promptly authenticate and mail (or
cause to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered by such
Holder, if any; provided, that each such new Note shall be in a principal amount
of $1,000 or an integral multiple thereof. The Company shall publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.15, the
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section 4.15 and Sections 3.01 through 3.06 hereof and all other provisions of
this Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Section 4.15. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) sell, lease or transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date hereof, (b) this Indenture and
the Notes, (c) applicable law, (d) Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (e) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, or (h) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Section 4.16. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien that secures obligations under any Pari Passu Indebtedness or
Subordinated Indebtedness on any asset or property now owned or hereafter
acquired by the Company or any of its Restricted Subsidiaries, or any income or
profits
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therefrom or assign or convey any right to receive income therefrom, unless the
Notes are equally and ratably secured with the obligations so secured or until
such time as such obligations are no longer secured by a Lien; provided that in
any case involving a Lien securing Subordinated Indebtedness, such Lien is
subordinated to the Lien securing the Notes on a basis no less favorable than
such Subordinated Indebtedness is subordinated to the Notes. Nothing herein
shall prohibit the Company nor any of its Restricted Subsidiaries from, directly
or indirectly, creating, incurring, assuming or suffering to exist any Lien that
secures any Telecommunications Assets Debt.
Section 4.17. Business Activities.
The Company shall not, and shall not permit any Restricted Subsidiary to,
engage in any business other than a Telecommunications Business, except to such
extent as would not be material to the Company and its Restricted Subsidiaries,
taken as a whole.
Section 4.18. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the first paragraph
Section 4.09 hereof and (b) incurred a Lien to secure such Indebtedness pursuant
to Section 4.16 hereof, (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the Fair Market Value (as determined in good
faith by the Board of Directors and set forth in an Officer's Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, Section 4.10 hereof.
Section 4.19 Limitations on Issuances and Sales of Capital Stock of Restricted
Subsidiaries.
The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Wholly
Owned Restricted Subsidiary and (b) the cash Net Cash Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with Section 4.10 hereof and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Section 4.20 Limitations on Issuances of Certain Guarantees by and Debt
Securities of, Restricted Subsidiaries.
The Company shall not permit any of its Restricted Subsidiaries to (i)
directly or indirectly Guarantee any debt securities of the Company, or (ii)
issue any debt securities, unless,
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in either such case, such Restricted Subsidiary simultaneously executes and
delivers a Restricted Subsidiary Guarantee of the Notes. A Restricted Subsidiary
shall be deemed released from all of its obligations under its Restricted
Subsidiary Guarantee at any such time that such Restricted Subsidiary is
released from all of its obligations under all of its Guarantees in respect of
debt securities of the Company or its obligations under its debt securities, as
applicable.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company may not, directly or indirectly: (i) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:
(a) either: (A) the Company is the surviving corporation; or (B) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(b) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes, this Indenture and the Registration
Rights Agreement pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee;
(c) immediately after such transaction no Default or Event of Default
exists; and
(d) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made will
either:
(i) on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00
of additional Indebtedness (other than Permitted Debt)
pursuant to the first paragraph of Section 4.09 hereof; and
(ii) have a Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net
Worth of the Company immediately prior to the transaction.
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Notwithstanding the foregoing clauses (b) and (d), any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company or to another Restricted
Subsidiary.
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
In connection with any consolidation, merger or transfer of assets
contemplated by this Section 5.01, the Company shall deliver, or cause to be
delivered, to the Trustee, in form reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this Section 5.01 and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest (including
Special Interest) on the Notes and such default continues for a period of 30
days;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase);
(c) the Company or any of its Restricted Subsidiaries fails to comply
with any of the provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof;
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(d) the Company or any of its Restricted Subsidiaries fails to observe or
perform any other covenant, representation, warranty or other agreement in this
Indenture or the Notes for 60 days after notice to the Company by the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding voting as a single class;
(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (i) is caused by a
failure to pay principal of, or interest or premium, if any, on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has been
so accelerated, aggregates $5.0 million or more;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
any of its Significant Restricted Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant Restricted
Subsidiary and such judgment or judgments remain undischarged for a period
(during which execution shall not be effectively stayed) of 60 consecutive days,
provided that the aggregate of all such undischarged judgments exceeds $5.0
million;
(g) the Company or any of its Significant Restricted Subsidiaries or any
group of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Restricted Subsidiary pursuant to or within the meaning of
Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Restricted Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a
Significant Restricted Subsidiary in an involuntary case;
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(ii) appoints a custodian of the Company or any of its
Significant Restricted Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would
constitute a Significant Restricted Subsidiary or for all
or substantially all of the property of the Company or any
of its Significant Restricted Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would
constitute a Significant Restricted Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Restricted Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would
constitute a Significant Restricted Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "custodian" as used in clauses (g) and (h) of this Section 6.01
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof with respect to the Company, any
Significant Restricted Subsidiary or any group of Restricted Subsidiaries that,
taken as a whole, would constitute a Significant Restricted Subsidiary) occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately. Upon any such declaration, the Notes shall become due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the
Company, any of its Significant Restricted Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Restricted Subsidiary, all outstanding Notes shall be due and payable
immediately without further action or notice. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
If an Event of Default occurs on or after July 15, 2004 by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium
shall also become and be immediately due and payable, to the extent permitted by
law, anything in this Indenture or in the Notes to the contrary notwithstanding.
If an Event of Default occurs prior to July 15, 2004 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such date, then, upon acceleration of the Notes, an additional premium shall
also become and be immediately due and payable in an amount, for each of the
years beginning on July 15 of the years set forth below, as set forth below
(expressed
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as a percentage of the principal amount of the Notes on the date of payment that
would otherwise be due but for the provisions of this sentence):
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999........................... 100% plus the Applicable Rate plus two times
the Optional Redemption Rate
2000........................... 100% plus the Applicable Rate plus the Optional Redemption Rate
2001........................... 100% plus the Applicable Rate
2002........................... 100% plus five times the Optional Redemption Rate
2003........................... 100% plus four times the Optional Redemption Rate
</TABLE>
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and, if any, or interest (including Special
Interest) on, the Notes (including in connection with an offer to purchase);
provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
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Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
(including Special Interest) on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest (including Special Interest)
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the
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Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest (including Special
Interest), ratably, without preference or priority of any kind, according
to the amounts due and payable on the Notes for principal, premium and
Special Interest, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct by a final, non-appealable judgment or order.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by
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the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a
suit by Holders of more than 10% in principal amount of the then outstanding
Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the duties, rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default actually known
to the Trustee:
(i) the Trustee shall not be liable hereunder except for such duties
of the Trustee which shall be determined solely by the express provisions
of this Indenture and the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section 7.01.
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(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability whatsoever in the performance of any
of its duties hereunder or in the exercise of any of its rights or powers
hereunder. The Trustee shall be under no obligation to exercise any of its
duties, rights and powers under this Indenture at the request of any Holders,
unless such Holder shall have offered to the Trustee security or indemnity
satisfactory to it in its reasonable judgment against any loss, liability or
expense that might be incurred by it in compliance with such request or
direction.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed (whether
in its original or facsimile form) by it to be genuine and to have been signed
or presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and other experts and the written advice of such counsel or expert of
its own selection or any Opinion of Counsel as to matters of law shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent (other than an agent
who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it reasonably believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
security or indemnity satisfactory to it in its reasonable judgment against any
loss, liability or expense that might be incurred by it in compliance with such
request or direction.
(g) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice
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of any event which is in fact such a default is received by the Trustee at the
Corporate Trust Office of the Trustee, and such notice references the Notes and
this Indenture.
(h) The rights, privileges, protections, immunities and benefits given to
the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder, and to each agent, custodian and other Person employed to act
hereunder.
(i) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney
at the sole cost of the Company and shall incur no liability or additional
liability of any kind by reason of such inquiry or investigation.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company or any Affiliate of
the Company with the same rights it would have if it were not Trustee. However,
in accordance with the requirements of the TIA, in the event that the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue as trustee (in the event such
conflict arises after consummation of an Exchange Offer, or if a Registration
Statement (as defined in the Registration Rights Agreement) has been filed,
after such Registration Statement has been declared effective by the SEC) or
resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
The Trustee in its capacity as Registrar hereunder, shall not be charged
with knowledge of the Applicable Procedures and may conclusively rely that
instructions and certificates presented to it are in accordance with such
Applicable Procedures in effecting transfers pursuant to Section 2.06 hereof.
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Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee (within the meaning of Section 7.02(g) hereof), the Trustee
shall mail to Holders of Notes a notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default or Event of
Default in payment of principal of, premium, if any, or interest or Special
Interest, if any, on any Note, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each July 1 beginning with the July 1 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA Section 313(a) (but if no event described in TIA
Section 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and, if such report is prepared after the
Exchange Offer Registration Statement or any other registration statement has
been declared effective by the SEC, filed with the SEC and each stock exchange,
if any, on which the Notes are listed in accordance with TIA Section 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange or delisted therefrom.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee as agreed upon demand in writing
from time to time reasonable compensation for its acceptance of this Indenture
and services hereunder which shall be agreed to by the Company and the Trustee
in a separate fee agreement. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation for
its services, except any disbursements, expenses and advances as may be
attributable to the Trustee's negligence or willful misconduct. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall fully indemnify the Trustee against any and all losses,
claims, damages, liabilities or expenses (including taxes other than taxes based
on the income of the Trustee) incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the reasonable costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company, any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or willful
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misconduct. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that assets or monies held in trust to pay
principal of and interest and Special Interest, if any, on particular Notes.
Such Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the reasonable fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
As to notice of liens or charges, the Trustee shall comply with the
provisions of TIA Section 313(b)(2) to the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then
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outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, provided all sums owing to the Trustee and its
agents and counsel hereunder have been paid and subject to the Lien provided for
in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall, if such resulting surviving
or transferee corporation is otherwise eligible hereunder, be the successor
Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has or has a corporate parent that has a combined capital
and surplus of at least $50 million as set forth in its most recent published
annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Sections 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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Section 7.12. Trustee's Application for Instructions from the Company.
Any application by the Trustee for written instructions from the Company
may, at the option of the Trustee, set forth in writing any action proposed to
be taken or omitted by the Trustee under this Indenture and the date on and/or
after which such action shall be taken or such omission shall be effective. The
Trustee shall not be liable for any action taken by, or omission of, the Trustee
in accordance with a proposal included in such application on or after the date
specified in such application (which date shall not be less than three Business
Days after the date any Officer of the Company actually receives such
application, unless any such Officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in clauses (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium and Special Interest, if any, and interest on such
Notes when such payments are due, (b) the Company's obligations with respect to
such Notes under Article Two and Section 4.02 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
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Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from their
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20 and 5.01 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and
the Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company and its Subsidiaries may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(c) through 6.01(i) hereof shall not
constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium and Special Interest, if any, and
interest on the outstanding Notes on the Stated Maturity thereof or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
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(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to such deposit) or insofar as
Sections 6.01(g) or 6.01(h) hereof are concerned, at any time in the period
ending on the 121st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of Counsel
(which may be subject to customary exceptions) to the effect that after the
121st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium and Special Interest, if
any, and interest, but such money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited
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pursuant to Section 8.04 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium and Special
Interest, if any, or interest on any Note and remaining unclaimed for two years
after such principal, premium and Special Interest, if any, or interest has
become due and payable shall be paid to the Company on its written request or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as a creditor, look only to the Company
for payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
written request and expense of the Company cause to be published once, in The
New York Times or The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may
amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article Two hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes in the case of a merger or consolidation pursuant to
Article Five or Article Ten hereof, as applicable;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under this Indenture of any Holder of the Notes;
(e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes or Exchange Notes in
accordance with the limitations set forth in this Indenture as of the date
hereof; or
Upon the request of the Company accompanied by a resolution of its Board
of Directors of the Company authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Section 4.15 hereof)
and the Notes with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding voting as a single class
(including, without limitation, consents obtained in connection with a tender
offer or exchange offer for, or purchase of, the Notes), and, subject to
Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other
than a Default or Event of Default in the payment of the principal of, premium,
if any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture
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or the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class
(including consents obtained in connection with a tender offer or exchange offer
for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes
are considered to be "outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement, or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter or waive any of the provisions with respect to the redemption of the Notes
except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest and Special Interest, if any, on any Note;
(d) waive a Default or Event of Default in the payment of principal of or
premium or Special Interest, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
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(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, interest or Special Interest, if any, on the
Notes;
(g) waive a redemption payment with respect to any Note (except as
provided above with respect to Sections 3.09, 4.10 and 4.15 hereof);
(h) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions; or
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Notes entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then notwithstanding
the provisions of the second sentence of the preceding paragraph, those Holders
of Notes who were Holders on such record date (or their duly designated
proxies), and only those Holders, shall be entitled to revoke any consent
previously given, whether or not such Holder of Notes continues to be a Holder
of Notes after such record date. No such consent shall be valid or effective for
more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder of Notes, unless it makes a change described in clauses (a) though
(i) of Section 9.02 hereof, in which case, the amendment, supplement or waiver
shall bind only each Holder of Notes who has consented to it; provided that any
such waiver shall not impair or affect the right of any Holder to receive
payment of principal of and interest and Special Interest, if any, on the Notes,
on or after the respective due dates expressed in such Notes, or to bring suit
for the enforcement of any such payment on or after such respective dates
without the consent of such Holder of Notes.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. If an amendment,
supplement or waiver changes the terms of the Notes, the Company may require the
Holders of the Notes to deliver the Notes to the Trustee. The Company may place
an appropriate notation on the Notes and return them to
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the Holders. Alternatively, the Company in exchange for all Notes may issue and
the Trustee shall, upon receipt of an Authentication Order, authenticate new
Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. If it does,
the Trustee may, but need not, sign it. The Company may not sign an amendment or
supplemental Indenture until their respective Board of Directors approves it. In
executing any amended or supplemental indenture, the Trustee shall be entitled
to receive and (subject to Section 7.01 hereof) shall be fully protected in
relying upon, in addition to the documents required by Section 10.04 hereof, an
Officer's Certificate and an Opinion of Counsel stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Net2000 Communications, Inc.
2195 Fox Mill Road
Herndon, Virginia 90171
Attention: Donald E. Clarke, Chief Financial Officer and Treasurer
Telecopy: (703) 793-2525
Telephone: (703) 793-2500
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with a copy to:
Piper & Marbury, LLP
1251 Avenue of the Americas
New York, New York 10020-1104
Attention: David Fisher, Esq.
Telecopy: (212) 835-6001
Telephone: (212) 835-6000
If to the Trustee:
Allfirst Trust Company, National Association
25 South Charles Street
Mail Code 101-591
Baltimore, Maryland 21210
Attention: Robert Brown
Telecopy: (410) 244-4236
Telephone: (410) 244-4238
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
300 East Lombard Street, 19th Floor
Baltimore, Maryland 21202-3268
Telecopy: (410) 528-5650
Telephone: (410) 528-5600
Attention: Sophie Dagenais Goetz, Esq.
The Company or the Trustee, by written notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if sent by registered or certified mail; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, postage prepaid, certified or registered mail, return receipt requested,
or by overnight air courier guaranteeing next day delivery to its address shown
on the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA Section 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders.
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If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other Person shall have the protection of TIA
Section 312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee, at the
request of the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 10.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provide for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied; provided, however, that with respect
to matters of fact, an Opinion of Counsel may rely on an Officer's Certificate
or certificates of public officials.
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Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, or this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Section 10.08. Governing Law.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 10.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind their
respective successors.
Section 10.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
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Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 10.14. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, (other than the parties hereto, any Paying Agent, any Registrar
and their successors hereunder, and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 10.15. No Recourse Against Others.
No recourse for the payment of the principal of, or premium, if any, or
interest on, any of the Notes or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture or in any of the Notes, or because of
the creation of any Debt represented thereby, shall be had against any
incorporator, stockholder, officer, director, employee, controlling person of
the Company or of a Subsidiary of the Company or of any successor Person of the
Company or of a Subsidiary of the Company. Each Holder by accepting a Note
waives and releases all such liability, and such waiver and release is part of
the consideration for the issuance of the Notes.
Section 10.16. Exhibits and Schedules.
All exhibits and schedules attached hereto are by this reference made a
part hereof with the same effect as if herein set forth in full.
Section 10.17. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in, and made a part of, this Indenture. Any terms
incorporated by reference in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA,
have the meanings so assigned to them therein.
[Signatures on following page]
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SIGNATURES
Dated as of July 30, 1999
NET2000 COMMUNICATIONS, INC.
By: /s/ Clayton A. Thomas, Jr.
----------------------------------
Name: Clayton A. Thomas, Jr.
Title: President and CEO
ALLFIRST TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ Robert D. Brown
----------------------------------
Name: Robert D. Brown
Title: Vice President
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<PAGE> 1
EXHIBIT 10.21
This EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made and entered into as of July 30, 1999, by and among NET2000 COMMUNICATIONS,
INC., a Delaware corporation (the "Company") and NORTEL NETWORKS INC., a
Delaware corporation ("Purchaser"), who has agreed to purchase the Company's
Senior Discount Notes due 2009 (the "Notes") issued pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Note Purchase Agreement, dated
July 30, 1999, (the "Purchase Agreement"), by and among the Company, the
Guarantors and Purchaser. In order to induce Purchaser to purchase the
Securities, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution and delivery of this Agreement is a condition
to the obligations of Purchaser set forth in Section 9.1 of the Purchase
Agreement.
The parties hereby agree as follows:
Section 1. Certain Definitions.
For purposes of this Agreement, the following terms shall have the
following respective meanings:
"Additional Notes" shall mean debt securities of the Company (other than
the Exchange Securities) issued under this Indenture after the Initial Issue
Date, as part of the same series as the Notes.
"Base Interest" shall mean the interest that would otherwise accrue on
the Securities under the terms thereof and the Indenture, without giving effect
to the provisions of this Agreement.
"Broker-dealer" shall mean any broker or dealer registered with the
Commission under the Exchange Act.
"Business Day" shall mean any day except a Saturday, Sunday or other day
in the City of New York, or in the city of the Corporate Trust Office (as
defined in the Indenture) of the Trustee, on which banks are authorized to
close.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Exchange
Act or the Securities Act, whichever is the relevant statute for the particular
purpose.
"Demand Registration" shall have the meaning assigned to it in Section
3.1 hereof.
"Demand Registration Statement" shall have the meaning assigned to it in
Section 3.1(c) hereof.
<PAGE> 2
"Effective Time," shall mean, in the case of any Registration Statement,
the time and date as of which the Commission declares the Registration Statement
effective or as of which the Registration Statement otherwise becomes effective.
"Electing Holder" shall mean any Holder of Registrable Securities that
has returned a completed and signed Notice and Questionnaire to the Company in
accordance with Section 4.3(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
"Exchange Offer" shall have the meaning assigned thereto in Section 2(a)
hereof.
"Exchange Registration" shall have the meaning assigned thereto in
Section 4.2 hereof.
"Exchange Registration Statement" shall have the meaning assigned thereto
in Section 2(a) hereof.
"Exchange Request Date" shall have the meaning assigned thereto in
Section 2(a) hereof.
"Exchange Securities" shall have the meaning assigned thereto in Section
2(a) hereof.
"Holder" shall mean Purchaser and other Persons who acquire Registrable
Securities from time to time (including any successors or assigns), in each case
for so long as such Person owns any Registrable Securities.
"Indenture" shall mean the Indenture, dated as of July 30, 1999, between
the Company, and Allfirst Trust Company, National Association, as Trustee, as
the same shall be amended or supplemented from time to time in accordance with
the terms thereof.
"Initial Issue Date" means the first Issue Date to occur.
"Issue Date" means each date on which any Notes are issued under the
Indenture and sold to Purchaser pursuant to Section 2.3 of the Purchase
Agreement.
"Market Making Shelf Registration Statement" shall have the meaning
assigned thereto in Section 2(c) hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc..
"Notice and Questionnaire" shall mean a Notice of Registration Statement
and Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
"Person" shall mean a corporation, association, partnership, joint
venture, limited liability company, joint-stock company, trust, organization,
business, individual, government or political subdivision thereof or
governmental agency.
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<PAGE> 3
"Piggyback Registration" shall have the meaning assigned to it in Section
3.2 hereof.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes an information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act and any term sheet filed pursuant
to Rule 434 under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" shall mean the Securities; provided, however,
that a Security shall cease to be a Registrable Security when (i) in the
circumstances contemplated by Section 2(a) hereof, the Security has been
exchanged for an Exchange Security in an Exchange Offer as contemplated in
Section 2(a) hereof provided that any Exchange Security that, pursuant to the
last two sentences of Section 2(a), is included in a Prospectus for use in
connection with resales by Broker-dealers shall be deemed to be a Registrable
Security with respect to Sections 6, 7 and 10 until resale of such Registrable
Security has been effected within the 180-day period referred to in Section
2(a); (ii) in the circumstances contemplated by Sections 3.1 or 3.2 hereof,
registration pursuant to a Demand or Piggyback Registration registering such
Securities under the Securities Act has been effected and such Security has been
sold or otherwise transferred by the Holder thereof pursuant to and in a manner
contemplated by such Demand or Piggyback Registration; (iii) such Security is
sold pursuant to Rule 144 under circumstances in which any legend borne by such
Security relating to restrictions on transferability thereof, under the
Securities Act or otherwise, is removed by the Company or pursuant to the
Indenture; (iv) such Security is eligible to be sold pursuant to paragraph (k)
of Rule 144; or (v) such Security shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto in Section
2(d) hereof.
"Registration Default Period" shall have the meaning assigned thereto in
Section 2(d) hereof.
"Registration Expenses" shall have the meaning assigned thereto in
Section 5 hereof.
"Registration Statement" shall mean any registration statement of the
Company that covers any of the Securities, filed with the Commission under the
Securities Act, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
"Required Holders" shall mean Holders of a majority in aggregate
principal amount of Registrable Securities.
"Resale Date" shall mean the first date on which Purchaser sells,
transfers or otherwise disposes of all of the Securities to any Person or
Persons that are not affiliates of Purchaser.
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<PAGE> 4
"Resale Period" shall have the meaning assigned thereto in Section 2(a)
hereof.
"Restricted Holder" shall mean (i) a Holder that is an affiliate of the
Company within the meaning of Rule 405, (ii) a Holder who acquires Exchange
Securities outside the ordinary course of such Holder's business, (iii) a Holder
who has arrangements or understandings with any person to participate in the
Exchange Offer for the purpose of distributing Exchange Securities and (iv) a
Holder that is a broker-dealer, but only with respect to Exchange Securities
received by such broker-dealer pursuant to an Exchange Offer in exchange for
Registrable Securities acquired by the broker-dealer directly from the Company.
"Rule 144", "Rule 144A", "Rule 405" and "Rule 415" shall mean, in each
case, such rule promulgated under the Securities Act (or any successor
provision), as the same shall be amended from time to time.
"Secondary Offering Shelf Registration Statement" shall mean a Shelf
Registration Statement, a Demand Registration Statement and/or a Market Making
Shelf Registration Statement.
"Securities" shall mean, collectively, the Senior Discount Notes due
2009, of the Company to be issued and sold to the Purchaser on the Issue Date,
Additional Notes issued pursuant to the Indenture, the Exchange Securities and
any other securities issued in exchange therefor or in lieu thereof pursuant to
the Indenture. Unless the context otherwise requires, any reference herein to a
"Security," an "Exchange Security" or a "Registrable Security" shall include a
reference to any related guarantee thereof.
"Securities Act" shall mean the Securities Act of 1933, or any successor
thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned to it in Section
2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned to it in
Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in Section
2(d) hereof.
"Suspension Period" shall have the meaning assigned to it in Section
3.1(c) hereof.
"TIA" shall mean the Trust Indenture Act of 1939, as amended, or any
successor thereto, and the rules, regulations and forms promulgated thereunder,
all as the same shall be amended from time to time.
"Underwritten Offering" shall mean a registration in which securities of
the Company are sold to an underwriter for reoffering to the public.
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<PAGE> 5
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Exchange and Registration Rights Agreement, and the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Section or other subdivision.
Section 2. Exchange Offer; Shelf Registration.
(a) Upon the request of Purchaser, or after the Resale Date, the Required
Holders (the date of such request being the "Exchange Request Date"), the
Company agrees to file under the securities Act, as soon as practicable, but no
later than 90 days after the Exchange Request Date, a Registration Statement
relating to an offer to exchange (such registration statement, the "Exchange
Registration Statement", and such offer, the "Exchange Offer") any and all of
the Securities for a like aggregate principal amount of debt securities issued
by the Company, which debt securities are substantially identical to the
Securities (and are entitled to the benefits of a trust indenture which is
substantially identical to the Indenture or is the Indenture and which has been
qualified under the TIA), except which have been registered pursuant to an
effective Registration Statement under the Securities Act and do not contain
provisions for the additional interest contemplated in Section 2(d) below (such
new debt securities hereinafter called "Exchange Securities"). The Company
agrees to use its best efforts to cause the Exchange Registration Statement to
become effective under the Securities Act as soon as practicable thereafter, but
no later than 180 days after the Exchange Request Date. The Exchange Offer will
be registered under the Securities Act on the appropriate form and duly
registered or qualified under the applicable state securities or Blue Sky laws
and will comply with all applicable tender offer rules and regulations under the
Exchange Act and state securities or Blue Sky laws.
The Company further agrees to use its best efforts to: (i) commence and
complete the Exchange Offer promptly, but in any event, to complete it no later
than 210 days after the Exchange Request Date; (2) hold the Exchange Offer open
for at least 30 days and issue Exchange Securities for all Registrable
Securities that have been properly tendered and not withdrawn on or prior to the
expiration of the Exchange Offer. The Exchange Offer will be deemed to have been
completed only if the debt securities received by Holders other than Restricted
Holders in the Exchange Offer for Registrable Securities are, upon receipt,
transferable by each such Holder without restriction under Section 5 of the
Securities Act and the Exchange Act (except for the requirement to deliver the
Prospectus included in the Exchange Act Registration Statement applicable to
resales by any Broker-dealer of Exchange Securities received by such
Broker-dealer pursuant to an Exchange Offer in exchange for Registrable
Securities other than those acquired by the Broker-dealer directly from the
Company) and without material restrictions under the state securities or Blue
Sky laws of a substantial majority of the States of the United States of
America.
The Exchange Offer shall be deemed to have been completed upon the
earlier to occur of (i) the Company having exchanged the Exchange Securities for
all outstanding Registrable Securities pursuant to the Exchange Offer and (ii)
the Company having exchanged, pursuant to the Exchange Offer, Exchange
Securities for all Registrable Securities that have been properly tendered and
not withdrawn before the expiration of the Exchange Offer, which shall be on a
date that is at least 30 days following the commencement of the Exchange Offer.
The Company
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<PAGE> 6
agrees (x) to include in the Exchange Registration Statement a Prospectus for
use in any resales by any Holder of Exchange Securities that is a Broker-dealer
and (y) to keep such Exchange Registration Statement effective for a period (the
"Resale Period") beginning when Exchange Securities are first issued in the
Exchange Offer and ending upon the earlier of the expiration of the 180th day
after the Exchange Offer has been completed or such time as such Broker-dealers
no longer own any Registrable Securities. With respect to such Exchange
Registration Statement, such Holders shall have the benefit of the rights of
indemnification and contribution set forth in Section 5 hereof.
(b) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, the Company is not permitted to
effect an Exchange Offer, (ii) the Exchange Offer has not been completed within
210 days following the Exchange Request Date, or (iii) in the case of any Holder
that participates in the Exchange Offer, such Holder does not receive Exchange
Securities on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such Holder as an affiliate of the Company within the meaning of the Securities
Act), then, in the case of each of the foregoing clauses, the Company shall, in
lieu of (or in the case of clause (iii), in addition to) the Exchange Offer,
file under the Securities Act as soon as practicable, but no later than the
later of 45 days after the time such obligation to file arises or 90 days after
the Exchange Request Date, a Registration Statement providing for the
registration of, and the sale on a continuous or delayed basis by the Holders
of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule
that may be adopted by the Commission (such filing, the "Shelf Registration" and
such Registration Statement, the "Shelf Registration Statement").
The Company agrees to use its best efforts (x) to cause the Shelf
Registration Statement to become or be declared effective no later than 90 days
after such Shelf Registration Statement is filed and to keep such Shelf
Registration Statement continuously effective for a period ending on the earlier
of the second anniversary of the Effective Time or such time as there are no
longer any Registrable Securities outstanding; provided, however, that no Holder
shall be entitled to be named as a selling securityholder in the Shelf
Registration Statement or to use the Prospectus included therein for resales of
Registrable Securities unless such Holder is an Electing Holder, and (y) after
the Effective Time of the Shelf Registration Statement, promptly upon the
request of any Holder of Registrable Securities that is not then an Electing
Holder, to take any action reasonably necessary to enable such Holder to use the
Prospectus forming a part thereof for resales of Registrable Securities,
including, without limitation, any action necessary to identify such Holder as a
selling securityholder in the Shelf Registration Statement, provided, however,
that nothing in this clause (y) shall relieve any such Holder of the obligation
to return a completed and signed Notice and Questionnaire to the Company in
accordance with Section 4.3(b) hereof. The Company further agrees to supplement
or make amendments to the Shelf Registration Statement, as and when required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Shelf Registration Statement or by the Securities Act or
rules and regulations thereunder for shelf registration, and the Company agrees
to furnish to each Electing Holder copies of any such supplement or amendment
prior to its being used or promptly following its filing with the Commission.
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<PAGE> 7
Notwithstanding the foregoing, the Company may postpone, for a period not
to exceed 90 days, supplementing or amending the Shelf Registration Statement if
(i) the Company is in possession of material non-public information related to a
proposed financing, recapitalization, acquisition, business combination or other
material transaction and the Board of Directors of the Company determines (in
good faith in a written resolution) that disclosure of such information would
have a material adverse effect on the business or operations of the Company and
its subsidiaries and disclosure of such information is not otherwise required by
law and (ii) the Company delivers notice (which shall include a copy of the
resolution of the Board of Directors with respect to such determination) to the
Electing Holders and any placement agent or underwriting as contemplated by
Section 4.3(f) to the effect that Electing Holders may not make offers or sales
under the Shelf Registration Statement; provided, however, that the Company may
deliver only two such notices within any twelve-month period. Promptly upon the
earlier of (x) public disclosure of such material non-public information, (y)
the date on which such non-public information is no longer material and (z) 90
days after the date notice is given by the Company pursuant to clause (ii)
above, the Company shall supplement or amend Shelf Registration Statement as
required by the immediately preceding sentence and give notice to the Electing
Holders that offers and sales under the Shelf Registration Statement may be
resumed.
(c) The Company shall file under the Securities Act, on the date that the
Exchange Registration Statement (or in lieu thereof, the Shelf Registration
Statement) is filed with the Commission, a Registration Statement (which may be
the Exchange Registration Statement or the Shelf Registration Statement if
permitted by the rules and regulations of the Commission) pursuant to Rule 415
under the Securities Act or any similar rule that may be adopted by the
commission providing for the registration of, and the sale on a continuous or
delayed basis in secondary transactions by Purchaser (in the event of a Shelf
Registration) of Exchange Securities (in the event of an Exchange Offer) (such
filing, the "Market Making Shelf Registration"), and such registration
statement, the "Market Making Shelf Registration Statement"). The Company agrees
to use its best efforts to cause the Market Making Shelf Registration Statement
to become or be declared effective on or prior to (i) the date the Exchange
Offer is completed pursuant to Section 2(a) above or (ii) the date the Shelf
Registration becomes or is declared effective pursuant to Section 2(b) above,
and to keep such Market Making Shelf Registration Statement continuously
effective for so long as Purchaser may be required to deliver a Prospectus in
connection with transactions in the Securities or the Exchange Securities, as
the case may be. In the event that Purchaser holds Securities at the time an
Exchange Offer is to be conducted under Section 2(a) above, the Company agrees
that the Market Making Shelf Registration shall provide for the resale by
Purchaser of such Securities and shall be kept continuously effective for so
long as Purchaser may be required to deliver a Prospectus in connection with the
sale of such Securities. The Company further agrees to supplement or make
amendment to the Market Making Shelf Registration Statement, as and when
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Market Making Shelf Registration
Statement or by the Securities Act or rules and regulations thereunder for shelf
registration, and the Company agrees to furnish to Purchaser copies of any such
supplement or amendment prior to its being used or promptly following its filing
with the Commission.
Notwithstanding the foregoing, the Company may suspend the offering and
sale under the Market Making Shelf Registration Statement for a period or
periods the Board of Directors of the
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<PAGE> 8
Company reasonably determines to be necessary, but in any event not to exceed
120 days in each year during which the Market Making Shelf Registration
Statement is required to be effective and usable hereunder (measured from the
Effective Time of the Market Making Shelf Registration Statement to successive
anniversaries thereof) if (A)(i) the Company is in possession of material
nonpublic information relating to a proposed financing, recapitalization,
acquisition, disposition, business combination or other material transaction and
(ii)(x) such transaction is required to be disclosed in the Market Making Shelf
Registration Statement, the related Prospectus or any amendment or supplement
thereto, or the failure by the Company to disclose such transaction in the
Market Making Shelf Registration Statement or related Prospectus, or any
amendment or supplement thereto, as then amended or supplemented, would cause
the Market Making Shelf Registration Statement, Prospectus or amendment or
supplement thereto, to contain an untrue statement of material fact or omit to
state a material fact necessary in order to make the statement therein, in the
light of the circumstances under which they were made, not misleading, (y)
information regarding the existence of such transaction has not then been
publicly disclosed by or on behalf of the Company and (z) the Board of Directors
of the Company determines in good faith that disclosure of such transaction
would not be in the best interest of the Company or would have a material
adverse effect on the consummation of such transaction, and (B) the Company
notifies Purchaser within five days after such Board of Directors makes the
relevant determination set forth in clause (A).
(d) In the event that (i) the Company has not filed the Exchange
Registration Statement, the Shelf Registration Statement or the Market Making
Shelf Registration Statement on or before the date on which such Registration
Statement is required to be filed pursuant to Section 2(a), 2(b) or (c),
respectively, or (ii) such Exchange Registration Statement, Shelf Registration
Statement or Market Making Shelf Registration Statement has not become effective
or been declared effective by the Commission on or before the date on which such
Registration Statement is required to become or be declared effective pursuant
to Section 2(a) or 2(c) hereof, respectively, or (iii) the Exchange Offer has
not been completed on or before the date on which the Exchange Offer is required
to be completed pursuant to Section 2(b) hereof, or (iv) any Exchange
Registration Statement, Shelf Registration Statement or Market Making Shelf
Registration Statement required by Section 2(a), 2(b) or 2(c) hereof is filed
and declared effective but shall thereafter either be withdrawn by the Company
or shall become subject to an effective stop order issued pursuant to Section
8(d) of the Securities Act suspending the effectiveness of such Registration
Statement (except as specifically permitted herein) without being succeeded
immediately by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "Registration
Default" and each period during which a Registration Default has occurred and is
continuing, a "Registration Default Period"), then, as liquidated damages for
such Registration Default, subject to the provisions of Section 8(b), special
interest ("Special Interest"), in addition to the Base Interest, shall accrue at
a per annum rate of 0.50% for the first 90 days of the Registration Default
Period, and increasing by 0.25% on the last day of each subsequent 90-day period
of the Registration Default Period; provided that the aggregate Special Interest
rate shall in no event exceed 1.0% per annum. Notwithstanding anything to the
contrary set forth herein, (A) upon filing of the Exchange Registration
Statement, the Shelf Registration Statement and/or the Market Making Shelf
Registration Statement in the case of (i) above, (2) upon the effectiveness of
the Exchange Registration Statement, or the Shelf Registration Statement and/or
the Market Making Shelf
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Registration Statement in the case of (ii) above, (3) upon completion of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment or an additional Registration Statement that causes the
Exchange Registration Statement, the Shelf Registration Statement and/or the
Market Making Shelf Registration Statement to again be declared effective or
made usable in the case of (iv) above, the Special Interest payable as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease accruing and
the interest rate shall return to the Base Interest.
(e) The Company shall take, and shall cause any guarantors of Registrable
Securities, if any, to take, all actions necessary or advisable to be taken by
it to ensure that the transactions contemplated herein are effected as so
contemplated, including all actions necessary or desirable to register its
guarantee of such Registrable Securities under the Registration Statement
contemplated in Section 2(a), 2(b) or 2(c) hereof, as applicable.
Section 3. Other Registration Rights.
3.1 Demand Registrations.
(a) Purchaser, or after the Resale Date, the Required Holders, may
make a written request to the Company for registration of Registrable Securities
under the Securities Act with the Commission for a public offering of
Registrable Securities (a "Demand Registration"); provided, however, that the
Holders shall have the right to only two Demand Registrations of all or any part
of their Registrable Securities. Whenever the Company shall receive a request
for a Demand Registration, the Company will promptly give written notice of such
registration to all Holders, use its reasonable best efforts to effect the
registration under the Securities Act of the Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
30 days after such notice is given; provided, however, that the Company will not
be required to take any action pursuant to this Section 3.1: (i) if the Company
has effected a registration pursuant to Sections 2, 3.1 or 3.2 within the
180-day period preceding such request which permitted Holders of Registrable
Securities to register Registrable Securities; (ii) if the Company shall at the
time have effective a Shelf Registration Statement pursuant to which the Holder
or Holders that requested registration could effect the disposition of such
Holder's or Holders' Registrable Securities in the manner requested; or (iii)
during the pendency of any Suspension Period permitted under Section 3.1(c); and
provided further, that the Company will be permitted to satisfy its obligations
under this Section 3.1 by amending (to the extent permitted by applicable law)
any Registration Statement previously filed by the Company under the Securities
Act so that such Registration Statement (as amended) will permit the disposition
in accordance with the intended methods of disposition as specified as
aforesaid) of all of the Registrable Securities for which a Demand Registration
has been made under this Section 3.1. If the Company so amends a previously
filed Registration Statement, it will be deemed to have effected a registration
for purposes of this Section 3.1. All requests made pursuant to this Section
3.1(a) will specify the number of shares of Registrable Securities to be
registered and will also specify the intended methods of disposition thereof.
(b) A registration initiated as a Demand Registration shall not be deemed
a Demand Registration until such registration has become effective and (except
in the case of a Shelf
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Registration) has been maintained effective by the Company until the earlier of
(i) 180 days and (ii) the date on which all Registrable Securities included in
such registration have actually been sold; provided, however, that a
registration that does not become effective after the Company has filed a
Registration Statement with respect thereto solely by reason of the refusal to
proceed by the Holders shall be deemed to have been effected by the Company
unless the Holders shall have elected (without any obligation) to pay, and in
fact pay (within 30 days after the Company receives notice of such refusal to
proceed of the Holders), all reasonable Registration Expenses in connection with
such registration.
(c) The Company may postpone, for a period not to exceed 90 days (each a
"Suspension Period"), filing, supplementing or amending the Registration
Statement (each a "Demand Registration Statement") required to be filed under
this Section 3.1 or suspend the effectiveness of any Registration Statement
filed pursuant to this Section 3.1 (or, without suspending such effectiveness,
instruct the Holders that no offers or sales of Registrable Securities include
din such Registration Statement may be made (and the Holders shall forthwith
discontinue disposition of any such Registrable Securities) if (i) the Company
is in possession of material non-public information related to a proposed
financing, recapitalization, acquisition, business combination or other material
transaction and the Board of Directors of the Company determines (in good faith
in a written resolution) that disclosure of such information would have a
material adverse effect on the business or operations of the Company and its
subsidiaries and disclosure of such information is not otherwise required by law
and (ii) the Company delivers notice (which shall include a copy of the
resolution of the Board of Directors with respect to such determination) to the
requesting Holders and any placement agent or underwriting as contemplated by
Section 4.3(f) of the delay, the reasons therefor, the proposed length thereof;
provided, however, that the Company may deliver only two such notices within any
twelve-month period. Promptly upon the earlier of (x) public disclosure of such
material non-public information, (y) the date on which such non-public
information is no longer material and (z) 90 days after the date notice is given
by the Company pursuant to clause (ii) above, the Company shall file, supplement
or amend the Demand Registration Statement as required by the immediately
preceding sentence and, in the case of the suspension of effectiveness or
resales of Registrable Securities give notice to the Holders of Registrable
Securities included therein that offers and sales under the Demand Registration
Statement may be resumed. The Company shall give prompt written notice to the
Holders of the termination of any Suspension Period.
(d) If any Person owning any securities of the Company (other than any
Holder) registers securities of the Company in a Demand Registration (in
accordance with the provisions of this Section 3.1, such Person shall pay the
fees and expenses of counsel to such Person and its pro rata share of the
Registration Expenses if the Registration Expenses for such registration are not
paid by the Company for any reason. The Company covenants that it shall not
grant any registration rights to any Person which rights would, in the
reasonable judgment of Purchaser or, if after the Resale Date, the Required
Holders conflict or be inconsistent with the provisions of this Section 3.1(d),
and in the event of such a conflict or inconsistency, the terms of this Section
3.1(d) shall prevail.
(e) The Company shall not be required to provide an Underwritten Offering
of the Registrable Securities. If Purchaser or, if after the Resale Date, the
Required Holders, so elect
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and the Company agrees to participate in its sole discretion, the offering of
such Registrable Securities pursuant to such Demand Registration shall be in the
form of an Underwritten Offering. If a Demand Registration involves an
Underwritten Offering, (i) Purchaser or, if after the Resale Date, the Required
Holders shall have the right to select the investment banker or bankers and
manager or managers to administer the offering (provided that such investment
bankers and managers must be reasonably satisfactory to the Company), and (ii)
Purchaser or, if after the Resale Date, the Required Holders, as the case may
be, shall have the right to select one counsel to represent the Holders
reasonably acceptable to the Company.
3.2 Piggy-Back Registration. If, at any time or from time to time while
any Registrable Securities are outstanding, the Company proposes to register any
of its securities (whether for its own or others' account) under the Securities
Act (other than by a Registration Statement on Form S-8 or Form S-4 or other
form that does not include substantially the same information as would be
required in a form for the general registration of securities or that would not
be available for registration of Registrable Securities), the Company shall
promptly give written notice to the Holders of the Company's intention to effect
such registration. If, within 15 days after receipt of such notice, any Holder
submits a written request to the Company specifying the Registrable Securities
such Holder proposes to sell or otherwise dispose of (a "Piggy-Back
Registration"), the Company shall include the number of shares of Registrable
Securities specified in such Holder's request in such Registration Statement and
the Company shall use its reasonable best efforts to keep each such Registration
Statement in effect and to maintain compliance with Federal and state Securities
and Blue Sky laws and regulations for the period necessary for such Holder to
effect the proposed sale or other disposition. Any Holder participating in an
Underwritten Offering pursuant to this Section 3.2 shall, if required by the
managing underwriter or underwriters of such offering, enter into an
underwriting agreement in a form customary for Underwritten Offerings of the
same general type as such offering.
Unless a Holder, or a person acting on behalf of a Holder, has commenced
a distribution thereunder, nothing in this Section 3.2 will create any liability
on the part of the Company to the Holders of Registrable Securities if the
Company for any reason should decide not to file a Registration Statement
proposed to be filed under the preceding paragraph or to withdraw such
Registration Statement subsequent to its filing, regardless of any action
whatsoever that a Holder may have taken, whether as a result of the issuance by
the Company of any notice hereunder or otherwise.
3.3 Reduction of Offering. Notwithstanding anything contained herein, if
the managing underwriter or underwriters of an offering described in Section 3.1
or 3.2 hereof delivers a written opinion to the Holders that the size of the
offering that the Holders, the Company or any other Person intends to make or
the kind or combination of securities that the Holders, the Company and any
other Persons intend to include in such offering are such that the success of
the offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, then the amount of any
securities proposed to be offered shall be reduced or excluded for the offering
as follows:
(a) in the case of a Demand Registration, (x) all securities proposed
to be included in such offering by Persons other than the Holders shall be
reduced or excluded from
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such offering on a pro rata basis (or on another basis agreed to by such other
Persons) before any Registrable Securities of the Holders are reduced or
excluded from such offering, and (y) in the event that any Registrable
Securities of the Holders are required to be reduced or excluded from such
offering (which will only be required after all securities of Persons other than
the Holders have been excluded entirely as provided in immediately preceding
clause (x)), then the number of Registrable Securities of the Holders shall be
reduced or excluded from such offering on a pro rata basis;
(b) in the case of a Piggy-Back Registration initiated by a Person
other than the Company, all securities (including Registration Securities) to be
included in such offering by the Company, the Holders and the holders of similar
"piggy-back" registration rights shall be reduced or excluded from such offering
on a pro rata basis before any securities of the Persons initiating the
Piggy-Back Registration are reduced or excluded; and
(c) in the case of a Piggy-Back Registration initiated by the
Company, all securities (including Registrable Securities) to be included in
such offering by the Holders, and any other holders of similar "piggy-back"
registration rights shall be reduced or excluded from such offering on a pro
rata basis before any securities of the Company are reduced or excluded.
Section 4. Registration Procedures.
If the Company files a Registration Statement pursuant to Section 2(a),
2(b), 2(c), 3.1 or 3.2, the following provisions shall apply:
4.1 General.
(a) At or before the Effective Time of the Exchange Offer, the Shelf
Registration, the Marketing Making Shelf Registration or a Demand or Piggy-back
Registration, whichever may be first, the Company shall qualify the Indenture
under the Trust Indenture Act.
(b) In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall appoint a
new trustee thereunder pursuant to the applicable provisions of the Indenture.
4.2 Exchange Offer. In connection with the Company's obligations with
respect to the registration of Exchange Securities as contemplated by Section
2(a) hereof (the "Exchange Registration"), if applicable, the Company shall, as
soon as practicable (or as otherwise specified):
(a) prepare and file with the Commission, as soon as practicable but
no later than 60 days after the Closing Date, an Exchange Registration Statement
on any form which may be utilized by the Company and which shall permit the
Exchange Offer and resales of Exchange Securities by Broker-dealers during the
Resale Period to be effected as contemplated by Section 2(a), and use its best
efforts to cause such Exchange Registration Statement to become effective as
soon as practicable thereafter, but no later than 150 days after the Closing
Date;
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(b) as soon as practicable prepare and file with the Commission such
amendments and supplements to such Exchange Registration Statement and the
Prospectus included therein as may be necessary to effect and maintain the
effectiveness of such Exchange Registration Statement for the periods and
purposes contemplated in Section 2(a) hereof and as may be required by the
applicable rules and regulations of the Commission and the instructions
applicable to the form of such Exchange Registration Statement, and promptly
provide each Broker-dealer holding Exchange Securities with such number of
copies of the Prospectus included therein (as then amended or supplemented), in
conformity in all material respects with the requirements of the Securities Act
and the TIA and the rules and regulations of the Commission thereunder, as such
Broker-dealer reasonably may request prior to the expiration of the Resale
Period, for use in connection with resales of Exchange Securities;
(c) promptly notify each Broker-dealer that has requested or received
copies of the Prospectus included in such Exchange Registration Statement, and
confirm such advice in writing, (i) when such Exchange Registration Statement or
the Prospectus included therein or any amendment or supplement thereto has been
filed, and, with respect to such Exchange Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
comments by the Commission and by the Blue Sky or securities commissioner or
regulator of any State with respect thereto or of any request by the Commission
for amendments or supplements to such Exchange Registration Statement or
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such Exchange
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iv) if at any time the representations and warranties of the
Company contemplated by Section 7 cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, or (vi) at any time during the Resale Period when a Prospectus is
required to be delivered under the Securities Act, that such Exchange
Registration Statement, Prospectus, Prospectus amendment or supplement or
post-effective amendment does not conform in all material respects to the
applicable requirements of the Securities Act and the TIA and the rules and
regulations of the Commission thereunder or contains an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing;
(d) in the event that the Company would be required to provide notice
pursuant to Section 4.2(c)(vi) to any Broker-dealers holding Exchange
Securities, without unreasonable delay prepare and furnish to each such Holder a
reasonable number of copies of a Prospectus supplemented or amended so that, as
thereafter delivered to purchasers of such Exchange Securities during the Resale
Period, such Prospectus shall conform in all material respects to the applicable
requirements of the Securities Act and the TIA and the rules and regulations of
the Commission thereunder and shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing;
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<PAGE> 14
(e) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such Exchange Registration Statement or any
post-effective amendment thereto at the earliest practicable date;
(f) use its best efforts to (A) register or qualify the Exchange
Securities under the securities laws or Blue Sky laws of such jurisdictions as
are contemplated by Section 2(a), no later than the commencement of the Exchange
Offer, (B) keep such registrations or qualifications in effect and comply with
such laws so as to permit the continuance of offers, sales and dealings therein
in such jurisdictions until the expiration of the Resale Period and (C) take any
and all other actions as may be reasonably necessary or advisable to enable each
Broker-dealer holding Exchange Securities to consummate the disposition thereof
in such jurisdictions during the Resale Period; provided, however, that the
Company shall not be required for any such purpose to (1) qualify as a foreign
corporation in any jurisdiction wherein it would not otherwise be required to
qualify but for the requirements of this Section 4.2(f), (2) consent to general
service of process in any such jurisdiction or (3) make any changes to its
certificate of incorporation or by-laws or any agreement between it and its
stockholders;
(g) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which may be
required to effect the Exchange Registration, the Exchange Offer and the
offering and sale of Exchange Securities by Broker-dealers during the Resale
Period;
(h) provide a CUSIP number for all Exchange Securities, not later
than the Effective Time of the Exchange Registration Statement; and
(i) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon as
practicable but no later than fifteen months after the effective time of such
Exchange Registration Statement, an earnings statement of the Company and its
subsidiaries complying with Section 11(a) of the Securities Act (including, at
the option of the Company, Rule 158 thereunder).
4.3 Shelf Market Making, Demand and Piggy-back Registration In connection
with the Company's obligations with respect to the Shelf Registration, the
Market Making Shelf Registration and a Demand or Piggyback Registration, as
applicable, the Company shall:
(a) (A) prepare and file with the Commission, (as soon as
practicable, but in any case within the time periods prescribed by Section 2(a),
2(b), 2(c), 3.1 or 3.2, as applicable, a Registration Statement (including all
exhibits and financial statements required by the Commission to be filed
therewith) on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof (and, in the case of the Market
Making Shelf Registration Statement, in a form approved by Purchaser), and (B)
use its best efforts to cause such Registration
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Statement to become effect as soon as practicable after filing, but in any event
within the time periods specified in Section 2(a), 2(b), 2(c), 3.1 or 3.2, as
applicable; prepare and file with the Commission such amendments, post-effective
amendments and supplements to such Registration Statement as may be required by
Purchaser (or, if after the Resale Date, the Required Holders) or as may be
necessary to keep the Registration Statement effective for the period specified
in Section 2(a), 2(b), 2(c), 3.1 or 3.2, as applicable (or such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold or withdrawn), or, if such Registration
Statement relates to an Underwritten Offering, or such longer period as in the
opinion of counsel for the underwriters a Prospectus is required by law to be
delivered in connection with sales of Registrable Securities by an underwriter
or dealer (and, in the case of the Market Making Shelf Registration Statement,
in a form approved by Purchaser), cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus (and, in the case of
the Market Making Shelf Registration Statement, in a form approved by
Purchaser); provided that if the Holders specify that such registration shall be
a Shelf Registration and the Company is eligible to use a Registration Statement
on Form S-3, the Company shall use its best effort to effect such Shelf
Registration and to keep such Shelf Registration effective for a period of not
less than two years (or such shorter period which will terminate when all
Registrable Shares covered by such Shelf Registration have been sold or may be
resold reasonable without registration under the Securities Act pursuant to Rule
144(k) or the equivalent thereunder);
(b) in the case of a Secondary Offering Shelf Registration Statement,
not less than 30 calendar days prior to the Effective Time of the Registration
Statement, mail the Notice and Questionnaire to the Holders of Registrable
Securities; no Holder shall be entitled to be named as a selling securityholder
in the Registration Statement as of the Effective Time, and no Holder shall be
entitled to use the Prospectus forming a part thereof for resales of Registrable
Securities at any time, unless such Holder has returned a completed and signed
Notice and Questionnaire to the Company by the deadline for response set forth
therein; provided, however, Holders of Registrable Securities shall have at
least 30 days from the date on which the Notice and Questionnaire is first
mailed to such Holders to return a completed and signed Notice and Questionnaire
to the Company;
(c) prior to filing a Registration Statement or Prospectus or any
amendment or supplement thereto, furnish to the Holders of Registrable
Securities and each underwriter, if any, of the Registrable Securities covered
by such Registration Statement copies of such Registration Statement as proposed
to be filed, and thereafter furnish to the Holders requesting registration of
Registrable Securities and the underwriters, if any, such number of copies of
such Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the Prospectus included in such Registration Statement (including preliminary
Prospectus) and such other documents as such Holders or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Holders prior to its filing or being used;
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<PAGE> 16
(d) comply with the provisions of the Securities Act with respect to
the disposition of all of the Registrable Securities, or Exchange Securities, as
applicable, covered by such Registration Statement in accordance with the
intended methods of disposition provided for therein;
(e) provide Purchaser, each Holder and the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(a) (11) of the Securities Act), if
any, thereof, the sales or placement agent, if any, therefor, and one counsel
(and any local counsel) for such underwriters, the opportunity to participate in
the preparation of such Registration Statement, each Prospectus included therein
or filed with the Commission and each amendment or supplement thereto;
(f) promptly notify the selling Holders of Registrable Securities and
the underwriters, if any, and (if requested) confirm such advice in writing, as
soon as practicable after notice thereof is received by the Company (i) when the
Registration Statement or the Prospectus included therein or any amendment or
supplement thereto has been filed or becomes effective, and to furnish such
selling Holders and underwriters with executed copies thereof and of any
documents incorporated by reference therein, (ii) of any comments by the
Commission and by the Blue Sky or securities commissioner or regulator of any
State with respect thereto or of any request by the Commission or any other
federal or state governmental authority for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (iii) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for offering or sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (iv) if at any time the representations and warranties of the Company
contemplated by Section 7 cease to be true and correct in all material respects
and (v) if at any time when a Prospectus is required to be delivered under the
Securities Act, that such Registration Statement, Prospectus, amendment or
supplement does not conform in all material respects to the applicable
requirements of the Securities Act and the TIA and the rules and regulations of
the Commission thereunder or contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances the
existing;
(g) after the filing of the Registration Statement, promptly notify
the Holders of any stop order issued or threatened by the Commission suspending
the effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary or final Prospectus or the initiation or
threatening of any proceedings for such purpose, and use its best efforts to
prevent the entry of such stop order or to remove it if entered;
(h) in the event that the Company would be required to provide notice
pursuant to Section 4.3(f) or (g) to the Holders, without unreasonable delay,
prepare and furnish to each Holder a reasonable number of copies of a Prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Securities covered by such Prospectus, such Prospectus shall confirm in all
material respects to the applicable requirements of the Securities Act and the
TIA and the rules and regulations of the Commission thereunder and shall not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or
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<PAGE> 17
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(i) use its best efforts to (i) register or qualify the Registrable
Securities to be included in the Registration Statement under such other
securities or blue sky laws of such jurisdictions in the United States as
Purchaser (or, if after the Resale Date, the Required Holders) or the
underwriters, if any, request, (ii) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of offers,
sales and dealings therein in such jurisdictions during the period the
Registration Statement is required to remain effective under Section 2(a), 2(b),
2(c), 3.1 or 3.2, as applicable, and for so long as may be necessary to enable
the Holders of Registrable Securities included in such Registration Statement
or, if an Underwritten Offering, the underwriters, to complete their
distribution of Registrable Securities pursuant to the Registration Statement
and (iii) take any and all other actions as may be reasonably necessary or
advisable to enable the Holders to consummate the disposition of the Registrable
Securities; provided that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (i), (B) subject itself to taxation
in any such jurisdiction or (C) consent to general service of process in any
jurisdiction;
(j) if requested by the managing underwriter or underwriters or a
Holder of Registrable Securities being sold in connection with an Underwritten
Offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and Purchaser (or, if
after the Resale Date, the Required Holders) agree should be included therein
relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the Underwritten (or best efforts underwritten) Offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after being notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(k) make available for inspection by Purchaser, the Holders of
Registrable Securities, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by Purchaser, such Holders or such underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "Records")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause appropriate officers, directors and employees of the
Company to make available all information reasonably requested by any Inspectors
in connection with such Registration Statement. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement or (ii) the release of such records
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Holder agrees that information obtained by it as a result of
such inspections shall be deemed confidential and, upon the reasonable request
of the
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Company, shall execute a confidentiality agreement with the Company in form and
substance reasonably satisfactory to the Company and the Holder, and shall not
be used by it as the basis for any market transactions in the securities of the
Company or its Affiliates unless and until such is made generally available to
the public;
(l) furnish to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, one executed copy and as many conformed
copies as they may reasonably request, of the Registration Statement and any
amendment or post-effective amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
(m) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) and any amendment or supplement thereto
as such Persons may reasonably request (it being understood that the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Securities and the underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by the Prospectus or any amendment or supplement thereto) and such other
documents as such selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities by such Holder;
(n) cooperate with the selling Holders of Registrable Securities and
the underwriter, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the underwriters may request;
(o) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwrites, if any, to consummate the
disposition of such Registrable Securities;
(p) not later than the Effective Time of the applicable Registration
Statement, provide a CUSIP number for all Registrable Securities and provide the
applicable transfer agent with printed certificates for the Registrable
Securities which are in a form eligible for deposit with The Depository Trust
Company;
(q) make such representations and warranties to the Holders of
Registrable Securities being registered, and the underwriters or agents, if any,
in form, substance and scope as are customarily made by issuers in primary
underwritten public offerings;
(r) enter into such customary agreements (including underwriting
agreements) and take all such other appropriate actions as (and, in the case of
the Market Making Shelf Registration Statement, in a form approved by Purchaser)
or the underwriters, if any, reasonably request in order to expedite or
facilitate the registration and disposition of such Registrable Securities;
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(s) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriters, if any, an opinion or opinions from
counsel for the company in customary form, scope and substance covered in
opinions in comparable offerings, which counsel and opinions shall be reasonably
satisfactory to such Holders, underwriters or agents and their respective
counsel;
(t) obtain for delivery to the Company and the underwriters, if any,
with copies to the Holders of Registrable Securities, a cold comfort letter from
the Company's independent certified public accountants in customary form and
covering such matters of the type customarily covered by cold comfort letters as
the underwriters or reasonably request, dated the Effective Time of the
Registration Statement and brought down to the closing date;
(u) cooperate with each seller of Registrable Securities and each
underwriter, if any, participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the NASD;
(v) use its best efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its
securityholders, as soon as reasonably practicable (but not more than fifteen
months) after the effective time of the Registration statement, an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act and
the rules and regulations promulgated thereunder;
(w) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such Registration Statement from and
after a date not later than the Effective Time of such Registration Statement;
(x) use best efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange on which any
of the Company's securities are then listed or quoted and on each inter-dealer
quotation system on which any of the Company's securities are then quoted; and
(y) use reasonable efforts to make available the senior executive
officers of the Company to participate in the customary "road show"
presentations that may be reasonably requested by the Holders and the
underwriters in any Underwritten Offering; provided that the participation of
such senior executive officers shall not unreasonably interfere with the conduct
of their duties to the Company.
The Company may require the Holders including of Registrable
Securities in the Registration Statement to promptly furnish in writing to the
Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration.
The Holders agree that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 4.3(f) or (g)
hereof, the Holders will forthwith discontinue disposition of any Registrable
Securities pursuant to the Registration
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Statement covering such Registrable Securities until the Holders' receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 4.3(h)
hereof, and, if so directed by the Company, the Holders will deliver to the
Company all copies, other than permanent file copies then in such Holders'
possession, of the most recent Prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to Section 2(b), 2(c), 3.1 or
3.2 hereof, as applicable, by the number of days during the period from and
including the date of the giving of notice pursuant to Section 4.3(f) or (g)
hereof to the date when the Company shall make available to the Holder a
Prospectus supplemented or amended to conform with the requirements of Section
4.3(h) hereof.
4.4 Holdback Agreement. The Company and its affiliates agree (i) not to
effect any public sale or distribution of any Registrable Securities or any
securities similar to the Registrable Securities, or any securities convertible
into or exchangeable or exercisable for Registrable Securities or any securities
similar to the Registrable Securities, during the 14 days prior to, and during
the 90-day period beginning on, or (in each case) such shorter period of time as
may be required by the managing underwriter in an Underwritten Offering, the
Effective Time of any Registration Statement filed pursuant to Section 2(a),
2(b), 2(c), 3.1 or 3.2 of this Agreement with respect to an underwritten public
offering of any such securities (except as part of such Registration Statement
where the Holders consents) or the commencement of a public distribution of
Registrable Securities; and (ii) to use their best efforts to ensure that any
agreement entered into after the date of the agreement pursuant to which the
Company issues or agrees to issue any privately placed securities shall contain
a provision under which holders of such securities agree not to effect any
public sale or distribution of any such securities during the periods described
in (i) above, in each case including a sale pursuant to Rule 144 under the
Securities Act (except as part of any such registration, if permitted);
provided, however, that the provisions of this paragraph shall not prevent the
(x) conversion or exchange of any securities pursuant to their terms into or for
other securities, (y) the issuance of securities pursuant to the Company's
employee benefit plans, (z) sale or distribution of securities in connection
with any merger or consolidation by the Company, or the acquisition by the
Company of the capital stock or substantially all of the assets of any other
Person.
4.5 Specific Enforcement. The Company and each of the Holders acknowledge
that remedies at law for the enforcement of this Section 4 may be inadequate and
intend that this Section 4 shall be specifically enforceable in accordance with
Section 10(b) hereof.
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<PAGE> 21
Section 5. Registration Expenses
All Expenses incident to the Company's performance of or compliance
with this Agreement will be paid by the Company, regardless of whether the
Registration Statement becomes effective (unless it does not become effective as
a result of any act or omission on the part of any Holder whose Registrable
Securities are included therein, in which case such Expenses shall be paid by
such Holder and, upon payment of such Expenses, if the registration was a Demand
Registration, such registration shall not count as a Demand Registration for
purposes of the Holders' demand registration rights under Section 3.1 hereof),
including without limitation (i) all registration and filing fees, and any other
fees and expenses associated with filings required to be made with the
Commission or the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel as may be required by the
rules and regulations of the NASD), (ii) all fees and expenses of compliance
with state securities or Blue Sky laws (including fees and disbursements or
counsel for the underwriters or selling Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of their
eligibility for investment under the laws of such jurisdictions as the managing
underwriters or Holders of a majority of the Registrable Securities being sold
may designate), (iii) all printing, messenger, telephone and delivery expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
Prospectuses), (iv) all fees and disbursements incurred in connection with the
listing of the Registrable Securities on any securities exchange or quotation of
the Registrable Securities on any inter-dealer quotation system, including all
rating agency fees, (vii) all reasonable fees and disbursements of one counsel
selected by Purchaser (and, if after the Resale Date, the Required Holders),
(viii) all fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities, excluding underwriting discounts and
commissions and transfer taxes, if any, attributable to the sale of Registrable
Securities and the fees and expenses of counsel to the underwriters other than
as provided in clause (ii) above, (ix) all fees and expense of accountants to
the Holders of Registrable Securities being sold and (x) fees and expenses of
other Persons retained by the Company (all such expenses being herein called
"Registration Expenses"). The Company will, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any audit and the fees and expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any audit and the fees and expenses of any Person,
including special experts, retained by the Company.
Section 6. Indemnification and Contribution.
(a) In connection with each Registration Statement relating to the
disposition of the Registrable Securities, the Company shall indemnify and hold
harmless each of the Holders, each underwriter of Registrable Securities, each
partner, officer, director or employee of each of the Holders or any such
underwriter and each Person, if any, who controls (within the meaning of either
the Securities Act or the Exchange Act) any of the Holders or any such
underwriter against all losses, claims, damages, liabilities, joint or several,
to which any of the Holders, such underwriter or any such Person may be subject
to arising out of or based upon (A) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement
21
<PAGE> 22
or the Prospectus included therein (or any supplement or amendment thereto) or a
preliminary Prospectus, or (B) any omission or alleged omission to state therein
or necessary to make the statements therein not misleading, and the Company
shall reimburse each of the Holders and each of such other Persons for any
reasonable legal or other expenses incurred in connection with the investigation
or defense thereof (any such reimbursement to be made as such expenses are
incurred upon presentation of any requested documentation); provided, however,
that the Company shall not be liable in any such instance to the extent that any
such loss, claim, damage or liability arises out of or is based upon any untrue
statement or omission or alleged untrue statement or omission made in any such
Registration Statement, preliminary Prospectus, or Prospectus (or amendment or
supplement) in reliance upon and in conformity with information relating to any
Person referred to above who would be indemnified by the Company pursuant to
this Section 6(a) furnished in writing to the Company by such Person expressly
for use therein. Notwithstanding the foregoing provisions of this Section 6(a),
the Company will not be liable to any Holder of Registrable Securities (or any
partner, officer, director or employee thereof), any underwriter or any other
Person, if any, who controls (within the meaning of the Securities Act or the
Exchange Act) any of the Holders or any such underwriter, under the
indemnification obligations in this Section 6(a) for any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense that
arises out of such Holder's or other Person's failure to send or deliver a copy
of the final Prospectus to the person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of the Registrable Securities to such person if such
statement or omission was corrected in such final Prospectus and the Company had
previously furnished copies thereof to such Holder or such other Person in
accordance with this Agreement.
(b) In connection with each registration relating to the disposition
of Registrable Securities, each Holder shall furnish to the Company in writing
such information, including the name and address of, and the amount of
Registrable Securities held by, such Holder, as the Company reasonably requests
for use in such Registrable Securities or the related Prospectus. The Company
may require, as a condition to including any Registrable Securities in any Shelf
Registration filed pursuant to Section 2(b), 3.1 or 3.2 hereof and to entering
into any underwriting agreement with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from the Selling
Holders and from each underwriter named in any such underwriting agreement,
severally and not jointly, to (i) indemnify and hold harmless the Company, and
all other Holders of Registrable Securities, against any losses, claims, damages
or liabilities to which the Company, or such other Holders of Registrable
Securities may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement, or any preliminary,
final or summary Prospectus contained therein or furnished by the Company to any
such Holder or underwriter, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Holder or underwriter expressly for use
therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the
22
<PAGE> 23
Company in connection with investigating or defending any such action or claim
as such expenses are incurred. The maximum liability of any Holder under this
Section 6(b) shall be limited to the aggregate amount of all sales proceeds
actually received by such Holder upon the sale of such Holder's Registrable
Securities in connection with such registration.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to subsections (a) or (b) of this Section 6, such person the
(the "indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
part to such indemnified of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under these
indemnification provisions for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof, unless in the reasonable judgment of any
indemnified party a conflict of interest is likely to exist, based on the
written opinion of counsel, between such indemnified party will be obligated to
pay the reasonable fees and expenses of such additional counsel. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its prior written consent (which shall not be unreasonably
withheld) but if settlement with such consent, the indemnifying party agrees to
indemnify the indemnified part from and against any loss or liability by reason
of such settlement. No indemnifying party shall, without the prior written
consent (which shall not be unreasonably withheld) of the indemnified party,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
arising out of such proceeding.
(d) If the indemnification provided for in this Section 6 is
unavailable to the indemnified parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and the respective Holder or
underwriter on the other, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and such Holder or underwriter on
the other in connection with the statements or omissions which resulted in such
loses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
respective Holder or underwriter on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by pro
rata allocation or by any other
23
<PAGE> 24
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), (i) no Holder shall be required to contribute
any amount in excess of the amount of all sales proceeds actually received by
such Holder upon the sale of such Holder's Registrable Securities in connection
with such registration and (ii) no underwriter shall be required to contribute
any amount in excess of the amount of the underwriting discount or commission
applicable to the Registrable Securities underwritten by it. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
Purchaser, each Holder, agent and underwriter and each person, if any, who
controls Purchaser, any Holder, agent or underwriter within the meaning of the
Securities Act.
Section 7. Representations and Warranties.
The Company represents and warrant to, and agrees with, Purchaser and
each of the Holders from time to time of Registrable Securities that:
(a) Each Registration Statement covering Registrable Securities,
Securities or Exchange Securities and each Prospectus (including any preliminary
or summary Prospectus) contained therein or furnished pursuant to Section 4.2 or
4.3 hereof and any further amendments or supplements to any such Registration
Statement or Prospectus, when it becomes effective or is filed with the
Commission, as the case may be, and, in the case of an underwritten offering of
Registrable Securities, Securities or Exchange Securities, at the time of the
closing under the underwriting agreement relating thereto, will conform in all
material respects to the requirements of the Securities Act and the TIA and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and at all times subsequent to the applicable Effective Time when a Prospectus
would be required to be delivered under the Securities Act, other than (A) from
(i) such time as a notice has been given to Holders of Registrable Securities or
Purchaser, as applicable, pursuant to Section 4.2(c) or 4.3(f) or (g) hereof
until (ii) such time as the Company furnishes an amended or supplemented
Prospectus pursuant to Section 4.2(d) or 4.3(h) hereof or (B) during any
suspension of offering and sale pursuant to Section 4.2(c) or 4.3(f) or (g)
hereof, each such Registration Statement, and each Prospectus (including any
summary Prospectus) contained therein or furnished pursuant to Section 4.2(d) or
4.3(h) hereof, as then amended or supplemented, will conform in all material
respects to the requirements of the Securities Act and the TIA and the rules and
regulations of the Commission of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then
24
<PAGE> 25
existing; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by a Holder of Registrable
Securities or Purchaser, as applicable, expressly for use therein.
(b) The compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
sale/leaseback agreement, loan agreement or other agreement or instrument to
which the Company or any subsidiary of the Company is a party or by which the
Company or any subsidiary of the Company is bound or to which any of the
property or assets of the Company or any subsidiary of the Company is subject
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or Bylaws of the Company or any of its Subsidiaries
or any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its Subsidiaries
or any of their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental agency
or body is required for the consummation by the Company of the transactions
contemplated by this Agreement, except such as have been obtained or as may be
required in connection with the registration under the Securities Act of the
Registrable Securities, Securities or Exchange Securities, qualification of the
Indenture under the TIA, filings of reports by the Company under the Exchange
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws in
connection with the offering and distribution of the Registrable Securities,
Securities or Exchange Securities.
(c) This Agreement has been duly authorized, executed and delivered by
the Company and, assuming due authorization, execution and delivery by
Purchaser, constitutes the valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
Section 8. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities in a
Demand Registration are to be sold pursuant to an Underwritten Offering, the
managing underwriter or underwriters thereof shall be designated by Purchaser
(and, if after the Resale Date, the Required Holders) to be included in such
offering, provided that such designated managing underwriter or underwriters is
or are reasonably acceptable to the Company.
(b) Participation by Holders. Each Holder of Registrable Securities
hereby agrees with each other such Holder that no such Holder may participate in
any Underwritten Offering hereunder unless such Holder (i) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
25
<PAGE> 26
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
Section 9. Rule 144.
The Company covenants to the Holders of Registrable Securities, that to
the extent it shall be required to do so under the Exchange Act, the Company
shall timely file the reports required to be filed by it under the Exchange Act
or the Securities Act (including the reports under Sections 13 and 15(d) of the
Exchange Act and the information referred to in subparagraph (c)(1) of Rule 144
adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and shall take such further
action as any Holder of Registrable Securities, may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Securities or Exchange Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission. Upon the
written request of any Holder of Registrable Securities or Purchaser in
connection with that Holder's sale pursuant to Rule 144, the Company shall
deliver to such Holder or Purchaser a written statement as to whether it has
complied with such requirements.
Section 10. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Registrable securities, Securities or Exchange Securities
or any other securities which would be inconsistent with the terms contained in
this Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if the Company fails to perform any of its
obligations hereunder and that Purchaser and the Holders from time to time of
the Registrable Securities may be irreparably harmed by any such failure, and
accordingly agree that Purchaser and such Holders, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of the Company under this
Agreement in accordance with the terms and conditions of Agreement, in any court
of the United States or any State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) or when sent by facsimile (with oral
confirmation) as follows:
26
<PAGE> 27
<TABLE>
<S> <C>
If to the Company:
Net2000 Communications, Inc.
2195 Fox Mill Road
Herndon, Virginia 90171
Attention: Donald E. Clarke
Chief Financial Officer and Treasurer
Telecopy: (703) 793-2525
Telephone: (703) 793-2500
with a copy to:
Piper & Marbury, LLP
1251 Avenue of the Americas
New York, New York 10020-1104
Attention: David Fisher, Esq.
Telecopy: (212) 835-6001
Telephone: (212) 835-6000
If to Purchaser:
Nortel Networks Inc. Nortel Networks Inc.
8 Federal Street GMS 991 15 A40
Billerica, Massachusetts 01821 2221 Lakeside Boulevard
Attention: Vice President, Finance Richardson, Texas 75082
Carrier Packet Networks Attention: Vice President, Customer
Telecopy: (978) 916-4755 Finance North America
Telephone: (978) 916-1751 Telecopy: (972) 684-3679
Telephone: (972) 684-2271
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan
Administration
Telecopy: (972) 684-3808
Telephone: (972) 684-7687
</TABLE>
27
<PAGE> 28
with a copy to:
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Christopher Kelly, Esq.
Telecopy: (216) 579-0212
Telephone: (216) 586-1238
If to a Holder:
at the address of such Holder set forth in the security register or
other records of the Company,
or to such other address as any party may have furnished to the other in writing
in accordance herewith.
(d) Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the parties hereto and the Holders from time to time of the
Registrable Securities and their respective successors and assigns. In the event
that any transferee of any Holder of Registrable Securities shall acquire
Registrable Securities, in any manner, whether by gift, bequest, purchase,
operation of law or otherwise, such transferee shall, without any further
writing or action of any kind, be deemed a beneficiary hereof for all purposes
and such Registrable Securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such Registrable Securities such
transferee shall be entitled to receive the benefits of, and be conclusively
deemed to have agreed to be bound by all of the applicable terms and provisions
of this Agreement. If the Company shall so request, any such successor, assign
or transferee shall agree in writing to acquire and hold the Registrable
Securities subject to all of the applicable terms hereof.
(e) Survival. The respective indemnities, agreements,
representations, warranties and each other provision set forth in this Agreement
or made pursuant hereto shall remain in full force and effect regardless of any
investigation (or statement as to the results thereof) made by or on behalf of
Purchaser or any Holder of Registrable Securities, any director, officer or
partner of Purchaser or such Holder, any agent or underwriter or any director,
officer or partner thereof, or any controlling person of any of the foregoing,
and shall survive delivery of and payment for the Securities pursuant to the
Purchase Agreement and the transfer and registration of Securities by such
Holder or Purchaser and the consummation of an Exchange Offer.
(f) Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to its conflicts of laws principles.
(g) Submission to Jurisdiction; Waivers. The Company hereby
irrevocably and unconditionally:
28
<PAGE> 29
(1) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the securities, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the States of New York and Texas and the courts of
the United States of America for the Southern District of New York and the
Northern District of Texas, and appellate courts from any thereof;
(2) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(3) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to its address set
forth under its signature below or at such other address of which the Purchaser
shall have been notified; and
(4) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction.
(h) Headings. The descriptive headings of the several Sections and
paragraphs of Agreement are inserted for convenience only, do not constitute a
part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) Entire Agreement; Amendments. This Agreement and the other writings
referred to herein (including the Purchase Agreement, the Indenture and the form
of Securities) or delivered pursuant hereto which form a part hereof contain the
entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter. This Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a written
instrument duly executed by the Company and Purchaser (and, if after the Resale
Date, the Required Holders). Each Holder of any Registrable Securities at the
time or thereafter outstanding shall be bound by any amendment or waiver
effected pursuant to this Section 8(h), whether or not any notice, writing or
marking indicating such amendment or waiver appears on such Registrable
Securities or is delivered to such Holder.
(j) Counterparts. This Agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on this 30th day of July, 1999.
NET2000 COMMUNICATIONS, INC.
By: /s/ Clayton A. Thomas, Jr.
----------------------------------
Name: Clayton A. Thomas, Jr.
Title: President and CEO
NORTEL NETWORKS INC.
By: /s/ Jay R. Prestipino
---------------------------------
Name: Jay R. Prestipino
Title: Director, Customer Finance
30
<PAGE> 1
EXHIBIT 10.22
LEASE
BY AND BETWEEN
WELLSFORD/WHITEHALL HOLDINGS, L.L.C.
("LANDLORD")
AND
NET2000 COMMUNICATIONS REAL ESTATE, L.L.C.
("TENANT")
1275 K STREET, N.W.
WASHINGTON, DC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. TERMS....................................................................................................1
2. PAYMENT OF RENT & ADDITIONAL RENT .......................................................................5
3. SECURITY DEPOSIT: ADVANCE DEPOSIT........................................................................6
4. USES; TENANT COVENANTS...................................................................................9
5. ENVIRONMENTAL PROVISIONS; RECYCLING.....................................................................10
6. LATE CHARGES; INTEREST..................................................................................14
7. REPAIRS AND MAINTENANCE.................................................................................15
8. UTILITIES AND SERVICES..................................................................................17
9. EXPENSE INCREASES.......................................................................................19
10. INCREASES IN REAL ESTATE TAXES..........................................................................25
11. ADDITIONAL PROVISIONS; OPERATING COSTS AND
REAL ESTATE TAXES.......................................................................................27
12. TENANT'S INSURANCE......................................................................................28
13. LANDLORD'S INSURANCE....................................................................................29
14. DAMAGE OR DESTRUCTION...................................................................................29
15. MACHINES AND EQUIPMENT; ALTERATIONS AND
ADDITIONS; REMOVAL OF FIXTURES..........................................................................32
16. ACCEPTANCE OF PREMISES..................................................................................36
17. TENANT IMPROVEMENTS/SPECIALIZED PROVISIONS..............................................................36
18. ACCESS..................................................................................................36
19. MUTUAL WAIVER OF CLAIMS AND SUBROGATION.................................................................37
20. INDEMNIFICATION.........................................................................................38
21. ASSIGNMENT AND SUBLETTING...............................................................................38
22. ADVERTISING.............................................................................................43
23. LIENS...................................................................................................43
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
24. DEFAULT.................................................................................................43
25. SUBORDINATION...........................................................................................47
26. SURRENDER OF POSSESSION.................................................................................48
27. NON-WAIVER..............................................................................................49
28. HOLDOVER................................................................................................49
29. CONDEMNATION............................................................................................49
30. NOTICES.................................................................................................51
31. MORTGAGEE PROTECTION....................................................................................51
32. COSTS AND ATTORNEYS' FEES...............................................................................52
33. BROKERS.................................................................................................52
34. LANDLORD'S LIABILITY AND DEFAULT........................................................................52
35. ESTOPPEL CERTIFICATES...................................................................................54
36. FINANCIAL STATEMENTS....................................................................................55
37. TRANSFER OF LANDLORD'S INTEREST ........................................................................56
38. RIGHT TO PERFORM........................................................................................56
39. [INTENTIONALLY DELETED].................................................................................56
40. SALES AND AUCTIONS......................................................................................56
41. NO ACCESS TO ROOF.......................................................................................56
42. SECURITY................................................................................................57
43. AUTHORITY OF TENANT.....................................................................................57
44. NO ACCORD OR SATISFACTION...............................................................................57
45. [INTENTIONALLY DELETED].................................................................................57
46. PARKING.................................................................................................57
47. GENERAL PROVISIONS......................................................................................58
48. [INTENTIONALLY DELETED].................................................................................62
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
49. WAIVER OF JURY TRIAL....................................................................................62
50. RENEWAL OPTION..........................................................................................62
51. ROOF RIGHTS.............................................................................................64
52. UPS, GENERATOR AND GENERATOR RIGHTS.....................................................................65
53. RIGHT OF FIRST OFFER ON CONTIGUOUS SPACE................................................................67
54. ADDITIONAL SCHEDULES....................................................................................69
</TABLE>
EXHIBIT A-1 Location and Dimensions of Premises
EXHIBIT A-2 Description of Land
EXHIBIT B Declaration of Lease Commencement
EXHIBIT C Design Build Construction Exhibit; Landlord's Work and
Tenant's Work
EXHIBIT D Rules and Regulations
EXHIBIT E Janitorial Specifications
EXHIBIT F Form Estoppel Certificate
EXHIBIT G [Intentionally Deleted]
EXHIBIT H Form of SNDA
EXHIBIT I HVAC Specifications
-iii-
<PAGE> 5
LEASE
THIS LEASE is made this 24th day of December, 1998, by and between
WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a Delaware limited liability company
("Landlord") with a mailing address of c/o Wellsford Real Properties, Inc., 610
Fifth Avenue, 7th Floor, New York, New York 10020, and NET2000 COMMUNICATIONS
REAL ESTATE, L.L.C., a Delaware limited liability company ("Tenant") with a
current mailing address of 8614 Westwood Center Drive, Suite 700, Vienna, VA
22182.
RECITALS:
Landlord, for and in consideration of the rents and all other charges
and payments hereunder and of the covenants, agreements, terms, provisions and
conditions to be kept and performed hereunder by Tenant, grants and conveys to
Tenant, and Tenant hereby hires and takes from Landlord, a leasehold interest in
the premises described below (the "Premises"), subject to all matters
hereinafter set forth and upon and subject to the covenants, agreements, terms,
provisions and conditions of this Lease for the term hereinafter stated.
NOW THEREFORE Landlord and Tenant hereby agree to the following:
1. TERMS.
1.1 Premises. The "Premises" demised by this Lease shall consist
of Space A and Space B, as each such term is defined below, totaling in the
aggregate approximately 16,954 rentable square feet on the third (3rd) floor of
the building located at 1275 K Street, NW, Washington, DC (the "Building"),
together with a nonexclusive right to use common areas as set forth herein. The
Premises consists of two (2) portions, possession of which will be delivered to
Tenant at different times pursuant hereto. The first portion ("Space A")
consists of approximately 10,628 rentable square feet as shown on Exhibit A-1,
and is as of the date hereof leased to and occupied by the NAACP Legal Defense
Fund and The Gerontological Society. The second portion ("Space B") consists of
approximately 6,326 rentable square feet as shown on Exhibit A-l, and is as of
the date hereof leased to and occupied by Abramson Erlich Manes. The land upon
which the Building is situated, which is described in Exhibit A-2 attached
hereto and incorporated herein by reference, shall be referred to hereinafter as
the "Land." The location and dimensions of the Premises are shown on Exhibit
A-1, attached hereto and incorporated herein by reference. No easement for light
or air is incorporated in the Premises. The Building consists of 211,118 square
feet of office space, and 13,913 square feet of retail space, for a total
rentable area of 225,031 square feet. The measurement of the Premises set forth
herein is based upon the WDCAR 1989 standard method of measurement as applied to
existing building plans and Tenant's proposed layout, and is hereby stipulated
to by the parties.
1.2 Tenant's Share. "Tenant's Share" shall mean a fraction, the
numerator of which is the total rentable square footage of the Premises, and the
denominator of which is the total rentable square footage of the Building.
Tenant's Share as of the date the entire Premises is of execution of this Lease
is Seven and 53/100 percent (7.53%) (calculated as 16,954/225,031).
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<PAGE> 6
Tenant's Share shall be adjusted for changes in the total rentable square
footage of the Premises and/or Building, including without limitation changes
which may result from any condemnation of a portion of the building. The
foregoing notwithstanding, during that portion of the Term commencing on the
Space A Commencement Date and ending on the Space B Commencement Date (herein
referred to as the "Space A Occupancy Period") (i) Tenant's Share shall be
deemed to equal Four and 72/100 percent (4.72%) (calculated as 10,628/225,031),
and (ii) where required in order to properly interpret this Lease with regard to
Tenant's post-occupancy responsibilities and obligations hereunder, the term
"Premises" shall be understood to refer only to Space A, provided such
interpretation shall not apply where the context requires the term "Premises" to
apply also (or exclusively to the Space B, such as with respect to any
pre-occupancy requirements applicable to Space B).
1.3 Lease Term. The term of this Lease (the "Term" or "Lease
Term") shall commence on the Space A Commencement Date, as defined in Section
1.4, below (and as more fully set forth in Exhibit C hereto), and shall expire
on March 31, 2010 (the "Lease Expiration Date").
1.4 Commencement Date. The "Space A Commencement Date" shall be
one hundred twenty (120) days after the date possession of Space A (exclusive of
the 189 s.f. storage closet which constitutes a portion thereof) is tendered to
Tenant, except as may otherwise be provided in Exhibit C, including with regard
to delay in Substantial Completion of Tenant's Work due to Landlord Delays (as
defined in Exhibit C). If possession of Space A is tendered to Tenant on
December 1, 1998, then the Space A Commencement Date shall, subject to Landlord
Delays, be April 1, 1999. The "Space B Commencement Date" shall be one hundred
twenty (120) days after the date possession of Space B is tendered to Tenant,
except as may otherwise be provided in Exhibit C, including with regard to delay
in Substantial Completion of Tenant's Work due to Landlord Delays (as defined in
Exhibit C). Occupancy of any portion of the Premises by Tenant prior to the
Commencement Date for such portion shall be at Tenant's sole risk and deemed
pursuant to, and subject to, all of the terms and provisions of this Lease,
except those involving the payment of Base Rent, and Tenant's Share of Expense
Increases and Tax Increases (as such terms are hereinafter defined), except as
may otherwise be expressly set forth herein; provided, however, that in no event
shall Tenant be entitled to take occupancy thereof prior to the date it receives
notice from Landlord that Landlord is ready to tender possession thereof to
Tenant. Promptly after the Space A Commencement Date, Landlord and Tenant hereby
agree to execute a Declaration, in the form attached hereto as Exhibit B, to
confirm the Space A Commencement Date. Promptly after the Space B Commencement
Date, Landlord and Tenant hereby agree to execute a Declaration, in the form
attached hereto as Exhibit B, to confirm the Space B Commencement Date. Tenant's
failure to execute either Declaration shall not affect either Commencement Date
nor the Lease Expiration Date, as same are determined by the terms of this
Lease.
1.5 Rent. The base rent payable by Tenant hereunder ("Base Rent")
is set forth in this Section 1.5, below. In addition to the Base Rent, Tenant
shall pay (as additional rent) Tenant's Share of Expense Increases (as described
in Section 9), Tenant's Share of Tax Increases (as described in Section 10), and
any other increases in Base Rent described in this Section 1.5, below, all of
which shall be deemed additional rent due under this Lease. The combination of
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<PAGE> 7
Base Rent and additional rent as described in this Section 1.5 is sometimes
collectively referred to in this Lease as "Rent." Base Rent shall be payable
monthly, in advance, on first day of each calendar month of the Term, without
prior notice, demand, deduction or offset, except as expressly set forth to the
contrary herein.
1.5.1 The monthly payments of Base Rent for the Premises
(which may be referred to herein as "Monthly Rent") shall be as follows:
<TABLE>
<CAPTION>
Annual Base Rent
Months Per Square Foot Annual Base Rent Monthly Base Rent
------ --------------- ---------------- -----------------
<S> <C> <C> <C>
1 - 12 $27.30 $462,844.20** $38,570.35**
13 - 24 $27.98 $474,415.31** $39,534.61**
25 - 36 $28.68 $486,275.69 $40,522.97
37 - 48 $29.40 $498,432.58 $41,536.05
49 - 60 $30.13 $510,893.39 $42,574.45
61 - 72 $32.63 $553,278.39 $46,106.53
73 - 84 $33.45 $567,110.35 $47,259.20
85 - 96 $34.29 $581,288.11 $48,440.68
97 -108 $35.14 $595,820.32 $49,651.69
109-120 $36.02 $610,715.82 $50,892.99
121-Expiration $36.92 $625,983.72 $52,165.31
</TABLE>
** Notwithstanding this schedule, the Annual Base Rent and Monthly Base
Rent as stated above for the first and second Lease Years shall be in
effect only after the Space A Occupancy Period has ended (e.g., after
the Space B Commencement Date has occurred), when the entire Premises
has been tendered to Tenant pursuant to this Lease. Prior to the Space
B Commencement Date, Monthly Base Rent as set forth in the above
schedule shall be recalculated based solely on the rentable square
footage of Space A. Annual rental escalations (for both to Space A and
Space B) shall commence on the first anniversary of the Space A
Commencement Date, and continue annually thereafter, so that (for
example) if the Space B Commencement Date occurs during month 14 of the
Lease Term, the initial Base Rent for Space B will be based on the
$27.98 per square foot rental rate in effect during month 14 of the
Lease Term.
The parties acknowledge that the per square foot Base Rental rate for the first
Lease Year was calculated by reducing a putative full service rental rate of
$30.00 per rentable square foot by an estimate (agreed to by Landlord and
Tenant) of the cost of utilities to be paid separately by Tenant with respect to
the Premises under this Lease during the first Lease Year ($1.83 p.r.s.f.) and
the cost of janitorial services to be paid separately by Tenant with respect to
the Premises under this Lease for the first Lease Year ($0.87 p.r.s.f.), but the
parties agree that the per square foot Base Rental rate shall not be modified if
the actual cost of utilities and/or the actual cost of janitorial services paid
by Tenant with respect to such period varies from such estimate.
1.5.2 Base Rent and escalations for any Renewal Term or option
term under this Lease shall be as set forth in Section 50, below.
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<PAGE> 8
1.6 Additional Rent. Any sum owed or reimbursable by Tenant to
Landlord under this Lease (excluding monthly Base Rent) shall be considered
"additional rent" hereunder, and, except for items of additional rent for which
demand is required pursuant to the express terms of this Lease shall be payable
without demand, set-off or deduction, except as expressly set forth to the
contrary herein. The items of additional rent described in Section 1.5, above,
shall be payable monthly, in advance, on first day of each calendar month of the
Term, together with Tenant's monthly Base Rent payment.
1.7 [Intentionally Deleted]
1.8 Notice and Payment Addresses. Any notices under this Lease
shall be governed by the terms of Section 30, below. The notice addresses of the
parties are as follows:
If to Landlord: Wellsford/Whitehall Holdings, L.L.C.
c/o Wellsford Commercial Property Trust
Chatham Executive Center
26 Main Street, First Floor
Chatham, New Jersey 07928
Attention: Chief Operating Officer
with a copy to:
Wellsford/Whitehall Holdings, L.L.C.
c/o Wellsford Commercial Property Trust
Chatham Executive Center
26 Main Street, First Floor
Chatham, New Jersey 07928
Attention: General Counsel
and:
Wellsford/Whitehall Holdings, L.L.C.
c/o Wellsford Real Properties, Inc.
610 Fifth Avenue, 7th Floor
New York, New York 10020
Attention: Edward Lowenthal
and:
Tenenbaum & Saas, P.C.
4330 East-West Highway, Suite 1150
Bethesda, Maryland 20814
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<PAGE> 9
If to Tenant: Net2000 Communications
8614 Westwood Center Drive, Suite 700
Vienna, VA 22182
Attention: Legal Department
after the Commencement Date, with a copy to:
Net2000 Communications
1275 K Street, N.W., 3rd Floor
Washington, DC 20005
Attention: Facilities Manager
Either party may, upon (10) days' prior written notice to the other, designate a
new address to which all notices hereunder shall be directed.
1.9 Rent Payment Address. Tenant shall send payments of Base Rent
and additional rent hereunder to Landlord's at the following address:
Wellsford/ Whitehall Holdings, L.L.C.
c/o Wellsford Real Properties, Inc.
610 Fifth Avenue, 7th Floor
New York, New York 10020
1.10 Lease Year. Each twelve (12) month period within the Lease
Term shall be referred to herein as a "Lease Year." The first Lease Year shall
commence on the Commencement Date and terminate on the last day of the twelfth
full calendar month after such Commencement Date. Each subsequent Lease Year
shall commence on the date immediately following the last day of the preceding
Lease Year and shall continue for a period of twelve (12) full calendar months,
except that the last Lease Year of the Lease Term shall terminate on the date
this Lease expires or is otherwise terminated.
1.11 Deed of Lease. To the extent required under applicable law to
make this Lease legally effective, this Lease shall constitute a deed of lease.
2. PAYMENT OF RENT & ADDITIONAL RENT.
Tenant shall pay Landlord the Rent due under this Lease in lawful money
of the United States. Rent (including any monthly estimated payments for
Tenant's Share of Expense Increases and Tax Increases payable in accordance with
this Lease) shall (except for Tenant's Advance Deposit under Section 3.2, below)
be paid in advance on or before the first day of each month, at the address
noted in Section 1.9, or to such other party or at such other place as Landlord
may hereafter from time to time designate in writing. Base Rent under this Lease
for any partial month at the beginning of the Lease Term shall be prorated based
on the Base Rent in effect for the first month in which Base Rent is payable
hereunder. All other payments due under this Lease shall be paid no later than
ten (10) business days after the date Landlord
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<PAGE> 10
provides Tenant with a written request for payment which sets forth the amount
due. In the event of any dispute concerning the computation of the amount of any
additional rent due, Tenant shall pay the amount specified by Landlord pending
the resolution of the dispute, provided such payment shall be without prejudice
to Tenant's right to continue to challenge the disputed computation. In the
event that Tenant successfully challenges the disputed computation, Landlord
shall refund to Tenant the amount of any overpayment of such additional rent,
together with interest at the Default Rate from the date Tenant first disputed
Landlord's computation until the date repaid to Tenant, within thirty (30) days
after the dispute is finally resolved.
3. SECURITY DEPOSIT; ADVANCE DEPOSIT.
3.1 Security Deposit. (a) Simultaneously with the execution of
this Lease by Tenant, Tenant shall provide Landlord with a security deposit in
an amount equal to Thirty Eight Thousand, Nine Hundred Eighty-Eight and 93/100
Dollars ($38,988.93) (which, together with interest accrued thereon is
hereinafter referred to as the "Security Deposit"). The Security Deposit shall
constitute security for payment of Base Rent and additional rent and for any and
all other obligations of Tenant under this Lease. If Tenant defaults with
respect to any covenant or condition of this Lease, including but not limited to
the payment of Base Rent, additional rent or any other payment due under this
Lease, and/or the obligation of Tenant to maintain the Premises and deliver
possession thereof back to Landlord at the expiration or earlier termination of
the Lease Term in the condition required herein, then Landlord may (without any
waiver of Tenant's default being deemed to have occurred) apply all or any part
of the Security Deposit to the payment of any sum in default, or any other sum
which Landlord may be required or deem necessary to spend or incur by reason of
Tenant's default, or to satisfy in part or in whole any damages suffered by
Landlord as a result of Tenant's default. In the event of such application,
Tenant shall promptly deposit with Landlord the amount necessary to restore the
Security Deposit to the full amount set forth above. The parties expressly
acknowledge and agree that the Security Deposit is not an advance payment of
Base Rent or additional rent, nor a measure of Landlord's damages in the event
of any default by Tenant. If Tenant shall have fully complied with all of the
covenants and conditions of this Lease, but not otherwise, the amount of the
Security Deposit then held by Landlord shall be repaid to Tenant within thirty
(30) days after the expiration or sooner termination of this Lease. In the event
of a sale or transfer of Landlord's estate or interest in the Building, Landlord
shall have the right to transfer the Security Deposit to the purchaser or
transferee, and Landlord shall be considered released by Tenant from all
liability for the return of the Security Deposit, if said purchaser or
transferee acknowledges and accepts the Security Deposit (or a credit in respect
thereof), and assumes Landlord's obligations under this Lease in writing,
inclusive of Landlord's obligation to comply with the terms of this Section 3.1
in relation to the return of the Security Deposit to Tenant.
(b) In lieu of posting the Security Deposit in cash, as
otherwise contemplated under Section 3.1(b), above, Tenant shall have the right
to post the Security Deposit in the form of a letter of credit, as hereafter
provided. If Tenant elects to post the Security Deposit in the form of a letter
of credit, then simultaneously with the execution of this Lease by Tenant,
Tenant shall deliver to Landlord an irrevocable and unconditional letter of
credit in the amount of Thirty Eight Thousand, Nine Hundred Eighty-Eight and
93/100 Dollars ($38,988.93), which letter of
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<PAGE> 11
credit shall be in compliance with the requirements more fully set forth in
subsection 3.1(c), below. The Security Deposit shall constitute security for
payment of Base Rent and additional rent and for the performance of any and all
other covenants, agreements and obligations of Tenant under this Lease. If
Tenant defaults with respect to any covenant or condition of this Lease,
including but not limited to the payment of Base Rent, additional rent or any
other payment due under this Lease, and the obligation of Tenant to maintain the
Premises and deliver possession thereof back to Landlord at the expiration or
earlier termination of the Lease Term in the condition required herein, then
Landlord may (without any waiver of Tenant's default being deemed to have
occurred) draw upon such letter of credit and apply all or any part of the
proceeds thereof to the payment of any sum in default, or any other reasonable
sum which Landlord may be required or deem necessary to spend or incur by reason
of Tenant's default, or to satisfy in part or in whole any damages suffered by
Landlord as a result of Tenant's default. In the event of such application,
Tenant shall promptly deposit with Landlord (either in cash or in the form of an
additional letter of credit) the amount necessary to restore the Security
Deposit to the full amount set forth above. The parties expressly acknowledge
and agree that the Security Deposit is not an advance payment of Base Rent or
additional rent, nor a measure of Landlord's damages in the event of any default
by Tenant. If Tenant shall have fully complied with all of the covenants and
conditions of this Lease, but not otherwise, the amount of the Security Deposit
then held by Landlord shall be repaid to Tenant within thirty (30) days after
the expiration or sooner termination of this Lease. If Lessor transfers the
Security Deposit to any transferee of the Building or Landlord's interest
therein, then such transferee shall be liable for the return of the Security
Deposit, and Landlord shall be released from all liability for the return
thereof, if said purchaser or transferee acknowledges and accepts the Security
Deposit (or a credit in respect thereof), and assumes Landlord's obligations
under this Lease in writing, inclusive of Landlord's obligation to comply with
the terms of this Section 3.1 in relation to the return of the Security Deposit
to Tenant.
(c) The letter of credit to be delivered by Tenant to Landlord
under Section 3.1(b), above (the "Letter of Credit"), shall be (1) in form and
substance satisfactory to Landlord in its sole but reasonable discretion; (2) at
all times in the amount of the Security Deposit, and shall permit multiple
draws; (3) issued by a commercial bank reasonably acceptable to Landlord and
located in the District of Columbia; (4) made payable to, and expressly
transferable and assignable at no charge by, the owner from time to time of the
Building (which transfer/assignment shall be conditioned only upon the execution
by such owner of a written document in connection with such
transfer/assignment); (5) payable at sight upon presentment to a local branch of
the issuer of a simple sight draft signed by Landlord or its property manager
accompanied by a certificate stating that Landlord is permitted to draw upon
such Letter of Credit under the express terms of this Lease, and setting forth
the amount that Landlord is permitted to draw; (6) a term of not less than one
(1) year; and (7) at least thirty (30) days prior to the then-current expiration
date of such Letter of Credit, either (i) renewed (or automatically and
unconditionally extended) from time to time through the thirtieth (30th) day
after expiration of the Lease Term, or (ii) replaced with cash in the amount of
the Security Deposit. If Lessor transfers the Security Deposit to any transferee
of the Building or Landlord's interest therein, then such transferee shall be
liable for the return of the Security Deposit, and, upon the assumption of such
liability by the transferee, Landlord shall be released from all liability for
the return thereof. Notwithstanding anything in this Lease to the contrary, any
grace period or cure
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<PAGE> 12
periods which are otherwise applicable under Section 24, hereof shall not apply
to any of the foregoing, and, specifically, if Tenant fails to comply with the
requirements of clause (7), above, Landlord shall have the immediate right to
draw upon the Letter of Credit in full and hold the proceeds thereof as a cash
Security Deposit. Each Letter of Credit shall be issued by a commercial bank
that has a credit rating with respect to certificates of deposit, short term
deposits or commercial paper of at least P-2 (or equivalent) by Moody's Investor
Service, Inc., or at least A-2 (or equivalent) by Standard & Poor's Corporation.
If the issuer's credit rating is reduced below P-2 (or equivalent) by Moody's
Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor's
Corporation, or if the financial condition of the issuer changes in any other
materially adverse way, then Landlord shall have the right to require that
Tenant obtain from a different issuer a substitute letter of credit that
complies in all respects with the requirements of this Section, and Tenant's
failure to obtain such substitute letter of credit within ten (10) business days
after Landlord's written demand therefor (with no other notice, or grace or cure
period being applicable thereto) shall entitle Landlord to immediately draw upon
the existing Letter of Credit in full, without any further notice to Tenant. In
the event that any issuer of a Letter of Credit held by Landlord is placed into
receivership or conservatorship by the Federal Deposit Insurance Corporation, or
any successor or similar entity, then, effective as of the date such
receivership or conservatorship commences, said Letter of Credit shall be deemed
not to meet the requirements of this Section, and, in such event, within ten
(10) business days after Landlord's written demand, Tenant shall replace such
Letter of Credit with cash or other collateral acceptable to Lessor in its sole
but reasonable discretion (and Tenant's failure to do so shall constitute an
Event of Default under this Lease, with no additional notice, or grace or cure
period being applicable thereto). Any failure or refusal of the issuer to honor
the Letter of Credit shall be at Tenant's sole risk and shall not relieve Tenant
of its obligations hereunder with respect to the Security Deposit.
3.2 Advance Deposit. In addition, simultaneously with the
execution of this Lease by Tenant, Tenant shall deposit with Landlord the sum of
Thirty Eight Thousand, Nine Hundred Eighty-Eight and 93/100 Dollars ($38,988.93)
as a deposit of the first month's Base Rent (the "Advance Deposit"), which shall
be applied by Landlord on behalf of the Tenant to the payment of Base Rent (when
due and payable) for the first full month after the Space B Commencement Date.
Any good faith deposit made at the time Tenant executed and delivered to
Landlord any letter of intent or proposal to lease shall be applied toward the
amount of the Advance Deposit. The Advance Deposit, prior to its being applied
to the payment of monthly Base Rent, shall constitute security for the payment
and performance by Tenant of all of Tenant's obligations, covenants, conditions
and agreements under this Lease, but shall not be deemed liquidated damages, but
shall be applied in reduction of Tenant's total obligation(s) to Landlord.
3.3 No Separate Account. Landlord shall not be obligated to hold
the Advance Deposit in a separate account from other Building or project funds.
If the Security Deposit is held in the form of cash, Landlord agrees to deposit
the same with its mortgagee, to be held by its mortgagee in a separate interest
bearing account together with the cash security deposits of other tenants in the
Building (and will be recognized as a security deposit, subject to the terms of
this Article 3, by such mortgagee).
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<PAGE> 13
4. USES; TENANT COVENANTS.
4.1 Permitted Uses. The Premises are to be used solely for (i)
general office and administrative purposes (collectively, "General Office Use"),
and (ii) the installation, operation, maintenance and replacement by Tenant of
communications and switch equipment and facilities (including collocation of
equipment owned by others as long as integrated as part of Tenant's own use of
the Premises) in connection with Tenant's current communications business (the
"Tenant's Telecommunication Use"). For all purposes of this Lease, the term
"Permitted Uses" shall mean and refer solely to the General Office Use and
Tenant's Telecommunication Use, and no other purpose or use will be permitted to
be operated within or from the Premises.
4.2 Other General Use Covenants.
4.2.1 Tenant shall not commit or allow to be committed any
waste upon the Premises, nor any public or private nuisance nor any other act
which disturbs the quiet enjoyment of any other tenant in the Building. If any
of the Tenant's office machines or equipment or other activities within the
Premises involve unusual volume or vibration and disturb any other tenant in the
Building, then Tenant shall provide adequate insulation, or take such other
action, as may be necessary to eliminate the noise or disturbance.
4.2.2 Tenant will, at its own cost, promptly comply with and
carry out all orders, requirements or conditions now or hereafter imposed upon
it by the ordinances, laws, rules, orders, and/or regulations of the State in
which the Premises are located and the federal government and any other federal,
state or local governmental authority, or public or quasi-public authority,
having jurisdiction over the Premises to the extent relating to the manner of
Tenant's occupation or use of the Premises (including Tenant's Telecommunication
Use), the conduct of Tenant's business therein, or the construction of any
improvements or alterations therein by (or at the request of) Tenant, including
all present and future laws, orders and regulations regarding recycling of trash
and smoking in the workplace, and all building and life safety codes applicable
to Tenant's alterations. The foregoing notwithstanding, to the extent that any
such orders, requirements or conditions relate to the compliance of the Premises
(or any portion thereof) with applicable building codes, regulations, or laws
which were in effect prior to Tenant's occupancy of the Premises or which
pertain to the Building as a whole, or the land upon which same is located,
either of which require Landlord to make modifications thereto (the "Compliance
Laws") and the design or installation of the item(s) whose compliance with such
Compliance Laws is at issue was Landlord's responsibility under Exhibit C of
this Lease (but excluding any modifications arising out of or due to Tenant's
Telecommunication Use), then Landlord shall be responsible for the compliance of
such item(s) with such Compliance Laws, including but not limited to, costs of
compliance of Landlord's Work with the physical accessibility requirements of
the Americans With Disabilities Act ("ADA") in existence on the date that
Landlord's Work is Substantially Complete; provided, however, if the Compliance
Laws require Landlord to make modifications to the Building, the Land, or the
Premises, because of improvements made by the Tenant subsequent to the
Substantial Completion of Landlord's Work (including without limitation Tenant's
Work) or because of any particular use made of the Premises by Tenant which is
not in the nature of customary general office use (such as Tenant's
Telecommunication Use), or because Tenant's architect failed to provide for such
compliance
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<PAGE> 14
within the Approved Plans for the Premises (as defined in Exhibit C), all such
costs shall be paid by Tenant. Tenant, at Tenant's cost, shall be responsible
for ensuring that Tenant's policies and business operations with respect to the
Premises comply with the ADA, and that Tenant's Work (and that Landlord's Work
to the extent designed by Tenant's architect) complies with the ADA.
4.2.3 Tenant shall observe such reasonable rules and
regulations as may be adopted and made available to Tenant by Landlord from time
to time for the safety, care and cleanliness of the Premises or the Building and
for the preservation of good order therein. The initial rules and regulations
for the Building are attached as Exhibit D hereto and made a part hereof by this
reference (as the same may be amended in accordance herewith, the "Rules and
Regulations"). Landlord shall have the right from time to time to make
reasonable modifications to the Rules and Regulations, provided (i) such
modifications shall only be applicable to Tenant if communicated to Tenant in
writing at least ten (10) days prior to the effective date of such modification,
(ii) such modified Rules and Regulations shall not materially modify any
economic obligations of Tenant hereunder, and (iii) in the event of any
irreconcilable conflict between the terms of this Lease and the terms of the
Rules and Regulations (as amended), the terms of this Lease shall be
controlling. Landlord shall not be responsible to Tenant for the nonperformance
of any of said rules and regulations by any other tenants or occupants of the
Building.
4.2.4 No act shall be done or knowingly permitted by Tenant,
or its agents, employees and/or contractors, in or about the Premises that is
unlawful or that will increase the existing rate of insurance on the Building.
To Landlord's knowledge, general office use and telecommunications use is
neither unlawful, nor will it result in any increase in the existing rate of
insurance in the Building. In the event the existing rate of insurance is
increased because of any breach by Tenant of this covenant, upon notice to
Tenant, Tenant shall pay to Landlord any and all fines, penalties, and/or
increases in insurance premiums resulting from such breach, unless and until
such time as Tenant remedies the condition and causes the rate of insurance to
be restored to normal rates.
5. ENVIRONMENTAL PROVISIONS; RECYCLING.
5.1 General. Tenant agrees to comply with any and all
Environmental Laws (defined below) in connection with (1) Tenant's use of the
Premises, (2) any assignment, sublease or license of the Premises or any part
thereof, (3) any termination of this Lease and surrender of possession upon a
default by Tenant hereunder, (4) any corporate reorganization, consolidation,
recomposition or similar change in Tenant's organization, (5) any acts,
omissions and other activities of Tenant in or on the Building and the Land,
and/or (6) any other fact or circumstance the existence and continuation of
which imposes upon Tenant the obligation to so comply therewith.
5.2 Tenant's Warranties and Covenants. During the Term and any
Renewal Term of this Lease, Tenant warrants, represents and covenants to and
with Landlord as follows:
5.2.1 The Premises will not, as the result of any acts or
omissions of Tenant, contain (A) asbestos in any form, (B) urea formaldehyde
foam insulation, (C) transformers or other equipment which contain dielectric
fluid containing levels of polychlorinated biphenyls in
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excess of fifty (50) parts per million, or (D) any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous,
controlled or toxic substances, or any pollutant or contaminant, or related
materials defined in or controlled pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections
9601 et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C.
Sections 1801 et seq.), the Resource Conservation and Recovery Act, as amended
(42 U.S.C. Sections 9601 et seq.), the Federal Water Pollution Control Act (33
U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et
seq.), and in the regulations adopted and publications promulgated pursuant
thereto, and any and all other federal, state and local laws, rules and
regulations or orders pertaining to health, the environment and/or Hazardous
Materials (collectively, "Environmental Laws") (the substances described in (A),
(B), (C) or (D) above being hereinafter collectively referred to as "Hazardous
Materials"); (ii) except as specifically permitted by this Lease, the Premises
will never be used by Tenant for any activities involving, directly or
indirectly, the use, generation, treatment, transportation, storage or disposal
of any Hazardous Materials.
5.2.2 Tenant (A) shall comply in the operation of its
business, and in its use and occupancy of the Premises, with all Environmental
Laws, (B) shall not store, utilize, generate, treat, transport or dispose of (or
permit or acquiesce in the storage, utilization, generation, transportation,
treatment or disposal of) any Hazardous Materials on or from the Premises except
as expressly permitted herein, and (C) shall cause its employees, agents,
contractors, assignees, sublessees, licensees and (while within the Premises)
invitees and business visitors to comply with the representations, warranties
and covenants herein contained. For all purposes of this Section 5, references
to "Tenant" shall be deemed to include acts and omissions committed by Tenant
and Tenant's agents, employees, contractors, subcontractors, assignees,
sublessees, licensees and, while within the Premises, invitees and business
visitors.
5.2.3 In the event of any storage, presence, utilization,
generation, transportation, treatment or disposal of Hazardous Materials by
Tenant in, on or about the Premises, Building and/or Land, or in the event of
any Hazardous Materials Release (as hereinafter defined) for which Tenant bears
responsibility under the provisions of this Section 5, Tenant shall, at the
direction of Landlord or any federal, state, or local authority or other
governmental authority, remove or cause the removal of any such Hazardous
Materials and rectify any such Hazardous Materials Release, and otherwise comply
or cause compliance with the laws, rules, regulations or orders of such
authority, all at the expense of Tenant, including without limitation, the
undertaking and completion of all investigations, studies, sampling and testing
and all remedial, removal and other actions necessary to clean up and remove all
such Hazardous Materials, on, from or affecting the Premises. If Tenant shall
fail to proceed with such removal or otherwise comply with such laws, rules,
regulations or orders within the cure period permitted under the applicable law,
regulation or order, the same shall constitute a default under Section 23
hereof, and Landlord may, but shall not be obligated to, do whatever is
necessary to eliminate such Hazardous Materials from the Premises or otherwise
comply with the applicable law, rule, regulation or order, acting either in its
own name or in the name of Tenant pursuant to this Section, and the cost thereof
shall be borne by Tenant and thereupon become due and payable as additional rent
hereunder. Tenant shall give to Landlord and its agents and employees access to
the Premises for such purposes and hereby specifically grants to
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Landlord a license to remove the Hazardous Materials and otherwise comply with
such applicable laws, rules, regulations or orders, acting either in its own
name or in the name of the Tenant pursuant to this Section.
5.2.4 Tenant hereby indemnifies and holds Landlord and each of
its shareholders, subsidiaries, affiliates, officers, directors, partners,
employees, agents and trustees, and any receiver, trustee or other fiduciary
appointed for the Building, harmless from, against, for and in respect of, any
and all damages, losses, settlement payments, obligations, liabilities, claims,
actions or causes of actions, encumbrances, fines, penalties, and costs and
expenses suffered, sustained, incurred or required to be paid by any such
indemnified party (including, without limitation, reasonable fees and
disbursements or attorneys, engineers, laboratories, contractors and
consultants) because of, or arising out of or relating to (A) the violation by
Tenant (or any of its agents, employees, contractors and, while within the
Premises, invitees) of any of its representations, warranties and covenants
under this Section 5, and (B) any Environmental Liabilities (as hereinbelow
defined) in connection with the Premises for which Tenant is responsible under
the terms of this Section 5 of the Lease. For purposes of this indemnification
clause, "Environmental Liabilities" shall include all costs and liabilities with
respect to the future presence, removal, utilization, generation, storage,
transportation, disposal or treatment of any Hazardous Materials or any release,
spill, leak, pumping, pouring, emitting, emptying, discharge, injection,
escaping, leaching, dumping or disposing into the environment (air, land or
water) of any Hazardous Materials (each a "Hazardous Materials Release"),
including without limitation, cleanups, remedial and response actions, remedial
investigations and feasibility studies, permits and licenses required by, or
undertaken in order to comply with the requirements of, any federal, state or
local law, regulation, or agency or court, any damages for injury to person,
property or natural resources, claims of governmental agencies or third parties
for cleanup costs and costs of removal, discharge, and satisfaction of all
liens, encumbrances and restrictions on the Premises relating to the foregoing.
The foregoing indemnification and the responsibilities of Tenant under this
Section 5 shall survive the termination or expiration of this Lease.
5.2.5 Tenant shall promptly notify Landlord in writing of the
occurrence of any Hazardous Materials Release or any pending or threatened
regulatory actions known to Tenant, or any claims made by any governmental
authority or third party, relating to any Hazardous Materials or Hazardous
Materials Release on or from, the Premises and shall promptly furnish Landlord
with copies of any correspondence or legal pleadings or documents in connection
therewith. Landlord shall have the right, but shall not be obligated, to notify
any governmental authority of any state of facts which may come to its attention
with respect to any Hazardous Materials or Hazardous Materials Release on or
from the Premises.
5.2.6 Upon expiration of the Term or any Renewal Term, as
applicable, tenant shall deliver the Premises to Landlord free of any and all
Hazardous Materials and any liens, encumbrances and restrictions relating to
Environmental Liabilities, to the extent Tenant was otherwise responsible
therefor.
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5.3 Permitted Materials. Notwithstanding Section 5.2 to the
contrary, but subject to clauses (i) and (ii) of this Section 5.3, below, Tenant
shall be permitted to temporarily store reasonable amounts of Hazardous
Materials that are used in the ordinary course of Tenant's operation of the
Permitted Use, including batteries and other equipment and materials used for
the provision of back-up power (the "Permitted Materials") provided (i) such
Permitted Materials are properly used, stored and disposed of in a manner and
location meeting the requirements of all Environmental Laws and (ii) all
Permitted Materials shall be approved in advance by Landlord with the exception
those materials typically used in the operation of standard office equipment,
telecommunications equipment or for cleaning purposes, such as office cleaners,
printing toners and the like, and which are used, stored and disposed of in
accordance with all applicable Environmental Laws (which common materials shall
not require special written approval by Landlord). Any use, storage and disposal
of Permitted Materials shall be subject to all of the terms of this Section 5
(except for the terms prohibiting same), and Tenant shall be responsible for
obtaining any required permits and paying any fees and providing any testing
required by any governmental agency with respect to any Permitted Materials. If
said Permitted Materials are not being stored, used, or disposed of in
compliance with all applicable laws, then Tenant shall immediately take such
corrective action as requested by Landlord. Should Tenant fail to take such
corrective action within forty-eight (48) hours (or such lesser time period as
may be appropriate in the event of Emergency (as defined herein), Landlord shall
have the right to perform such work on Tenant's behalf and at Tenant's sole
expense, and Tenant shall promptly reimburse Landlord for any and all reasonable
costs associated with said work. Without limiting the generality of the
provisions of this Section 5.3, Landlord agrees that Tenant may keep fuel within
the fuel storage tank (the "Generator Fuel Tank") to be installed by Tenant in
conjunction with Tenant's installation of an emergency generator for use as part
of an Uninterrupted Power Supply system ("UPS System") Tenant will be permitted
to install pursuant to Exhibit C within the Building's loading dock area (at no
additional charge) and that such fuel shall constitute a "Permitted Material"
within the meaning of the Lease, provided (a) Tenant shall be solely responsible
for ensuring that such the Generator Fuel Tank is installed, maintained and
ultimately removed in compliance with all applicable Environmental Laws, (b)
Tenant shall be solely responsible for ensuring that all such fuel is used,
stored and disposed of in accordance with all applicable Environmental Laws, and
(c) Tenant specifically agrees to indemnify and hold Landlord and each of its
shareholders, subsidiaries, affiliates, officers, directors, partners,
employees, agents and trustees, and any receiver, trustee or other fiduciary
appointed for the Building, harmless from, against, for and in respect of, any
and all damages, losses, settlement payments, obligations, liabilities, claims,
actions or causes of actions, encumbrances, fines, penalties, and costs and
expenses suffered, sustained, incurred or required to be paid by any such
indemnified party (including, without limitation, reasonable fees and
disbursements or attorneys, engineers, laboratories, contractors and
consultants) because of, or arising out of or relating to Environmental
Liabilities due to, arising from or connected with Tenant's use and operation of
the UPS System, the Generator Fuel Tank and the use, storage and disposal of the
fuel necessary therefor (and/or any violation by Tenant of its covenants within
this Article 5 relating thereto).
5.4 Landlord's Covenants.
5.4.1 If, during the Lease Term, (a) Landlord (or its agents,
employees or contractors) introduces Hazardous Materials in, on or under the
Premises, Building or Land, or
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otherwise violates the requirements of any Environmental Laws, or (b) Hazardous
Materials contamination in, on or under the Premises, Building or Land which
existed prior to Tenant's taking occupancy of the Premises is discovered, and in
either case, such contamination is not the responsibility of Tenant pursuant to
Sections 5.2 and 5.3, above, then as between Landlord and Tenant, Landlord shall
be responsible for making a prompt assessment of the scope and nature of the
problem, and for taking remedial action, in conjunction (if appropriate) with
applicable federal, state or local authorities; and in the event the presence of
such Hazardous Materials was caused by Landlord, or its agents, employees or
contractors, Landlord shall be responsible for the cost to remediate any such
contamination and/or correct any such violation, and for all fines, penalties
and other actual damages arising therefrom. The foregoing is without prejudice
to Landlord's right to seek recovery of damages or losses from the parties at
fault in any Hazardous Materials Release.
5.4.2 Landlord hereby indemnifies and holds Tenant and each of
its shareholders, subsidiaries, affiliates, officers, directors, partners,
employees, agents and trustees, harmless from, against, for and in respect of,
any and all damages, settlement payments, obligations, liabilities, claims,
actions or causes of actions, encumbrances, fines, penalties, and costs and
expenses suffered, sustained, incurred or required to be paid by any such
indemnified party (including, without limitation, reasonable fees and
disbursements or attorneys, engineers, laboratories, contractors and
consultants) to any third party because of, or arising out of or relating to (A)
Landlord's violation of any of its covenants under this Section 5, and (B) any
Environmental Liabilities (as defined in Section 5.2.4, above) arising in
connection with the Premises as a result of the activities or omissions of
Landlord, its agents, employees and contractors (provided Tenant shall be deemed
not to be an agent, employee or contractor of Landlord). The foregoing
indemnification and the responsibilities of Landlord under this Section 5 shall
survive the termination or expiration of this Lease.
5.5 Recycling Regulations. Tenant shall comply with all orders,
requirements and conditions now or hereafter imposed by any ordinances, laws,
orders and/or regulations (hereinafter collectively called "regulations") of any
governmental body having jurisdiction over the Premises or the Building, whether
required of Landlord or otherwise, regarding the collection, sorting, separation
and recycling of waste products, garbage, refuse and trash (hereinafter
collectively called "waste products") including but not limited to the
separation of such waste products into receptacles reasonably approved by
Landlord and the removal of such receptacles in accordance with any collection
schedules prescribed by such regulations. Landlord reserves the right (a) to
refuse to accept from Tenant any waste products that are not prepared for
collection in accordance with any such regulations, and (b) to require Tenant to
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with any such
regulations.
6. LATE CHARGES; INTEREST.
6.1 Late Charge. Tenant hereby acknowledges that late payment to
Landlord of Base Rent or additional rent will cause Landlord to incur
administrative costs and loss of investment income not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. If
any Base Rent or additional rent due from Tenant is not received by Landlord or
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Landlord's designated agent within ten (10) business days after the date due,
then Tenant shall pay to Landlord a late charge equal to two percent (2%) of
such overdue amount, plus any reasonable attorneys' fees and costs incurred by
Landlord by reason of Tenant's failure to pay Rent and other charges when due
hereunder; provided, however, Landlord agrees to waive the first (1st) such late
charge arising during any Lease Year during the Term, up to a maximum of four
(4) such waivers during the Term, provided that Landlord receives such overdue
Base Rent, additional rent, or other sum within five (5) business days after the
date Landlord provides Tenant with a written notice that such payment of Base
Rent, additional rent or other charges is overdue. Landlord's acceptance of such
late charges shall not constitute a waiver of Tenant's default with respect to
such overdue amount or estop Landlord from exercising any of the other rights
and remedies granted hereunder.
6.2 Interest. In addition to the administrative late charge
provided for under Section 6.1, above, if any Base Rent or additional rent due
from Tenant to Landlord is not paid within ten (10) business days after the date
due (if Tenant was not assessed a late charge by virtue of such late payment) or
thirty (30) days after the date due (if Tenant was assessed a late charge by
virtue of such late payment), such unpaid amount shall bear interest from the
date originally due until the date paid at an annual rate of interest (the
"Default Rate") equal to the lesser of (a) the Prime Rate plus three percent
(3%) or (b) the highest annual rate of interest permitted under applicable law.
Landlord's acceptance of such interest shall not constitute a waiver of Tenant's
default with respect to such overdue amount or estop Landlord from exercising
any of the other rights and remedies granted hereunder. The term "Prime Rate"
shall mean the "Prime Rate" of interest as published from time to time in the
Wall Street Journal, or if not so published, then the "Prime Rate" as
established from time to time by the bank in which Landlord maintains its bank
accounts with respect to the Building.
7. REPAIRS AND MAINTENANCE.
7.1 Landlord's Responsibilities. Landlord shall maintain or cause
to be maintained, and after receiving notice or actual knowledge of the need for
repair, shall repair all structural and non-structural portions of the Building
Systems (as hereafter defined), Common Areas (as hereafter defined) and
Structural Elements (as hereafter defined), provided that, to the extent any of
such maintenance or repairs is rendered necessary by the negligence or willful
misconduct of Tenant, its agents, customers, employees, independent contractors,
guests or (while within the Premises) invitees, Tenant shall be obligated to
reimburse Landlord for all direct costs sustained by Landlord in connection
therewith to the extent such costs are not covered by the fire and casualty
insurance maintained, or required to be maintained, by Landlord on the Building,
which reimbursement shall be due no later than thirty (30) days after Landlord's
written demand. For the purposes of this Section 7, "Building Systems" shall
mean the mechanical, electrical, plumbing, and HVAC systems serving the Building
and located outside of the confines of the Premises or which are located within
the Premises but which serve other areas of the Building, but shall exclude all
or any portion of the HVAC system serving the Premises which is to be installed
by Tenant pursuant to this Lease; "Common Areas" shall mean those areas of the
Building which are available for the non-exclusive use of any tenant of the
Building, including without limitation parking areas, lobbies, elevators,
restrooms, stairs, corridors, janitor's closets, and electrical and telephone
closets; and "Structural Elements" shall mean the structural
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components of the Building's base building improvements, including structural
components which integrate with the interior tenant improvements within the
Premises, including without limitation the roof, foundations, exterior
structural walls and other load-bearing elements of the Building. For purposes
of allocating the responsibility for actually performing repairs on the items
described, Landlord agrees that all entrance doors and all windows shall
constitute "Structural Elements" so that Landlord shall, subject to Article 9 of
this Lease, perform repairs on such items in accordance with this Article 7 even
though they are not load bearing. Tenant shall be solely responsible for
providing, at Tenant's sole expense, interior cleaning and janitorial service
for the Premises, in accordance with Section 7.2, below. Landlord warrants that
all Structural Elements and Building Systems in the Building and in each portion
of the Premises shall be in good working order as of the date possession of the
applicable portion of the Premises is tendered to Tenant.
7.2 Tenant's Responsibilities. Except for (i) repairs to Building
Systems, Common Areas and Structural Elements, (ii) warranty repairs related to
Landlord's Work (if any), and (iii) repairs to the interior of the Premises to
the extent the same are rendered necessary by the negligence or willful
misconduct of Landlord and its agents, employees and contractors, and are not
covered by the fire and casualty insurance maintained, or required to be
maintained, by Tenant under this Lease, Tenant shall be responsible (at Tenant's
sole expense) for repairs and maintenance to the interior of the Premises.
Without limitation, Tenant's responsibilities shall include (i) providing
janitorial and cleaning services with respect to the interior of the Premises
(excluding Common Areas such as the hallways and restroom facilities to the
extent located outside of the demised confines of the Premises) (collectively
"Tenant's Janitorial Services") on all weekdays (excluding Holidays) in
accordance with reasonable standards for a telecommunications and office use
conducted within a first class office building, (ii) all maintenance, scheduled
maintenance and repairs required to be performed upon any specialized equipment
of Tenant irrespective of where such equipment is located within the Building,
and (iii) all maintenance, scheduled maintenance and repairs required to be
performed upon the HVAC system serving the Premises. The foregoing will include
keeping in effect an HVAC service contract which provides for all manufacturer
recommended scheduled maintenance for the HVAC systems at the times and in the
manner recommended by the manufacturer. In connection with any maintenance or
repairs to be conducted by Tenant to its equipment located outside of the
Premises, in addition to any other requirements set forth in this Lease, Tenant
will coordinate the timing and performance of such repairs and maintenance with
the Building's property manager and/or engineering staff to ensure that the same
are conducted properly and with a minimum of disruption or interference with
Building operations and/or the quiet enjoyment of other tenants and occupants of
the Building.
7.3 Notification Requirements. Landlord shall be under no
obligation to inspect the Premises. Tenant shall promptly report in writing to
Landlord any defective condition in the Premises actually known to Tenant which
Landlord is required to repair, and failure to so report such defects shall
excuse any delay by Landlord in commencing and completing such repair to the
extent the same would otherwise be Landlord's responsibility under this Lease.
In addition, if Tenant fails to report a defective condition within the Premises
within a reasonable time following Tenant's discovery thereof (given the scope
and nature of the condition), and such
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failure results in any incremental additional repair expense, Tenant shall be
responsible for such incremental additional expense.
7.4 Expenses. All expenses incurred by Landlord pursuant to this
Section 7 (to the extent not payable directly by Tenant as above provided) will
be included within "Operating Costs" as defined in Section 9, below, to the
extent not excluded under Section 9.6.
8. UTILITIES AND SERVICES.
8.1 Hours of Service. The Building's normal hours of operation
shall be from 8:00 a.m. to 7:00 p.m. on weekdays and from 9:00 a.m. to 1:00 p.m.
on Saturday (collectively "Normal Business Hours") (but excluding the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Memorial
Day, Independence Day, Labor Day, Columbus day, Veterans Day, Thanksgiving Day,
the day after Thanksgiving, Christmas Day and any holiday designated as such by
an Executive Order of the President of the United States or by Act of Congress,
herein collectively referred to as "Holidays"). Landlord shall at all times
furnish hot and cold water to common area restrooms and elevator service (with a
minimum of one (1) operational elevator at all times). Landlord will also supply
HVAC service to the Common Areas of the Building during Normal Business Hours,
consistent with other first class office buildings in the Washington, D.C.
metropolitan area. Landlord shall also provide for toilet cleaning and supply,
common area janitorial services, and window washing (collectively "Landlord's
Janitorial Services") on weekdays (excluding Holidays) in accordance with the
specifications applicable to Landlord's set forth in Exhibit E. The cost of all
of the foregoing services furnished by Landlord shall constitute Operating Costs
and shall be payable as provided in Section 9 of this Lease. Tenant will be
solely responsible for the supply of all electricity to the Premises including
for lighting, for the operation of office machines and communications equipment,
and for Tenant's heating, ventilation and air-conditioning ("HVAC") service,
which electrical service shall, pursuant to Exhibit C be separately metered and
paid for directly by Tenant to the applicable utility provider.
8.2 HVAC Service. It is intended that there be installed for
service to the Premises certain dedicated HVAC equipment which will exclusively
serve the Premises, and that Tenant therefore have thermostatic control over the
HVAC systems serving the Premises at all times (e.g., the ability to operate the
HVAC systems serving the Premises at such temperature levels, and at such times,
as Tenant deems appropriate, provided (a) Tenant runs such HVAC systems at such
intervals as are necessary to prevent freezing of pipes or other unusual damage
to the Premises during the winter or other waste to the Premises, and to prevent
unusual wear or damage to components of the HVAC system, (b) Tenant complies
with any and applicable laws, regulations or ordinances which may regulate
energy consumption and/or the temperature at which the Premises is maintained,
and (c) Tenant shall be directly responsible for all scheduled maintenance,
repairs and/or replacements required to be made to the HVAC system serving the
Premises.
8.3 Additional Provisions. Except as specifically provided in
Section 8.5, below, Landlord shall not be liable to Tenant for any loss, injury
or damage to property, or loss of income or other business loss, caused by or
resulting from any variation, interruption, or failure
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of such services due to any cause whatsoever, or from failure to make any
repairs or perform any maintenance. In addition, Landlord shall not be liable to
Tenant for (a) any damage to the Premises, (b) any loss, damage or injury to any
property therein or thereon, (c) any claims for the interruption of or loss to
Tenant's business or (d) for any indirect damages or consequential losses, to
the extent occasioned by bursting, rupture, leakage or overflow of any plumbing
or other pipes, other water leakage or flooding, or other similar causes in,
above, upon or about the Premises or the Building. The foregoing exculpatory
clauses shall not, however, be construed to exculpate Landlord from (i) any
liability to third parties for bodily injury or death to persons arising out of
Landlord's negligence or willful misconduct, and (ii) any liability for damage
to tangible property of Tenant arising due to Landlord's negligence or willful
misconduct, but solely to the extent such damage is not insurable under the
policies of property and casualty insurance which Tenant is required to carry
(or self insure) pursuant to this Lease. If any public utility or governmental
body shall require Landlord or Tenant to restrict the consumption of any utility
or reduce any service to the Premises or the Building, Landlord and Tenant shall
comply with such requirements, without any abatement or reduction of the Base
Rent, additional rent or other sums payable by Tenant hereunder.
8.4 Measurement of Tenant's Electrical Consumption. If for any
reason it is not possible for Landlord to cause Tenant's electrical service to
be separately metered, Landlord reserves the right to determine Tenant's
electrical consumption by engineering surveys (to the extent that Landlord does
not install separate electrical measurement devices), which surveys shall be
based on the actual electrical consumption for the Building in which the
Premises is located and to charge Tenant for the actual cost of such
consumption. Such engineering surveys will be conducted by a licensed third
party engineer selected by Landlord whose findings will be determinative except
as hereafter provided, and such survey(s) will be conducted in accordance with
reasonable and sound engineering practices.
8.5 Interruption in Services. Section 8.3, above, to the contrary
notwithstanding, in the event that (i) the supply of hot and cold water,
electrical service or elevator service for a minimum of one (1) elevator
(hereinafter, each an "Essential Service" and collectively "Essential Services")
is interrupted as a result of the negligence or willful misconduct of Landlord,
or its agents, employees or contractors (and not as a result of any cause beyond
Landlord's reasonable control, such as a general electrical outage or blackout,
or due to Tenant's fault), and (ii) such interruption continues for a period
exceeding seventy-two (72) consecutive hours after Tenant first notifies
Landlord of such interruption, and (iii) as a result thereof Tenant is unable to
and does not in fact conduct business from the Premises or any portion thereof,
then from and after such seventy-second (72nd) consecutive hour, Tenant shall be
entitled to abate its Base Rent and additional rent obligations hereunder as to
the Premises or portion thereof which is not usable (and is in fact not used)
until such time as the applicable Essential Service(s) are restored. The
foregoing shall constitute Tenant's sole and exclusive remedy in the event of an
interruption of services to the Premises and in no event shall Landlord be
liable or responsible to Tenant for lost profits, other business interruption
losses or consequential damages of any kind, provided that if Landlord fails
promptly to commence, and to use diligent efforts thereafter, to cure (or to
cause the applicable utility provider to cure) the applicable interruption or
failure (even if not caused by Landlord's negligence or misconduct), then Tenant
shall have the right to exercise its right of self-help as more fully set forth
in Section 34, below (subject to any provisions therein requiring
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notice and the opportunity to cure), and all reasonable expenses incurred by
Tenant in the exercise of such right shall be recoverable by Tenant from
Landlord.
8.6 Tenant Access to Premises. Subject (i) to the Building's
normal security requirements (which may include restricted key-card access after
Normal Business Hours, lobby screening by the Building's security personnel, or
similar security measures, none of which will prevent Tenant from gaining access
to the Premises, and (ii) causes beyond Landlord's reasonable control, including
the need to restrict access in order to perform necessary repairs (provided
Landlord will use all diligent efforts to minimize the scope and duration of any
such interference with Tenant's access), Tenant shall during the Term have
access to the Premises twenty-four (24) hours per day, seven (7) days per week.
9. EXPENSE INCREASES.
9.1 Defined. For each calendar year or portion thereof during the
Term, commencing on the first anniversary of the Space A Commencement Date in
respect of Space A, and commencing on the first anniversary of the Space B
Commencement Date in respect of Space B, Tenant shall pay as additional rent to
Landlord an amount (hereinafter referred to as "Expense Increases") equal to the
difference between:
(A) Tenant's Share of Operating Costs (defined in Section 9.5,
below) for such calendar year; and
(B) Tenant's Share of Operating Costs for the Operating Costs
Base Year (defined in Section 9.2, below).
9.2 Base Year. For all purposes hereof, the "Operating Costs Base
Year" shall be Calendar Year 1999.
9.3 Estimated Payments. Tenant shall make monthly installment
payments on an estimated basis toward Tenant's Share of Expense Increases, in an
amount equal to one-twelfth (1/12) of Landlord's estimate of the Tenant's Share
of Expense Increases for the then-current calendar year. Tenant's obligation to
make monthly installment payments toward Tenant's Share of Expense Increases for
Space A shall not commence until the first anniversary of the Space A
Commencement Date. Tenant's obligation to make monthly installment payments
toward Tenant's Share of Expense Increases for Space B shall not commence until
the first anniversary of the Space B Commencement Date. The foregoing
estimate(s) shall be based on Landlord's reasonable estimate of Expense
Increases for such calendar year (which shall not exceed 105% of the prior
year's Expense Increases in the absence of evidence that a larger estimate is
warranted). Landlord shall endeavor to communicate such estimate to Tenant on or
before the date Landlord provides Tenant with the Expense Statement referenced
in Section 9.4, below, provided that until Landlord provides such estimate to
Tenant, Tenant's estimated payments will be based upon the prior year's
estimate. If at any time or times during such calendar year, it appears to
Landlord that Tenant's Share of Expense Increases for such calendar year will
vary from Landlord's estimate by more than five percent (5%) on an annualized
basis, Landlord may, by written notice to Tenant, revise its estimate for such
calendar year and
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Tenant's estimated payments hereunder for such calendar year shall thereupon be
based on such revised estimate.
9.4 Annual Reconciliation. Within approximately one hundred twenty
(120) days after the end of each calendar year after the Operating Costs Base
Year, Landlord shall provide to Tenant a statement (the "Expense Statement")
setting forth Operating Costs for such calendar year and Tenant's Share of
Expense Increases for such year, calculated in accordance with Section 9.1,
above. Within thirty (30) days after the delivery of such Expense Statement,
Tenant shall pay to Landlord any deficiency between (a) the amount shown as
Tenant's Share of Expense Increases for such calendar year, and (b) any payments
made by Tenant toward such amount in accordance with Section 9.3, above. If the
payments made by Tenant pursuant to Section 9.3 exceed the amount shown in the
Expense Statement as Tenant's Share of Expense Increases for such calendar year,
the excess amount shall be applied against the next payment(s) of Base Rent or
additional rent coming due hereunder, unless the Lease shall have expired, in
which event Landlord shall refund such excess at the time of its delivery of the
Expense Statement.
9.5 Operating Costs. The term "Operating Costs" shall mean any and
all expenses incurred by Landlord in connection with the operation, management,
maintenance, repair and security of the Building and the Land, and all
easements, rights and appurtenances thereto, in accordance with and subject to
the standards set forth herein, and specifically excluding the expenses
identified in Section 9.6, below. Operating Costs shall include:
(a) the cost of the personal property used in conjunction
therewith;
(b) subject to Section 9.5(l), below, costs to repair and
maintain the Building, Land, Building Systems, Common Areas and Premises (but
excluding repairs to Structural Elements, which shall be Landlord's sole
responsibility, and which are hereinafter referred to as "Structural Repairs");
(c) all expenses paid or incurred by Landlord for electricity,
water, gas, sewer, oil, and other utility services for the Building, including
any utility surcharges imposed, but excluding electricity provided to the
electrical lights, outlets, and other electrical connections located within
those portions of the Building that are leased or leasable to tenants and
electricity provided to the HVAC units which serve the Building other than
Tenant's HVAC systems;
(d) any other the costs and expenses incurred in connection
with the provision of the utilities and services set forth in Section 8, above,
including without limitation the maintenance, repair and replacement of the
Building Systems furnishing such utilities and/or services;
(e) the cost of Building supplies and materials;
(f) the cost of cleaning and janitorial services in or about
the Common Areas of the Building (and excluding janitorial service provided to
the interior of any other premises within the Building) and the Land;
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(g) the cost of window glass replacement, repair and cleaning
(but excluding capital improvements unless and except to the extent included
under Section 9.5(1), below);
(h) the cost of repair and maintenance of the grounds,
including costs of landscaping, gardening and planting, including service or
management contracts with independent contractors, and including security and
energy management services and costs;
(i) operating costs associated with compliance with any
governmental laws, rules, orders or regulations in the operation of the Building
and the provision of services hereunder which are in effect during the Lease
Term (but excluding capital improvements unless and except to the extent
included under Section 9.5(1), below);
(j) utility taxes in connection with (or reasonably allocable
to) the Common Areas;
(k) the amount of compensation (including employment taxes,
fringe benefits, salaries, wages, medical, surgical; and general welfare
benefits such as health, accident and group life insurance, pension payments,
payroll taxes, and worker's compensation insurance) paid for all persons who
perform duties in connection with the operation, management, maintenance and
repair of the Building, including building engineers, custodial staff and
similar operating personnel, security guards, and including the property
manager, but excluding any executives or other employees of Landlord or its
property management firm who are above the level of property manager, and
excluding any portion of such compensation which is not reasonably allocable to
services performed for the Building;
(l) any capital expenditures incurred to reduce Operating
Costs, to comply with any governmental law, order, regulation or other legal
requirement enacted after the Date of this Lease, to replace existing equipment
and machinery necessary to the day to day operation of the Building, or which
are capital replacements (i.e., replacements of common area or common usage
Building components and systems in lieu of capital repairs otherwise required to
be made thereto, but excluding capital replacements made in lieu of Structural
Repairs and excluding any capital replacements of HVAC equipment serving
portions of the Building other than the Premises), provided that (i) each such
capital expenditure shall be amortized on a monthly basis over the useful life
thereof as determined in accordance with generally accepted accounting
principles at an interest rate of twelve percent (12%) per annum, and the amount
recoverable by Landlord as an Operating Cost in each year of the Term thereafter
occurring (including the year in which such expenditure is made) shall equal the
sum of all such amortization payments payable during each such year, and (ii)
with respect to any capital expenditure which is incurred solely to reduce
Operating Costs, the amount otherwise recoverable under clause 9.5(l)(i), above,
shall be further limited by the amount of such reduction which is achieved in
each applicable year.
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(m) cost of premiums for casualty, liability, elevator,
workman's compensation, boiler and machinery, sprinkler leakage, rent loss, use
and occupancy and other insurance customarily obtained by landlords of first
class office buildings in Washington, D.C., or contemplated to be obtained by
the terms of this Lease;
(n) license, permit and inspection fees;
(o) management fees (not to exceed customary amounts paid in
the market area in which the Building is located);
(p) [intentionally deleted]
(q) the cost of ordinary compliance with Environmental Laws,
except as prohibited to be included as an Operating Cost under clause (10) of
Section 9.6, below;
(r) [intentionally deleted]
(s) the cost of operating any fitness facility, conference
facility, transportation service, concierge service, or other similar amenity
furnished generally to tenants of the Building, but only to the extent such
amenity was being furnished and was included in the Operating Costs Base Year as
of the date of execution of this Lease (and provided that Landlord may exclude
Tenant and its employees and guests from participating in any such amenity which
is introduced by Landlord in the future unless Tenant agrees to include the cost
thereof within the definition of Operating Costs hereunder);
(t) the cost of trash removal, including all costs incurred in
connection with waste product recycling pursuant to Section 5.5 (except to the
extent any such costs are charged directly to the tenants);
(u) any local and state governmental or quasi-governmental
surcharges or special charges assessed in connection with the operation and
maintenance of the Building;
(v) the cost of uniforms and dry cleaning for on-site Building
personnel (except to the extent the personnel involved are required to
contribute to the cost of such dry cleaning);
(w) the cost of snow and ice removal or prevention;
(x) the cost of telephone, telegraph, postage, stationery
supplies and other materials and expenses required for the routine operation of
the Building;
(y) the cost of operating any Building security systems,
including any Data Watch or similar key card entry/access security system for
the Building, to the extent such systems are provided for the Building; and
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(z) any other expense or charge whether or not hereinbefore
described which, in accordance with generally accepted accounting and management
practices, would be considered a reasonable and necessary expense of
maintaining, managing, operating or repairing the Building and/or the Land.
9.6 Exclusions. Notwithstanding the foregoing, Operating Costs
shall not include any of the following: (1) capital expenditures, except those
set forth in item 9.5 (1), above; (2) costs of any special services rendered to
individual tenants (including Tenant), for which a special, separate charge is
made to the tenant receiving the service; (3) painting, redecorating or other
similar work which Landlord performs for specific tenants, the expenses of which
are paid by such tenants or, if paid by Landlord, do not arise out of necessary
repairs recoverable under Section 9.5; (4) Real Estate Taxes (as defined in
Section 10); (5) depreciation or amortization of costs required to be
capitalized in accordance with generally accepted accounting practices (except
as set forth in Section 9.5(1), above); (6) ground rent; (7) interest and
amortization of funds borrowed by Landlord (except as specifically provided
above); (8) leasing commissions, and advertising, legal, space planning and
construction expenses, incurred in procuring, negotiating leases with, and
installing leasehold improvements for, tenants or prospective tenants of the
Building; (9) salaries, wages, compensation and/or other employment benefits
paid or provided to officers or executives of Landlord or Landlord's property
management firm (e.g., above the grade of property manager) in their capacities
as officers and executives; (10) all costs to clean-up or remediate any
Hazardous Materials Release; (11) costs incurred to comply with applicable laws
and codes as in effect as of the date of execution of this Lease (including any
laws relating to CFC removal or replacement); (12) costs incurred by Landlord
which are associated with the operation of the business of the legal entity
which constitutes the Landlord, to the extent the same is separate and apart
from the cost of the operation of the Building, including legal entity formation
and legal entity accounting (including any incremental additional accounting
fees relating to the operation of the Building to the extent incurred separately
in reporting operating results to the Building's owners or lenders); (13) any
costs, fines or penalties incurred due to the violation by Landlord of any law,
regulation or governmental rule or authority; (14) costs or expenses of
electricity provided to any leasable spaces within the Building (but Operating
Costs shall include electricity furnished to the Common Area); (15) salaries,
wages, or other compensation or benefits paid to senior employees of Landlord
(e.g., employees above the grade of property manager; (16) all amounts which are
paid to Landlord or any affiliate or subsidiary of Landlord, or any
representative, employee or agent of same, to the extent the costs of such
services materially exceed the reasonable and customary rates for similar
services of comparable quality rendered by persons or entities of similar skill,
competence and experience; (17) costs incurred by Landlord as a result of a
breach by any tenant of its lease or occupancy obligations, or due to a default
by Landlord under any lease (including this Lease), including any associated
legal and other professional fees; (18) any amount paid to maintain, operate
and/or repair the parking garage; (19) the cost of repairing any HVAC systems
serving exclusively any leasable areas within the Building (including the
Premises, which system is to be repaired by Tenant solely at Tenant's expense as
herein provided); (20) the amount paid for any new category of services or
amenities provided to the Building in the future which services or amenities
were not being provided to the Building during the Operating Costs Base Year,
unless an appropriate amount is added to the amount of Operating Costs for the
Operating Costs Base Year in respect of such services or amenities, in order to
reasonably approximate what the cost of
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the such service or amenity would have been in the Operating Costs Base Year had
such service or amenity been provided on the same basis in that year as it is
being provided in the year of calculation; (21) any interest, fines or penalties
incurred due to Landlord's delinquent payment of any sums due and owing, except
to the extent due to Tenant's non-payment of sums due under this Lease; (22)
costs associated with acquiring or replacing any artwork within the Building;
(23) any other expenses for which Landlord actually receives direct
reimbursement from insurance, condemnation awards, other tenants or any other
source, excluding general payments of Expense Increases pursuant to this Section
9 by Tenant and other tenants of the Building; and (24) except as specifically
included in Operating Costs under Section 9.5, above, any other expense or
charge which, in accordance with generally accepted accounting and management
practices, would not be considered a reasonable and necessary expense of
maintaining, managing, operating or repairing the Building and/or the Land.
9.7 Further Adjustment. In the event Landlord shall furnish any
utility or service which is included in the definition of Operating Costs to
less than ninety-five percent (95%) of the rentable area of the Building because
(i) the average occupancy level of the Building for the Operating Costs Base
Year and/or any subsequent calendar year was not ninety-five percent (95%) or
more of full occupancy, (ii) any such utility or service is not required by or
provided to one or more of the tenants or occupants of the Building, and such
tenant(s) is(are) not required to contribute its (their) proportionate share
thereof, or (iii) any tenant or occupant is itself obtaining or providing any
such utility or services directly, then the Operating Costs for such year
(including the Base Services Year) shall be adjusted to include all additional
costs, expenses and disbursements that Landlord reasonably determines would have
been incurred had the Building been ninety-five percent (95%) occupied during
the year in question and such utilities and services provided to all tenants.
The intent of this Section 9.7 is to ensure that the reimbursement of all
Operating Costs is fair and equitably allocated among the tenants receiving such
utilities and services and shall not be construed as a method of charging Tenant
for items (such as in-premises HVAC or janitorial service) which are excluded
from Operating Costs hereunder because Tenant is acquiring such service(s)
directly at Tenant's sole expense). In the calculation of Operating Costs
hereunder, no expense shall be charged more than once.
9.8 Allocation of Multi-Building Operating Costs. If and to the
extent the Building is part of a larger project, business park or master
development, and services or items which are within the definition of Operating
Costs are provided to multiple buildings in such project on a shared basis,
Landlord shall allocate to the Building an equitable portion of the Operating
Costs arising out of such services or items, that is, the portion of the total
cost of such services or items which corresponds to the Building's equitable
share thereof. By way of example, landscaping costs which are contracted as an
entirety for a multi-building project shall be allocated on an appropriate basis
between all tenantable buildings in such project.
9.9 Tenant's Right of Review.
9.9.1 Each Expense Statement which Landlord provides to Tenant
pursuant to this Section 9, above, shall be conclusive and binding upon Tenant
unless, within one hundred eighty (180) days after Tenant's receipt of the
Expense Statement for a particular calendar year, Tenant provides Landlord with
written notice (the "Review Notice") stating that Tenant is
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exercising its right to undertake a more extensive review of the Operating Costs
or Real Estate Taxes (hereinafter "Total Expenses") for the Building for such
calendar year. Such review shall commence within sixty (60) days after Tenant's
Review Notice on a mutually agreeable time and date, at the offices of Landlord
(or such other location as is reasonably designated by Landlord), and shall be
completed within thirty (30) days after commenced. Tenant's (or its agent's)
review shall take place during Landlord's normal business hours, and shall be
limited to those books and/or documentation which contain the data for and the
method used by Landlord in calculating the Total Expenses for the Building for
the applicable year (including any supporting or back-up information relating to
such expenses to the extent existing). Tenant's right to review Total Expenses
for the Building for a particular calendar year shall be a one-time right for
each calendar year.
9.9.2 Tenant shall notify Landlord in writing of the results
of Tenant's review within thirty (30) days after such review is completed. If
Tenant's review demonstrates that Landlord has overstated Total Expenses, but by
less than three percent (3%), then Landlord shall credit the amount of such
overstatement against Tenant's next due payment of Base Rent and additional
rent, and Tenant shall bear the full cost of Tenant's review. If Tenant's review
demonstrates that Landlord has overstated Total Expenses by three percent (3%)
or more, then Landlord shall credit such amount against Tenant's next due
payment of Base Rent and additional rent, and Landlord shall reimburse Tenant
the reasonable and actual costs of Tenant's review, not to exceed Two Thousand
Five Hundred Dollars ($2,500.00). If Tenant's review demonstrates that Landlord
has not overstated Total Expenses, then (i) Landlord shall have the right to
invoice Tenant for any amount by which Tenant's share of Total Expenses was
understated, which invoice shall be payable by Tenant within thirty (30) days
alter receipt thereof, (ii) Tenant shall bear the full cost of Tenant's review,
and (iii) Tenant shall reimburse Landlord for any reasonable and actual third
party costs which Landlord incurred in connection with such review, not to
exceed Two Thousand Five Hundred Dollars ($2,500.00). Any sum due from Landlord
to Tenant under this Section 9.9.2 shall bear interest at the Default Rate from
the later of (i) the date of the Expense Statement or (ii) the date Tenant paid
such amount to Landlord until the date the same is paid by Landlord hereunder.
9.9.3 If Landlord disputes the results of Tenant's review, and
the parties are unable to reach agreement with regard thereto despite good faith
efforts to do so, Tenant may submit the matter for resolution by binding
arbitration, in accordance with the commercial arbitration rules of the American
Arbitration Association. In no event will Tenant withhold any Base Rent or
additional rent otherwise due under this Lease during the pendency of any such
review (or during the pendency of any dispute with regard to the results of such
review).
10. INCREASES IN REAL ESTATE TAXES.
10.1 Defined. For each calendar year or portion thereof during the
Term, commencing on the first anniversary of the Space A Commencement Date in
respect of Space A, and commencing on the first anniversary of the Space B
Commencement Date in respect of Space B, Tenant shall pay as additional rent to
Landlord, without diminution, set-off or deduction (except as expressly set
forth herein), Tenant's share of an amount (hereinafter referred to as "Tax
Increases") equal to the difference between:
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(A) Tenant's Share of Real Estate Taxes (defined in Section
10.5, below) paid in such calendar year; and
(B) Tenant's Share of Real Estate Taxes paid in the Real
Estate Tax Base Year (defined below.)
10.2 Base Year. For all purposes hereof, the "Real Estate Tax Base
Year" shall be Calendar Year 1999.
10.3 Estimated Payments. Tenant shall make monthly installment
payments toward Tenant's Share of Tax Increases on an estimated basis, based on
Landlord's reasonable estimate of Tax Increases for such calendar year. Tenant
shall pay Landlord, commencing on the first anniversary of the Space A
Commencement Date in respect of Space A, and commencing on the first anniversary
of the Space B Commencement Date in respect of Space B, and on the first day of
each month thereafter during the Term, one-twelfth (1/12) of Landlord's estimate
of Tenant's Share of Tax Increases for the then-current calendar year. If at any
time or times during such calendar year, it appears to Landlord that Tenant's
Share of Tax Increases for such calendar year will vary from Landlord's estimate
by more than five percent (5%) on an annualized basis, Landlord may, by written
notice to Tenant, revise its estimate for such calendar year and Tenant's
estimated payments hereunder for such calendar year shall thereupon be based on
such revised estimate.
10.4 Annual Reconciliation. Within one hundred twenty (120) days
after the end of each calendar year after the Real Estate Tax Base Year,
Landlord shall provide to Tenant a statement (the "Expense Statement") setting
forth the total Real Estate Taxes for such calendar year and Tenant's Share of
Tax Increases for the applicable year. Within thirty (30) days after the
delivery of such Expense Statement, Tenant shall pay to Landlord any deficiency
between the amount shown as Tenant's Share of Tax Increases for such calendar
year and the estimated payments made by Tenant toward such amount in accordance
with Section 10.3, above. In the case where the Expense Statement reflects
excess estimated payments, the excess shall be applied against the next payments
of Rent becoming due under this Lease, unless the Lease shall have expired, in
which event Landlord shall refund such excess, without interest, with the
delivery of the Expense Statement.
10.5 Real Estate Taxes. For purposes of this Lease, "Real Estate
Taxes" shall mean all taxes and assessments, general or special, ordinary or
extraordinary, foreseen or unforeseen, assessed, levied or imposed upon the
Property, or assessed, levied or imposed upon the fixtures, machinery, equipment
or systems in, upon or used in connection with the operation of the Property
under the current or any future taxation or assessment system or modification
of, supplement to, or substitute for such system, and shall include "Business
Improvement District" assessments. Real Estate Taxes (a) shall include all
reasonable expenses (including, but not limited to, attorneys' fees,
disbursements and actual costs) incurred by Landlord in obtaining or attempting
to obtain a reduction of such taxes, rates or assessments, including any legal
fees and costs incurred in connection with contesting or appealing the amounts
or the imposition of any Real Estate Taxes, and (b) shall exclude any franchise,
capital stock, capital, rent, income, profit
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or similar tax or charge, and shall also exclude any interest or penalties
payable by virtue of Landlord's delinquency in making a required payment
(unless, and solely to the extent, such delinquency is attributable to Tenant's
failure to satisfy its payment obligations under this Lease). Landlord shall pay
any special assessment by installments to the extent it has the right to do so,
and in such event, Real Estate Taxes shall include such installments and
interest paid on the unpaid balance of the assessment. In the event Landlord
succeeds in obtaining a reduction of such taxes, rates or assessments, then,
after reimbursement to Landlord of all expenses (including, but not limited to,
attorneys' fees, disbursements and actual costs) incurred by Landlord in
obtaining such reduction, Tenant shall be entitled to receive its proportionate
share of the net amount of any refund received or reduction obtained by Landlord
to the extent allocable to the Term of this Lease.
11. ADDITIONAL PROVISIONS; OPERATING COSTS AND REAL ESTATE TAXES.
11.1 Partial Year; End of Term. To the extent Real Estate Taxes,
and/or any items of Operating Costs, cannot more accurately be determined for
any partial calendar year of the Term by a method other than proration, the
parties agree that such determination shall be made by multiplying the amount
thereof for the full calendar year by a fraction, the numerator of which is the
number of days during such partial calendar year falling within the Term and the
denominator of which is 365. If this Lease terminates on a day other than the
last day of a calendar year, the amount of any adjustment to Tenant's Share of
Expense Increases and Tax Increases with respect to the calendar year in which
such termination occurs shall be prorated on the basis which the number of days
from the commencement of such calendar year to and including such termination
date bears to 365; and any amount payable by Landlord to Tenant or Tenant to
Landlord with respect to such adjustment shall be payable within thirty (30)
days after delivery by Landlord to Tenant of the applicable Expense Statement
with respect to such calendar year.
11.2 Other Taxes. In addition to Tenant's Share of both Expense
Increases and Tax Increases: (a) Tenant shall pay to Landlord (in accordance
with Section 1.5, above) Tenant's Share of any taxes imposed upon the Premises,
the Building, the Land or the rents payable hereunder in the nature of a sales
or use tax or other levy (but not including any income or franchise tax, net
profits tax, estate tax, inheritance tax, successor or gift or transfer tax, or
payroll tax); and (b) to the extent personal property of Tenant located in the
Premises or the Building is separately assessed and taxed to the personal
property owner, Tenant shall pay, prior to delinquency, all such personal
property taxes payable with respect to all property of Tenant located in the
Premises or the Building and shall provide promptly, upon request of Landlord,
written proof of such payment.
11.3 Timing of Estimates. If Landlord does not determine its
estimate for the then current calendar year of Tenant's Share of Expense
Increases and/or Tax Increases until February 1 or later, Tenant shall continue
to make such payments at the prior calendar year's rate, and in such event,
Tenant's first such estimated payment installment after such estimate is first
made or updated shall include, retroactively, any increases in the monthly
estimated payments applicable since January 1 of the same calendar year.
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12. TENANTS INSURANCE.
12.1 Coverage Requirements. Tenant shall during the Term of this
Lease, procure at its expense and keep in force the following insurance: (i)
Commercial general liability insurance naming the Landlord and Landlord's
managing agent as additional insureds against any and all claims for bodily
injury and property damage occurring in or about the Premises. Such insurance
shall have a combined single limit of not less than One Million Dollars
($1,000,000) per occurrence with a Two Million Dollar ($2,000,000) aggregate
limit and excess umbrella liability insurance in the amount of Two Million
Dollars ($2,000,000). If Tenant has other locations that it owns or leases, the
policy shall include an aggregate limit per location endorsement. Such liability
insurance shall be primary and not contributing to any insurance available to
Landlord and Landlord's insurance shall be in excess thereto. In no event shall
the limits of such insurance be considered as limiting the liability of Tenant
under this Lease; (ii) personal property insurance insuring all equipment, trade
fixtures, inventory, fixtures and personal property located within the Premises
for perils covered by the causes of loss -- special form (all risk) and in
addition, coverage for flood, earthquake and boiler and machinery (if
applicable), which insurance shall be written on a replacement cost basis in an
amount equal to one hundred percent (100%) of the full replacement value of the
aggregate of the foregoing; (iii) workers' compensation insurance in accordance
with statutory laws and employers' liability insurance with a limit of not less
than One Hundred Thousand Dollars ($100,000) per employee and Five Hundred
Thousand Dollars ($500,000) per occurrence; (iv) business interruption insurance
in an amount equal to at least to twelve (12) months of Base Rent payable by
Tenant hereunder, and which shall not contain a deductible greater than an
amount equal to seventy-two (72) hours of the Base Rent in effect at such time
(or an equivalent amount expressed in dollars), and which shall name Landlord as
an additional insured; and (v) such other insurance as may be required by
Landlord's beneficiaries or mortgagees of any deed of trust or mortgage
encumbering the Premises, or as is reasonable and customary for first class
office buildings in the area in which the Building is located.
12.2 Rating; Certificates; Cancellation. The policies required to
be maintained by Tenant shall be with companies rated A:X or better in the most
current issue of Best's Insurance Reports, and licensed to do business in the
state in which the Premises are located and domiciled in the USA. Except as
provided in Section 12.1, above, or in Section 12.3, below (with respect to self
insurance) any deductible amounts under any insurance policies required
hereunder shall not exceed One Thousand Dollars ($1,000). Evidence of insurance
(in the form of insurance certificates upon which Landlord has the right to
rely) shall be delivered to Landlord prior to the Commencement Date. Each policy
of insurance shall provide notification to Landlord at least thirty (30) days
prior to any cancellation or modification. Tenant shall have the right to
provide insurance coverage which it is obligated to carry pursuant to the terms
hereof in a blanket policy, provided such blanket policy expressly affords
coverage to the Premises and to Landlord as required by this Lease.
12.3 Self-Insurance. The foregoing provisions of this Article 12 to
the contrary notwithstanding, (i) Tenant shall have the right to self-insure the
business interruption coverage described in Section 12.1(iv), above, provided
that such self-insurance shall be deemed the functional equivalent of third
party insurance for all purposes of this Lease, including the waiver
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of claims and waiver of subrogation provisions set forth in Article 19 hereof
(and such waivers shall therefore apply to the amount of any such self-insured
business losses), (ii) except as provided in clause (iii), below, Tenant shall
have the right to self-insure the deductible amount under any of its insurance
policies hereunder to the extent the same exceeds of One Thousand Dollars
($1,000.00) (which is the maximum deductible otherwise permitted under Section
12.2, above), provided that such self-insurance shall be deemed the functional
equivalent of third party insurance for all purposes of this Lease, including
the waiver of claims and waiver of subrogation provisions set forth in Article
19 hereof (and such waivers shall therefore apply to the amount of any
self-insured excess deductible), and (iii) provided Tenant has and maintains at
all applicable times a minimum tangible net worth (tangible assets less
liabilities) of One Hundred Million Dollars ($100,000,000) and liquid assets
(cash or cash equivalents) net of current liabilities in excess of Twenty
Million Dollars ($20,000,000), and is operating and maintaining a bonafide
self-insurance program which includes the establishment and retention of
reserves sufficient to cover probable loss contingencies, Tenant shall be
permitted to self-insure (A) the casualty coverage on its personal property
otherwise described in Section 12.1(u), above, and (B) any deductible in excess
of $50,000, provided that any such self-insurance shall be deemed the functional
equivalent of third party insurance for all purposes of this Lease, including
the waiver of claims and waiver of subrogation provisions set forth in Article
19 hereof, (and such waivers shall therefore apply to the amount of any
self-insured casualty losses or any self-insured excess deductible).
13. LANDLORD'S INSURANCE.
At all times during the Lease Term, Landlord will maintain (a) fire and
extended coverage insurance covering the Building, in an amount sufficient to
prevent Landlord from being a co-insurer under its policies of insurance, and
(b) public liability and property damage insurance in an amount customary for
properties which are comparable to the Building, as determined by Landlord in
its sole but reasonable discretion, including coverage for loss of rental
income. Landlord shall also have the right to obtain such other types and
amounts of insurance coverage on the Building and Landlord's liability in
connection with the Building as Landlord determines is customary or advisable
for a first class office building in the Washington, D.C. metropolitan area.
Tenant acknowledges and agrees that all premiums for insurance obtained by
Landlord pursuant to this Section 13 shall be included within "Operating Costs,"
as such term is defined in Section 9, above.
14. DAMAGE OR DESTRUCTION.
14.1 Damage Repair.
14.1.1 If the Premises shall be destroyed or rendered
untenantable, either wholly or in part, by fire or other casualty, then, unless
this Lease is terminated for reasons permitted pursuant to Sections 14.2 and/or
14.5, below, Landlord shall, within thirty (30) days after the date of such
casualty, provide Tenant with Landlord's good faith written estimate (the
"Estimate") of how long it will take to repair or restore the Premises.
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14.1.2 If the Estimate indicates that Landlord will require
less than one hundred eighty (180) days after the date of such casualty to
perform such repairs or restoration, then this Lease shall continue in full
force and effect, and Landlord shall, promptly after adjusting the insurance
claim and obtaining governmental approvals for reconstruction, commence and
diligently prosecute to completion the restoration of the Premises to their
previous condition, subject to Section 14.4 below and subject to Force Majeure
(as defined herein) or delay caused by Tenant. Pending substantial completion of
such restoration, the Base Rent shall be abated in the same proportion as the
untenantable portion of the Premises bears to the whole thereof.
14.1.3 If Landlord indicates within the Estimate that it will
require in excess of one hundred eighty (180) days after the date of such
casualty to fully repair or restore the Premises in accordance herewith, then
within thirty (30) days after Landlord delivers Tenant the Estimate, Tenant
shall have the right to terminate this Lease by written notice to Landlord,
which termination shall be effective as of the date of such notice of
termination, and all liabilities and obligations of Landlord and Tenant
thereafter accruing shall terminate and be of no legal force and effect.
14.1.4 If neither party elects to terminate the Lease, as
otherwise provided in this Section 14, Landlord shall, promptly after adjusting
the insurance claim and obtaining governmental approvals for reconstruction,
commence and diligently prosecute to completion such restoration. If such
restoration is not substantially completed within one hundred eighty (180) days
after the date of the casualty (or such longer period as was referenced in the
Estimate, if applicable), then for a period of up to thirty (30) days after the
expiration of such period (but in all events no later than the date Landlord
substantially completes its restoration of the Premises), Tenant shall have the
right to terminate this Lease upon thirty (30) days prior written notice to
Landlord; provided, however, that if Landlord completes such restoration prior
to the end of the thirty (30) day notice period, Tenant's notice of termination
shall be deemed rescinded and ineffective for all purposes, and this Lease shall
continue in full force and effect. The provisions of this Section are in lieu of
any statutory termination provisions allowable in the event of casualty damage.
14.2 Termination for Material Damages. If (i) the Building shall be
materially destroyed or damaged to the extent that the restoration of such, in
Landlord's judgment, is not economical or feasible, or (ii) Landlord's mortgagee
(if any) requires that the proceeds of insurance be applied to reduce any
amounts outstanding under such mortgage, then in any such event, Landlord may,
at its election, terminate this Lease by notice in writing to Tenant within
thirty (30) days after such destruction or damage. Such notice shall be
effective thirty (30) days after receipt thereof by Tenant.
14.3 Business Interruption. Other than rental abatement as and to
the extent provided in Section 14.1, no damages, compensation or claim shall be
payable by Landlord for inconvenience or loss of business arising from
interruption of business, repair or restoration of the Building or the Premises.
14.4 Repairs. Landlord's repair obligations, should it elect to
repair, shall be limited to restoration of leasehold improvements which were
constructed out of the Improvement
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Allowance, provided that such restoration obligation shall include the HVAC
system and base building electric service serving the Premises (which will be
insured by Landlord) but will exclude any requirement that Landlord restore any
of Tenant's telecommunications equipment, fixtures and/or other specialized
equipment of Tenant, such as Tenant's UPS system, Tenant's generator, and/or
Tenant's generator fuel tank, all of which will be insured and, if applicable,
restored by Tenant even if such items were paid for in whole or in part out of
the Improvement Allowance. Tenant acknowledges that any such repairs or
restorations shall be subject to applicable laws and governmental requirements,
the requirements of Landlord's mortgagee as they relate to holding insurance
proceeds in trust and disbursing them only after certain required submissions
are made (if any), which Landlord will use reasonable efforts to comply with,
and to delay in the process of adjusting any insurance claim associated
therewith; and neither delays resulting from any of the foregoing, nor
modifications to the Building or to the interior of the Premises occurring by
virtue of the application of such requirements, shall not constitute a breach of
this Lease by Landlord as long as Landlord uses reasonable efforts to commence
and complete such repairs and restorations in a timely fashion consistent with
the pre-existing condition of the applicable improvements.
14.5 End of Term Casualty. Anything herein to the contrary
notwithstanding, if during the last twelve (12) months of the Lease Term the
Premises are destroyed or damaged to the extent that at least thirty percent
(30%) or more of the rentable area is rendered untenantable, then either
Landlord or Tenant shall have the right to terminate this Lease upon thirty (30)
days prior written notice to the other, which termination shall be effective on
the thirtieth (30th) day after the other party's receipt of such notice
(provided that if there is a renewal option which is still available to be
exercised by Tenant under this Lease as of the date Landlord provides Tenant
with a notice of such termination, and Tenant validly exercises such option in
the manner required under this Lease within ten (10) days after the date of
Landlord's termination notice to Tenant under this Section 14.5, then Landlord's
termination notice shall thereupon be deemed rescinded, as if such casualty had
not occurred during the last twelve (12) months of the Lease Term (but the same
shall not affect Tenant's termination rights, if applicable, under Section
14.1.3, above, nor Landlord's termination rights, if applicable, under Section
14.2, above). Such notice of termination must be delivered within thirty (30)
days after such casualty, or shall be deemed waived.
14.6 Relocation to Interim Space. If all or part of the Premises is
damaged or destroyed by fire or other casualty and neither party elects to
exercise its termination right hereunder (or if no termination rights are
triggered), then Landlord shall have the option, to be exercised by delivering
written notice to Tenant within thirty (30) days after the date of such
casualty, but only upon reaching mutual agreement with Tenant that such
relocation is practicable in light of the specialized needs of Tenant's
telecommunications use and the likely time period for reconstruction, and any
other relevant issues which bear on Tenant's ability to conduct
telecommunications operations from such temporary space, to relocate Tenant to
available space in the Building which is comparable to the Premises (the
"Interim Space") for the period during which the Premises are repaired or
restored, provided that (i) Landlord shall pay the reasonable and actual costs
to move Tenant's moveable fixtures, furniture and equipment into the Interim
Space, and out of the Interim Space when the Premises is repaired, (ii) the
square footage of the Interim Space shall not be less than ninety percent (90%)
of the square footage of
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the Premises unless Tenant agrees otherwise, (iii) the Interim Space shall be
reasonably suitable for the conduct and operation of Tenant's business, and (iv)
upon occupancy of the Interim Space, Tenant shall pay Landlord Base Rent and
additional rent for the Interim Space as set forth in this Lease, which shall be
adjusted to reflect the square footage of the Interim Space; however, in no
event shall the Base Rent and additional rent for the Interim Space exceed the
Base Rent and additional rent for the Premises. If Landlord exercises the
foregoing option, Tenant shall relocate from the Premises to the Interim Space
within thirty (30) days after receipt of Landlord's notice; and Tenant shall
relocate from the Interim Space to the reconstructed Premises within thirty (30)
days after Landlord notifies Tenant that the repair of the Premises has been
substantially completed.
15. MACHINES AND EQUIPMENT; ALTERATIONS AND ADDITIONS; REMOVAL OF FIXTURES.
15.1 Floor Load, and Excessive Noise, Vibration, and Electrical
Usage. Tenant shall not, without Landlord's prior consent, place a load upon the
floor of the Premises which exceeds the maximum live load per square foot which
Landlord (or Landlord's architect or engineer) determines (in its good faith
professional judgment) is appropriate for the Building. Tenant will notify
Landlord prior to the installation of any high-density filing systems, or any
unusually heavy equipment or machinery, in the Premises, and all such
installations shall be subject to Landlord's reasonable consent. Business
machines, mechanical equipment and materials belonging to Tenant which cause
vibration, noise, cold, heat or fumes that may be transmitted to the Building or
to any other leased space therein to such a degree as to be objectionable to
Landlord or to any other tenant in the Building shall be placed, maintained,
isolated, stored and/or vented by Tenant (at its expense) so as to absorb and
prevent such vibration, noise, cold, heat or fumes. Except for Tenant's
Telecommunication Use (the electrical requirements of which are addressed in
Exhibit C of this Lease), Tenant will not install or operate in the Premises any
electrical or other equipment whose electrical energy consumption exceeds that
of normal office use, without first obtaining the prior consent in writing of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed, but which may be conditioned upon Tenant's agreement to provide, at
Tenant's sole expense and in a manner otherwise reasonably acceptable to
Landlord, any additional electrical service necessary to meet the power
requirements of such equipment without diminishing the electrical service
otherwise available for the balance of the Building (e.g., new service). All
changes, replacements or additions to any base building Systems which may be
necessitated by the installation and operation of such electrical equipment
and/or machinery by Tenant shall be subject to Landlord's consent, which shall
not be unreasonably withheld, conditioned or delayed, and shall be performed
under Landlord's direction at Tenant's expense.
15.2 Alterations - Generally. In addition to the initial
modifications and alterations to the Premises contemplated under Exhibit C to
this Lease, Tenant may make cosmetic alterations (i.e., repainting, replacement
of carpeting, installation of wall covering, etc.) to the Premises without
Landlord's consent, provided that Landlord is notified in writing prior to
commencement of any such cosmetic alterations and the same do not diminish the
value of the Premises in more than a de minimis amount. All other alterations,
additions and improvements proposed to be made to the Premises by Tenant
(hereinafter, "Alterations") (exclusive of the initial
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modifications and alterations to the Premises contemplated under Exhibit C to
this Lease, which are subject to Landlord's approval to the extent so provided
pursuant to, and in accordance with the approval standards set forth in, Exhibit
C), shall be subject to Landlord's prior written approval, in accordance with
the standards hereafter set forth. In the case of Alterations which are
structural or visible from the exterior of the Premises, such approval may be
withheld or conditioned in Landlord's sole, absolute, and subjective discretion.
In the case of all other Alterations, such consent may not be unreasonably
withheld, conditioned, or delayed (and shall be deemed given if Landlord does
not respond to Tenant's request for approval within ten (10) business days after
Landlord receives Tenant's written request for approval accompanied by all
applicable plans and specifications for such Alterations). Without limitation,
it shall not be unreasonable for Landlord to deny its consent to any Alterations
(a) which would diminish the value of the leasehold improvements to the Premises
in more than a de minimis amount, (b) which would adversely affect any Building
Systems, (c) which would adversely affect the structural elements of the
Building, (d) which would impose on Landlord any special maintenance, repair, or
replacement obligations not within the scope of those expressly provided for
herein, or (e) which would constitute "non-standard office improvements,"
meaning improvements which are unusual or extraordinary for standard office and
telecommunications usage, including curved walls, circular rooms, windowless
office areas, vault areas, etc. The foregoing notwithstanding, (i) Landlord will
not withhold its consent to a proposed Alteration solely on the basis described
in clause (d) if Tenant agrees, at the time of its request for approval or
notice of such Alterations, to pay all costs associated with Landlord's meeting
the additional obligations described in clause (d), and (ii) Landlord will not
withhold its consent to a proposed Alteration solely on the basis described in
clause (e) if Tenant agrees, at the time of its request for approval or notice
of such Alterations, to remove such Alteration(s) and restore the Premises to
its condition prior to the installation thereof, at Tenant's sole expense, upon
the expiration or sooner termination of this Lease. All Alterations (including
without limitation cosmetic alterations) shall be made (1) at Tenant's sole
expense, (2) according to plans and specifications approved in writing by
Landlord (to the extent Landlord's consent is required), (3) in compliance with
all applicable laws, (4) by a licensed contractor reasonably satisfactory to
Landlord, and (5) in a good and workmanlike manner conforming in quality and
design with the Premises existing as of the Commencement Date. In addition,
except for (A) any alterations which Landlord requires Tenant to remove as a
pre-condition to the installation thereof, in accordance with the approval
standards set forth herein, (B) Tenant's movable office partitions, furniture,
trade fixtures, and specialized telecommunications equipment (exclusive of (i)
the generator and generator fuel tank, unless paid for exclusively by Tenant and
not out of the Improvement Allowance, and (ii) Tenant's Supplemental HVAC Units
(as defined in Exhibit C) and ancillary HVAC system modifications, and
electrical upgrades contemplated hereunder, the surrender or removal of which
shall be governed by other provisions within this Lease or Exhibit C which
specifically address the surrender or removal of those items) and (C) any
improvements which, pursuant to Exhibit C or the plans approved pursuant
thereto, are required or designated to be removed by Tenant upon Lease
termination or expiration, all Alterations (including without limitation
cosmetic alterations) made by Tenant shall at once become a part of the realty
and shall be surrendered with the Premises. The requirements and restrictions of
this Section 15.2 are in addition to the provisions of Exhibit C of this Lease.
This Article 15 and Exhibit C shall be harmonized to the fullest extent
reasonably possible, provided that, to the extent of any
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irreconcilable conflict between the terms of this Article 15 and of Exhibit C,
the terms of Exhibit C shall be controlling.
15.3 Removal of Alterations. Tenant shall, at Tenant's expense,
diligently remove all Alterations made by Tenant after the Commencement Date and
designated by Landlord or agreed to by Tenant, as the case may be, to be removed
at the time of Landlord's approval or Tenant's request for approval or notice
thereof (unless otherwise required pursuant to Exhibit C), and, with respect to
any such removal, Tenant shall repair any damage to the Premises caused by such
removal and, except as otherwise provided herein, restore the applicable portion
of the Premises to its condition prior to such Alteration, provided that to the
extent Tenant makes approved Alterations which are in the nature of standard
office improvements (such as the erection or demolition of partitioning walls,
and the like), Landlord agrees that it will not condition its consent to such
Alterations upon Tenant's agreement to remove such items and restore the
affected portions of the Premises upon Lease expiration or earlier termination.
Except for Tenant's Telecommunication Equipment. Tenant's UPS System, Tenant's
Supplemental HVAC Units, Tenant's emergency generator and Tenant's Generator
Fuel Tank (as each is defined in Exhibit C), the removal of which shall be
governed by the applicable provisions of Part B of Exhibit C, Tenant shall
surrender upon expiration or earlier termination of the Term of this Lease all
initial improvements constructed to Premises pursuant to Exhibit C, including
all improvements installed as part of Tenant's Work under Exhibit C, or paid for
with the proceeds of any allowance paid by (or for the benefit of) Tenant
pursuant to Exhibit C unless otherwise agreed to by the parties in writing.
Tenant shall also remove all of its movable property and trade fixtures at the
expiration or earlier termination of this Lease, and shall pay to Landlord the
cost of repairing any damage to the Premises or Building resulting from such
removal. In no event shall Tenant remove any portion of Landlord's Work except
in connection with a permitted Alteration hereunder. All items of Tenant's
movable property, trade fixtures and personal property that are not removed from
the Premises or the Building by Tenant at the termination of this Lease or
dispossession of Tenant due to default pursuant to Article 24 of this Lease
shall be deemed abandoned and become the exclusive property of Landlord, without
further notice to or demand upon Tenant. Tenant's obligations under these
Sections 15.2 and 15.3 shall survive the expiration or termination of this
Lease.
15.4 Additional Covenants Regarding Alterations.
15.4.1 Tenant shall be responsible for and shall pay when due
all costs associated with the preparation of plans and the performance of
Alterations, and the same shall be performed in a lien-free, first-class, and
good and workmanlike manner, and in accordance with applicable codes and
requirements, including the requirements of the Americans with Disabilities Act
("ADA"). Tenant shall pay the costs associated with Alterations on a timely
basis so as to avoid the assertion of any statutory and/or common law lien
against the Premises or the Building, and Tenant shall promptly (in all events
within thirty (30) days after the date the same is first filed against the
Building) remove or bond over to Landlord's satisfaction any lien filed against
the Building or Premises as a result of Tenant's Alterations. Unless otherwise
approved by Landlord, Tenant shall only use new, first-class materials in
connection with Alterations. All contractors and subcontractors performing any
work on behalf of Tenant within the Premises shall be subject to Landlord's
approval in accordance with the procedures and standards set forth
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in Exhibit C, licensed to do business in jurisdiction within which the Premises
is located, and for work involving a cost in excess of $100,000, shall be bonded
(or at Landlord's sole option, bondable).
15.4.2 Tenant shall ensure that all contractors and
subcontractors performing Alterations are insured in amounts required by law and
reasonably acceptable to Landlord. Alterations may not commence, nor may Tenant
permit its contractors and subcontractors to commence or continue any such work,
until all required insurance has been obtained, and, if Landlord requests, until
certificates of such insurance have been delivered to Landlord. Such insurance
policies shall name the Landlord, Landlord's managing agent, and Landlord's
mortgagee(s), if any, as additional insureds. Such certificates of insurance
shall provide that no change or cancellation of such insurance coverage shall be
undertaken without thirty (30) days' prior written notice to Landlord. In the
event Tenant employs a contractor or subcontractor to perform all or part of any
Alterations, Tenant shall purchase, or cause its contractor to carry, General
Contractor's and Subcontractor's Required Minimum Coverages and Limits of
Liability as follows, which coverages shall be in amounts required by law and
reasonably acceptable to Landlord and in addition to any and all insurance
required to be procured by Tenant pursuant to the terms of this Lease: Worker's
Compensation, Employer's Liability Insurance, any insurance required by any
Employee Benefit Act (or similar statute), Comprehensive General Liability
Insurance (including Contractor's Protective Liability), Comprehensive
Automotive Liability Insurance, and Builder's Risk insurance.
15.4.3 Tenant agrees that Landlord and its agents and managers
will have the right to inspect any Alterations made by Tenant's contractor(s)
and subcontractor(s), and Tenant agrees to cooperate with Landlord to facilitate
such inspections. In the performance of Alterations in accordance with this
Lease, Tenant shall cause its contractor to use reasonable and diligent efforts
not to interfere with ongoing operations in the Building. Tenant's contractor
shall be responsible for all utility costs associated with the performance of
Alterations and shall either supply its own electricity and other utilities, or
shall reimburse Landlord for all utility consumption associated with such work.
Tenant shall cause its contractor(s) to keep all construction areas clean and
free of trash and debris and shall otherwise comply with any other reasonable
rules and regulations established by Landlord with regard to construction
activities within the Building. Tenant's construction contract shall indemnify
Tenant and Landlord from damages, losses and expenses associated with the acts
and omissions of Tenant's contractor, its agents, employees and subcontractors.
To the extent that any Alterations involve construction work which affects any
exterior portions of the Building or Common Areas, Landlord may impose
additional requirements as a condition of its approval of such Alterations to
ensure that Tenant restores all affected areas of the Building's exterior and/or
common areas to their original condition upon completion and otherwise protects
and restores all affected work areas within the Building (including any portions
of the Common Areas of the Building) utilized or affected in performing such
Alterations.
15.4.4 Tenant shall provide to Landlord copies of all
applications for permits, copies of all governmental inspection reports and/or
certificates, and any and all notices or violations communicated to Tenant or
its contractors by applicable governmental authorities, promptly upon receipt
and/or submission thereof, as the case may be. Tenant agrees to comply
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(or to cause its contractors to comply) with all applicable federal, state and
local laws, regulations and ordinances in the performance of Alterations, and to
promptly rectify any violations of such laws caused by the acts or omission of
Tenant, its employees, agents and/or contractors, and Tenant shall be
responsible for any non-compliance by Tenant or its agents, employees and
contractors. Tenant and its contractor performing Alterations shall (a) provide
copies of warranties for Alterations and the materials and equipment which are
incorporated into the Building and Premises in connection therewith, (b) provide
to Landlord all operating and maintenance manuals for all equipment and
materials incorporated into the Building and/or Premises as part of any
Alterations, and (c) either assign to Landlord, or enforce on Landlord's behalf,
all such warranties to the extent repairs and/or maintenance on warranted items
would be covered by such warranties and are otherwise Landlord's responsibility
under this Lease.
16. ACCEPTANCE OF PREMISES.
Landlord shall tender, and Tenant shall accept possession of the
Premises, in as-is condition, and otherwise as described in (and in accordance
with) the terms of Exhibit C hereto. All provisions regarding delivery of
possession of the Premises, construction of leasehold improvements to the
Premises (if any) and any adjustments which may be made with respect to the
Commencement Date are set forth in Exhibit C. In no event shall Tenant have any
claim against Landlord for losses or damages due to delays in obtaining final
approvals or in achieving the Substantial Completion of the construction to be
performed pursuant to Exhibit C, except as set forth therein. This Article 16
and Exhibit C shall be harmonized to the fullest extent reasonably possible,
provided that, to the extent of any irreconcilable conflict between the terms of
this Article 16 and of Exhibit C, the terms of Exhibit C shall be controlling.
17. TENANT IMPROVEMENTS/SPECIALIZED PROVISIONS.
Any initial improvements to be performed by Tenant to the Premises
shall be governed by Exhibit C hereto. Exhibit C also sets forth certain
specialized provisions relating to the equipment and facilities to be installed
as part of Tenant's Telecommunication Use, and Tenant's and Landlord's
respective rights and obligations with respect thereto, which provisions are
hereby incorporated into the body of this Lease as if fully set forth herein.
18. ACCESS.
Tenant shall permit Landlord and its agents to enter the Premises at
all reasonable times and (except in cases of Emergency, as defined herein) upon
reasonable prior notice, not to exceed two (2) business days: to inspect the
same; to show the Premises to prospective tenants (but only during the last nine
(9) months of the Term), or to other interested parties such as prospective
lenders and purchasers; to exercise its rights under Section 48; to clean,
repair, alter or improve the Premises or the Building; to discharge Tenant's
obligations when Tenant has failed to do so within any applicable grace period
provided for herein; to post notices of non-responsibility and similar notices
and "For Sale" or "For Lease" signs upon or adjacent to the Building; or for any
other legitimate business purpose. Tenant shall permit Landlord and its agents
to enter the Premises at any time, and without prior notice, in the event of an
Emergency, provided Landlord will use good faith efforts to notify Tenant
telephonically as promptly as
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reasonably practicable in cases of any such Emergency. When reasonably
necessary, Landlord may temporarily close entrances, doors, corridors, elevators
or other facilities without liability to Tenant by reason of such closure.
Landlord, in the exercise of all of its rights under this Section 18, shall (i)
use commercially reasonable efforts to minimize disruption of Tenant's use and
occupancy of the Premises, and (ii) except in cases of Emergency entry, comply
with Tenant's reasonable security measures and perform such entries accompanied
by a representative of Tenant (but only if Tenant makes such a representative
available at the mutually agreed scheduled time for such entry, which Tenant
agrees to use reasonable efforts to determine with Landlord promptly after
receipt of any notice from Landlord seeking such non-Emergency entry, and which
entry will in all events be scheduled promptly after the expiration of such two
(2) business day notice period, provided that, if Tenant fails to use reasonable
and diligent efforts to schedule an entry otherwise permitted hereunder promptly
after expiration of the aforesaid two (2) business day period, then Landlord may
designate the time of such entry by a second written notice to Tenant, and
Landlord may conduct such entry without having a representative of Tenant
present if Tenant fails to make a representative available at the designated
time).
19. MUTUAL WAIVER OF CLAIMS AND SUBROGATION.
19.1 Tenant. Notwithstanding anything to the contrary in this
Lease, whether the loss or damage is due to the negligence of Landlord or
Landlord's agents or employees, or any other cause, Tenant hereby releases
Landlord and Landlord's agents and employees from responsibility for and waives
its entire claim of recovery for (i) any and all loss or damage to the personal
property of Tenant located in the Building, including, without limitation, the
Building itself and such property as may be attached to the Building itself,
arising out of any of the perils which are covered by Tenant's property
insurance policy, with extended coverage endorsements which Tenant is required
to obtain under the applicable provisions of this Lease, whether or not actually
obtained, or which Tenant elects to self-insure under the provisions of Article
12 of this Lease, and/or (ii) loss resulting from business interruption arising
out of any of the perils which may be covered by the business interruption
insurance policy which Tenant is required to obtain under the applicable
provisions of this Lease, whether or not actually obtained, or which Tenant
elects to self-insure under the provisions of Article 12 of this Lease held by
Tenant.
19.2 Landlord. Notwithstanding anything to the contrary in this
Lease, whether the loss or damage is due to the negligence of Tenant or Tenant's
agents or employees, or any other cause, Landlord hereby releases Tenant and
Tenant's agents and employees from responsibility for and waives its entire
claim of recovery for any and all (i) loss or damage to the property of Landlord
located in the Building, including, without limitation, the Building itself and
such property as may be attached to the Building itself, arising out of any of
the perils which are covered by Landlord's property insurance policy which
Landlord is required to obtain under the applicable provisions of this Lease,
whether or not actually obtained, and/or (ii) loss resulting from loss of rental
income in the Building arising out of any of the perils which may be covered by
the rent loss insurance policy which Landlord' is required to obtain under the
applicable provisions of this Lease, whether or not obtained.
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19.3 Carriers. Unless impossible, Landlord and Tenant shall each
cause its respective insurance carrier(s) to consent to such waiver of all
rights of subrogation against the other, and to issue an endorsement to all
policies of insurance obtained by such party confirming that the foregoing
release and waiver will not invalidate such policies.
20. INDEMNIFICATION.
20.1 Tenant's Indemnity. Tenant shall indemnify and hold harmless
Landlord, its agents, employees, officers, directors, partners and shareholders
from and against any and all third party liabilities, judgments, demands, causes
of action, claims, losses, damages, costs and expenses, including reasonable
attorneys' fees and costs, asserted against Landlord by third parties or
sustained in connection with any third party claims for injury or death to
persons or damage to property against Landlord, by third parties and arising out
of the use, occupancy, conduct, or operation of the Premises by, or the willful
misconduct or negligence of, Tenant, its officers, contractors, licensees,
agents, servants, employees, or (while within the Premises) its guests or
invitees, or caused by any failure of Tenant to comply with the terms of this
Lease. This indemnification shall survive termination of this Lease. This
provision shall not be construed to make Tenant responsible for loss, damage,
liability or expense resulting from injuries or death to third parties or to the
property of third parties to the extent caused by the negligence of Landlord, or
its officers, contractors, licensees, agents, employees or invitees.
20.2 Landlord's Indemnity. Landlord shall indemnify and hold
harmless Tenant, its agents, employees, officers, directors, partners and
shareholders from and against any and all third party liabilities, judgments,
demands, causes of action, claims, losses, damages, costs and expenses,
including reasonable attorneys' fees and costs, asserted against Tenant by third
parties or sustained by Tenant in connection with any third party claims for
injury or death to persons or damage to property, and arising out of the use,
occupancy, conduct, operation, or management of the Building by, or the willful
misconduct or negligence of, Landlord, its officers, contractors, licensees,
agents, servants, or employees, or caused by any failure of Landlord to comply
with the terms of this Lease. This indemnification shall survive termination of
this Lease. This provision shall not be construed to make Landlord responsible
for loss, damage, liability or expense resulting from injuries or death to third
parties or to the property of third parties to the extent caused by the
negligence of Tenant, or its officers, contractors, licensees, agents, employees
or invitees, or by the acts or omission of any other tenants or occupants of the
Building.
21. ASSIGNMENT AND SUBLETTING.
21.1 Consent Required. Subject to the terms of this Article 21,
Tenant shall not assign, encumber, mortgage, pledge, license, hypothecate or
otherwise transfer the Premises or this Lease, or sublease all or any part of
the Premises, or permit the use or occupancy of the Premises by any party other
than Tenant, without the prior written consent of Landlord, which shall not be
unreasonably withheld, conditioned or delayed as more fully set forth below.
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21.2 Procedure.
21.2.1 Except as specifically provided in Sections 21.2.2 and
21.4, below, Tenant must request Landlord's consent (in accordance with the
standards hereinafter set forth) to any assignment or sublease in writing at
least fifteen (15) days prior to the commencement date of the proposed sublease
or assignment, which written request (a "Proposal Notice") must include (1) the
name and address of the proposed assignee or subtenant, (2) the nature and
character of the business of the proposed assignee or subtenant, (3) financial
information (including financial statements) of the proposed assignee or
subtenant, (4) the proposed effective date of the assignment or sublease, which
shall be not less than fifteen (15) days thereafter, and (5) a copy of the
proposed sublease or assignment agreement. Tenant shall also provide any
additional information Landlord reasonably requests regarding such proposed
assignment or subletting. Within fifteen (15) days after Landlord receives
Tenant's Proposal Notice (with all required information included); but subject
to Section 21.5, below, Landlord shall have the option (i) to grant its consent
to such proposed assignment or subletting, or (ii) to deny its consent to such
proposed assignment or subletting on a reasonable basis. If Landlord does not
exercise one of the above options (or the termination right set forth in Section
21.5, below) within fifteen (15) days after Landlord receives such Proposal
Notice, then Tenant may assign or sublease the Premises upon the terms stated in
the Proposal Notice.
21.2.2 Section 21.2.1, above, and Section 21.5, below, to the
contrary notwithstanding, Tenant shall have the right (i) to allocate space
within the Premises to other persons or entities for use supplemental or
complimentary to Tenant's telecommunications, including but not limited to the
collocation of equipment owned by others, which arrangements will not require
Landlord's prior consent or approval, and shall not be subject to Landlord's
right to split profits or to terminate the Lease and recapture the Premises (in
whole or in part), provided (A) Tenant will provide Landlord with notice of any
such collocation arrangement, and (B) the provisions of Sections 21.3.2, 21.3.3,
21.3.4 and 21.3.5, below, shall apply to any such arrangement as if the party
which is allocated space or permitted to collocate equipment were a sublessee of
Tenant hereunder, and (ii) to sublet up to twenty-five percent (25%) of the net
rentable area of the Premises (in the aggregate), for periods not in excess of
one (1) year (a "short term sublease"), before a proposed short term sublease
triggers Landlord's right of termination under clause 21.5, but any such
sublease(s) shall nevertheless be subject to Landlord's approval, which shall
not be unreasonably withheld, conditioned or delayed as provided herein, and the
provisions of Sections 21.3.2, 21.3.3, 21.3.4 and 21.3.5, below, shall apply to
any such short term sublease as if the party which is allocated space or
permitted to collocate equipment were a sublessee of Tenant hereunder.
21.2.3 Without limitation, it shall not be unreasonable for
Landlord to deny its consent to any proposed assignment or sublease which
requires Landlord's consent under this Lease if any one or more of the following
criteria is applicable: (1) if the proposed assignee or subtenant is not
creditworthy, is substantially less creditworthy than Tenant as of the date of
Tenant's execution of this Lease, or it appears that, as a result of its
financial condition, the proposed assignee or subtenant may be unable to meet
its financial and other obligations under this Lease after such assignment or
sublease; (2) if the proposed assignee or subtenant proposes
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to use the Premises for a purpose which is not a general office, administrative
or telecommunications use permitted hereunder; (3) if the proposed assignee or
subtenant has a history of landlord/tenant, debtor/creditor or other contractual
problems (such as, but not limited to, defaults, evictions, enforcement
litigation or other disputes) with Landlord, other landlords and/or creditors or
other contracting parties; (4) unless Tenant remains in occupancy of a
substantial percentage of the Premises after a sublease is entered into, if the
proposed assignee or subtenant lacks reasonable prior successful operating
experience, which the parties agree shall mean operating profitability
(exclusive of extraordinary income or charges) for the three (3) consecutive
years prior to the date of the proposed assignment or sublease; (5) unless
Landlord has insufficient space available to accommodate the needs of such
assignee or sublessee, if the proposed assignee or subtenant is an existing
tenant, or the affiliate of an existing tenant, of the Building; and/or (6) if
the space is one as to which Landlord has a right of termination under Section
21.5, the proposed sublease involves, in Landlord's reasonable judgment, a
portion of the Premises which is not independently leasable space (which shall
be understood to mean that, in order to satisfy this criteria, the proposed
sublease space must have a proportion of windowed offices relative to the
Rentable Area thereof which is comparable to the floor as a whole, and cannot
lack reasonable means of ingress, egress or access to the Common Areas, common
facilities and/or core areas of the Building located on such floor of the
Building, such as access to elevators, bathrooms, telephone and electrical
closets, etc.) (any space meeting such criteria being referred to herein as
"Independently Leasable Space").
21.3 Conditions. Any subleases and/or assignments hereunder arc
also subject to all of the following terms and conditions:
21.3.1 If Landlord approves an assignment or sublease as
herein provided, Tenant shall pay to Landlord, as additional rent due under this
Lease, (i) in the case of an assignment, one half (1/2) of all sums received by
Tenant in consideration of such assignment, calculated after Tenant has
recovered in full from such consideration its "Transaction Expenses" (as
hereafter defined), and (ii) in the case of a sublease, one half (1/2) of the
amount, if any, by which the rent, any additional rent and any other sums
payable by the subtenant to Tenant under such sublease, exceeds that portion of
the Base Rent plus Expense Increases and Tax Increases payable by Tenant
hereunder which is allocable to the portion of the Premises which is the subject
of such sublease, calculated after Tenant has recovered in full its Transaction
Expenses from such net amount. The term "Transaction Expenses" shall mean all
reasonable and actual out-of-pocket expenses incurred by Tenant in procuring
such assignment or sublease, including broker fees and legal fees (if any) paid
by Tenant, any improvements which Tenant makes to the applicable portion of the
Premises at Tenant's expense in connection with such assignment or sublease, and
any buy-out of the assignee's or sublessee's existing lease paid for by Tenant
as a part of such transaction. The foregoing payments shall be made on not less
than a monthly basis by Tenant (in the case of subleases) and in all cases
within thirty (30) days after Tenant receives the applicable consideration from
the assignee or subtenant. This Section 21.3.1 shall not apply to any assignment
or sublease permitted as a matter of right pursuant to Section 21.4, below.
21.3.2 No consent to any assignment or sublease shall
constitute a further waiver of the provisions of this section, and all
subsequent assignments or subleases may be made only with the prior written
consent of Landlord except for subleases or assignments not requiring
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Landlord's consent pursuant to this Article 21. In no event shall any consent by
Landlord be construed to permit reassignment or resubletting by a permitted
assignee or sublessee.
21.3.3 The assignee under any assignment of this Lease shall
be fully (and, at landlord's option, directly) liable for all of the obligations
of "Tenant" under this Lease, on a joint and several basis with Tenant. Tenant
shall nevertheless remain fully liable to Landlord for all Lease obligations,
including those accruing after the effective date of such assignment.
21.3.4 Any sublease or assignment shall be subject to the
condition that the sublessee or assignee thereunder shall be bound by all of the
terms, covenants and conditions of this Lease (in the case of a sublease,
insofar as such terms, covenants and conditions relate to the portion of the
Premises subleased and/or the operations and conduct of business by the
sublessee).
21.3.5 Without limitation, any and all guaranties of this
Lease shall be unaffected by such sublease and assignment, and shall remain in
full force and effect for all purposes.
21.3.6 Any assignment or sublease without Landlord's prior
written consent shall be void, and shall, at the option of the Landlord,
constitute a default under this Lease, except for subleases or assignments not
requiring Landlord's consent pursuant to this Article 21.
21.3.7 Tenant shall pay to Landlord all reasonable attorneys
fees and out-of-pocket expenses incurred by Landlord in connection with its
review of sublease or assignment requiring Landlord's consent.
21.4 Affiliated Entity; Sale of Business.
21.4.1 Notwithstanding anything to the contrary in this Lease,
so long as such transfer is not effectuated as part of a transaction or series
of transfers orchestrated in order to effect a transfer of this Lease (or
Tenant's interest herein) in isolation to Tenant's other leasehold interests and
assets, Tenant shall have the right without Landlord's consent to sublease the
Premises or assign this Lease to any entity which (i) controls or is controlled
by Tenant, or (ii) is controlled by Tenant's parent company, or (iii) which
purchases all or substantially all of the assets of Tenant, or (iv) which
purchases all or substantially all of the stock of Tenant or (v) which merges
with Tenant pursuant to a valid statutory merger; provided, that (1) the
assignee or sublessee is not rendered financially unable to meet all of its
obligations under this Lease, and (2) in such event, (a) except in cases of
statutory merger, in which case the surviving entity in the merger shall be
liable as the Tenant under this Lease, Tenant shall continue to remain fully
liable under the Lease, on a joint and several basis with the assignee or
acquiror of such assets or stock, and (b) following such sublease or assignment,
Tenant shall continue to comply with all of its obligations under this Lease,
including with respect to its Permitted Use of the Premises, as set forth in
Section 4.1, above.
21.4.2 Tenant shall be required to give Landlord at least ten
(10) business days written notice in advance of any sublease or assignment
within the scope of Section 21.4.1, above. Any other transfer of fifty percent
(50%) or more of the ownership interests (including,
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without limitation, partnership interests or stock) in Tenant or of operating
control over Tenant (whether by management agreement, stock sale or other means)
shall be deemed to constitute an assignment of this Lease, and shall, except as
provided in Section 21.4.1, above, be subject to Landlord's consent as
aforesaid.
21.4.3 Landlord agrees that (i) the offer and sale by Tenant
(or any stockholder of Tenant) of any stock pursuant to an effective
registration statement filed pursuant to the Securities Act of 1933 (including
any initial public offering of registered stock of the Tenant) or pursuant to
and in accordance with the securities laws of any foreign country governing
publicly traded companies and not in violation of U.S. law, shall not constitute
an assignment of this Lease, and (ii) the issuance of new equity interests in
Tenant to bona fide third party investors for bona fide consideration, shall not
require the consent or approval of Landlord.
21.4.4 Tenant shall not transfer all or substantially all of
its assets to any person or entity unless either (i) this Lease is one of the
assets so transferred to such other person or entity, and the transferee assumes
in writing, for Landlord's benefit, the obligations of Tenant accruing hereunder
from and after the effective date of the transfer, or (ii) the transferee(s)
thereof otherwise delivers to Landlord a written assumption of Tenant's
obligations hereunder.
21.5 Right of Termination. Except for any assignment or sublease
permitted as a matter of right pursuant to Section 21.4, above, or which is
otherwise permitted pursuant to Section 21.2.2, above, in the event of (i) a
proposed assignment of this Lease, or (ii) a proposed sublease which is not a
short term sublease within the meaning of this Article 21, Landlord shall have
the right, by notice to Tenant delivered within thirty (30) days after
Landlord's receipt of Tenant's Proposal Notice (and in lieu of the granting or
denial of consent provided for in Section 21.2, above), to terminate this Lease
as to all of the Premises (in the event of an assignment) or as to the subleased
portion of the Premises only (in the event of a sublease), for the balance of
the Term. In the event Landlord shall elect to terminate this Lease in
connection with a proposed assignment or sublease of this Lease as provided
above in whole or in part (as the case may be): (a) this Lease and the term
hereof shall terminate (either as to the Premises as a whole, or only as to the
portion thereof which Tenant is proposing to sublease, as the case may be) as of
the later of (i) the proposed effective date of such assignment or sublease, as
set forth in Tenant's Proposal Notice, or (ii) thirty (30) days after the date
Landlord received Tenant's Proposal Notice; (b) Tenant shall be released from
all liability under the Lease (as to the Premises as a whole, in the case of an
assignment, or as to the terminated portion of the Premises only, in the case of
a partial termination due to sublease) with respect to the period after the date
of termination (other than obligations and indemnities of Tenant which accrued
with respect to the applicable portion of the Premises prior to the effective
date of such termination, which obligations shall expressly survive such
termination or partial termination of this Lease); (c) all Base Rent, Additional
Rent and other charges shall be prorated to the date of such termination, and
appropriately adjusted if there is only a partial termination; (d) upon such
termination date, Tenant shall surrender the Premises (or the applicable portion
thereof) to Landlord in accordance with Section 26 hereof; and (e) in the case
of a partial termination of this Lease, Landlord shall have the right to
separate the portion of the Premises being terminated from the balance of the
Premises, including the erection of a demising wall and, to the extent necessary
under the circumstances, the separation of any applicable Building Systems.
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22. ADVERTISING.
22.1 Generally. Except as provided below, Tenant shall not display
any sign, graphics, notice, picture, or poster, or any advertising matter
whatsoever, anywhere in or about the Premises or the Building at places visible
from anywhere outside or at the entrance to the Premises without first obtaining
Landlord's written consent thereto, which Landlord may grant or withhold in its
sole discretion. All signage, including interior and exterior signage, shall be
at Tenant's sole expense, and subject to compliance with all applicable laws.
Tenant shall be responsible to maintain any permitted signs and remove the same
at Lease termination. In addition, upon the expiration or earlier of this Lease,
all exterior signs identifying Tenant shall be removed by Tenant at Tenant's
sole expense, and the affected portions of the Building shall be restored by
Tenant. If Tenant shall fail to maintain or remove its signs, as aforesaid,
Landlord may do so at Tenant's cost. Tenant shall be responsible to Landlord for
any damage caused by the installation, use, maintenance or removal of any such
signs.
22.2 Signage Program/Permitted Signage. Notwithstanding Section
22.1 to the contrary, lobby and suite identification signage shall be permitted
in accordance with applicable legal requirements and the Landlord's overall
signage program for the Building, subject to Landlord's approval which shall not
be unreasonably withheld, conditioned or delayed (in light of Landlord's overall
signage program for the Building). Generally, Tenant shall be permitted (at
Tenant's expense) to install a standard suite entry sign, and shall be
identified on Landlord's automated Building Directory (and if such automated
Building Directory is ever discontinued and a manual Building Directory is
installed, Tenant shall be entitled to three (3) identification strips on that
portion of the Building's lobby directory located in the main lobby of the
Building (if any)).
23. LIENS.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, materials ordered or obligations incurred by
or on behalf of Tenant, and Tenant hereby agrees to indemnify and hold Landlord,
its agents, employees, independent contractors, officers, directors, partners,
and shareholders harmless from any liability, cost or expense for such liens.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of the proper bond acceptable to Landlord within thirty (30) days after
the earlier of notice of intent to impose the lien or written request by
Landlord. If Tenant fails to remove any lien within the prescribed thirty (30)
day period, then, upon written notice to Tenant (but without any further cure
period), Landlord may do so at Tenant's expense and Tenant shall reimburse
Landlord for such amount, including reasonable attorneys' fees and costs.
24. DEFAULT.
24.1 Tenant's Default. A default under this Lease by Tenant shall
exist if any of the following occurs:
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24.1.1 If Tenant fails to pay Base Rent, additional rent or
any other sum required to be paid hereunder within ten (10) days after written
notice from Landlord that such payment was due, but was not paid as of the due
date (provided, however, if Landlord has delivered two (2) such notices to
Tenant in any twelve (12) month period, or five (5) such notices over the Term
of this Lease, whichever first occurs, then any subsequent failure to pay Base
Rent, additional rent or any other sum required to be paid to Landlord hereunder
on or before the due date for such payment shall constitute a default by Tenant
without requirement of such ten (10) day notice and opportunity to cure).
24.1.2 If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of money to Landlord
as set forth in Section 24.1.1 above, and Tenant fails to cure such breach
within thirty (30) days after written notice from Landlord where such breach
could reasonably be cured within such thirty (30) day period; provided, however,
that where such failure is curable, but could not reasonably be cured within the
thirty (30) day period, Tenant shall not be considered in default if it
commences such performance promptly after it receives Landlord's notice of
default and diligently thereafter prosecutes the same to completion. If any
provisions of this Lease calls for a shorter or different grace period than that
set forth above, then such other provision shall control over this provision.
The foregoing notice and cure period notwithstanding, Landlord may exercise its
self-help rights hereunder (i.e., Landlord's right to perform any obligation of
Tenant which Tenant has failed to perform hereunder) without any prior notice or
upon such shorter notice as may be reasonable under the circumstances in the
event of any one or more of the following circumstances is present: (i) there
exists a reasonable risk of prosecution of the Landlord unless such obligation
is performed sooner than the stated cure period, (ii) there exists an imminent
possibility of danger to the health or safety of the Landlord, the Tenant,
Tenant's invitees, or any other occupants of, or visitors to, the Building,
unless such obligation is performed sooner than the stated cure period, and/or
(iii) the Tenant has failed to obtain insurance required by this Lease, or such
insurance has been canceled by the insurer without being timely replaced by
Tenant, as required herein.
24.1.3 If Tenant shall (i) make an assignment for the benefit
of creditors, (ii) acquiesce in a petition in any court in any bankruptcy,
reorganization, composition, extension or insolvency proceedings, (iii) seek,
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of any guarantor of this Lease and of all or any part of
Tenant's or such guarantor's property, (iv) file a petition seeking an order for
relief under the Bankruptcy Code, as now or hereafter amended or supplemented,
or by filing any petition under any other present or future federal, state or
other statute or law for the same or similar relief, or (v) fail to win the
dismissal, discontinuation or vacating of any involuntary bankruptcy proceeding
within sixty (60) days after such proceeding is initiated.
24.2 Remedies. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, any one or more of which Landlord may resort
cumulatively, consecutively, or in the alternative:
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24.2.1 Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Base Rent, additional rent and other charges when due.
24.2.2 Landlord may terminate this Lease, or may terminate
Tenant's right to possession of the Premises, at any time by giving written
notice to that effect, in which event Landlord may (but shall not be obligated
to) relet the Premises or any part thereof. Upon the giving of a notice of the
termination of this Lease, this Lease (and all of Tenant's rights hereunder)
shall immediately terminate, provided that, without limitation, Tenant's
obligation to pay Base Rent, Expense Increases and Tax Increases (as well as any
damages otherwise payable under this Section 24), shall survive any such
termination and shall not be extinguished thereby. Upon the giving of a notice
of the termination of Tenant's right of possession, all of Tenant's rights in
and to possession of the Premises shall terminate but this Lease shall continue
subject to the effect of this Section 24. Upon either such termination, Tenant
shall surrender and vacate the Premises in the condition required by Section 26,
and Landlord may re-enter and take possession of the Premises and all the
remaining improvements or property and eject Tenant or. any of the Tenant's
subtenants, assignees or other person or persons claiming any right under or
through Tenant or eject some and not others or eject none. In accordance with
District of Columbia law, Landlord will not dispossess Tenant without
appropriate legal process, but the requirement of legal process will not affect
the legal validity of any termination of this Lease or of Tenant's right to
possession after a default. This Lease may also be terminated by a judgment
specifically providing for termination. Any termination under this section shall
not release Tenant from the payment of any sum then due Landlord or from any
claim for damages or Base Rent, additional rent or other sum previously accrued
or thereafter accruing against Tenant, all of which shall expressly survive such
termination. Upon such termination Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in attempting to relet the Premises or
any part thereof, including, without limitation, broker's commissions, expenses
of cleaning and redecorating the Premises required by the reletting and like
costs. Reletting may be for a period shorter or longer than the remaining Lease
Term. No act taken by Landlord pursuant to this Article 24, other than giving
written notice to Tenant, shall terminate this Lease. Acts of maintenance,
efforts to relet the Premises or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not constitute
a constructive or other termination of Tenant's right to possession or of this
Lease, either of which may be effected solely by an express written notice from
Landlord to Tenant. On any termination due to a default by Tenant, Landlord has
the right to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Base
Rent, additional rent and other sums due and payable which had been earned at
the time of termination; plus
(b) The worth at the time of award of the amount by
which the unpaid Base Rent, additional rent and other sums due and payable which
would have been payable after termination until the time of award exceeds the
amount of such rent loss that Tenant proves could have been reasonably avoided;
plus
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(c) The worth at the time of award of the amount by
which the unpaid Base Rent, additional rent or other sums due and payable for
the balance of the Lease Term after the time of award exceeds the amount of such
rent loss that Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary which is to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, including any costs or expenses incurred
by Landlord: (i) in retaking possession of the Premises; (ii) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering or
rehabilitating the Premises or a portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State in which the Premises are located.
The "worth at the time of award" of the amounts
referred to in Sections 24.2.2(a) and (b) is computed by allowing interest at
the Default Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Sections 24.2.2(c) shall be computed by reducing the
future payments and future avoidable rent loss proven by Tenant to present value
at a discount rate equal to the average yield for U.S. treasury securities
having a maturity most closely corresponding to the remaining unexpired term of
this Lease as of the date of calculation, plus 100 basis points. In lieu of the
amounts recoverable in a lump sum by Landlord pursuant to clauses (b) and (c) of
this Section 24.2.2, above, but in addition to the amounts specified in clauses
(a), (d), and (e) (or any other portion of this Section 24), Landlord may, at
its sole election, recover "Indemnity Payments," as defined hereinbelow, from
Tenant. For purposes of this Lease "Indemnity Payments" means an amount equal to
the Base Rent, additional rent and other payments provided for in this Lease
which would have become due and owing thereunder from time to time during the
unexpired Lease Term after the effective date of the termination, but for such
termination, less the Base Rent, additional rent and other payments, if any,
actually collected by Landlord and allocable to the Premises. If Landlord elects
to pursue Indemnity Payments in lieu of the amount recoverable in a lump sum by
Landlord under clauses (b) and (c), above, Tenant shall, on demand, make
Indemnity Payments monthly, and Landlord may sue for all Indemnity Payments at
any time after they accrue, either monthly, or at less frequent intervals.
Tenant further agrees that Landlord may bring suit for Indemnity Payments at or
after the end of the Lease Term as originally contemplated under this Lease, and
Tenant agrees that, in such event, Landlord's cause of action to recover the
Indemnity Payments shall be deemed to have accrued on the last day of the Lease
Term as originally contemplated. In seeking any new tenant for the Premises,
Landlord shall be entitled to grant any concessions it deems reasonably
necessary. In no event shall Tenant be entitled to any excess of any rental
obtained by reletting over and above the rental herein reserved. Tenant waives
redemption or relief from forfeiture under any other present or future law, in
the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any default of Tenant hereunder.
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24.2.3 With applicable legal process, Landlord may, with or
without terminating this Lease, re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant, or, as
otherwise provided in this Lease, shall be deemed abandoned by Tenant, and may
be disposed of by Landlord at Tenant's expense and free from any claim by Tenant
or anyone claiming by, through or under Tenant. No re-entry or taking possession
of the Premises by Landlord pursuant to this Section shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
24.2.4 Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby
specifically waive and surrender any and all rights and privileges, so flu as is
permitted by law, which Tenant and all such persons might otherwise have under
any present or future law (1) to the service of any notice to quit or of
Landlord's intention to re-enter or to institute legal proceedings, which notice
may otherwise be required to be given, except the foregoing shall not waive any
notices otherwise required under the express terms of this Lease (if any); (2)
to redeem, re-enter or repossess the Premises after Tenant's right of possession
has been terminated by Landlord due to Tenant's default; (3) to restore the
operation of this Lease, with respect to any dispossession of Tenant by judgment
or warrant of any court or judge, or any re-entry by Landlord, or any expiration
or termination of this Lease, whether such dispossession, re-entry, expiration
or termination shall be by operation of law or pursuant to the provisions of
this Lease, or (4) to the benefit of any law which exempts property from
liability for debt or for distress for rent.
24.3 Mitigation of Damages. In the event of termination of this
Lease or repossession of the Premises after a default by Tenant, and provided
Tenant has cooperated fully with Landlord to mitigate Landlord's damages in
connection with the exercise by Landlord of its right to recover possession of
the Premises after Tenant's default, Landlord agrees to use commercially
reasonable efforts to mitigate its damages hereunder, provided that in any such
mitigation (i) Landlord shall not be obligated to show preference for reletting
the Premises over any other vacant space in the Building; (ii) Landlord shall
have the right, as Landlord deems appropriate, to divide the Premises or to
consolidate portions of the Premises with other space(s) to facilitate such
reletting; (iii) Landlord shall not be responsible if it is unable, despite good
faith efforts, to collect any rental from such reletting from any tenant
thereunder, and (iv) Landlord may relet the whole or any portion of the Premises
for any period, to any tenant, for any use and purpose, and upon such terms as
it deems appropriate consistent with the foregoing obligation to mitigate,
including any rental or other lease concessions that it deems reasonably
advisable under prevailing market conditions, which concessions may include,
without limitation, free rent.
25. SUBORDINATION.
25.1 Subordination. Subject to Section 25.2, below, this Lease is
and shall at all times be and remain subject and subordinate to the lien of any
mortgage, deed of trust, ground lease or underlying lease now or hereafter in
force against the Premises, and to all advances made or hereafter to be made
upon the security thereof. Although the foregoing subordination shall be
self-effectuating, Tenant shall execute and return to Landlord any documentation
requested by
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Landlord consistent with this Section 25 in order to confirm the foregoing
subordination, within fifteen (15) days after Landlord's written request. If
Tenant fails to provide Landlord with such subordination documents within
fifteen (15) days after Landlord's written request, the same shall constitute a
default by Tenant hereunder without requirement of any further notice. In the
event any proceedings are brought for foreclosure, or in the event of the
exercise of the power of sale under any mortgage or deed of trust made by the
Landlord covering the Premises, Tenant shall attorn to the purchaser at any such
foreclosure, or to the grantee of a deed in lieu of foreclosure, and recognize
such purchaser or grantee as the Landlord under this Lease, provided such
purchaser assumes, either expressly or by operation of law, the obligations of
"Landlord" arising under this Lease after the date title to the Land and
Building is transferred to such purchaser or grantee. Tenant agrees that no
mortgagee or successor to such mortgagee shall be (i) bound by any payment of
Base Rent or additional rent for more than one (1) month in advance, (ii) bound
by any amendment or modification of this Lease made without the consent of
Landlord's mortgagee or such successor in interest, (iii) liable for damages for
any breach, act or omission of any prior landlord, (iv) bound to effect or pay
for any construction for Tenant's occupancy, (v) subject to any claim of offset
or defenses that Tenant may have against any prior landlord and which have
accrued prior to the date that such mortgagee or successor takes legal title to
the Land and Building, or (vi) liable for the return of any security deposit,
unless such security deposit has been physically received by such mortgagee
(which Landlord acknowledges is a requirement of Article 3 of this Lease if the
security deposit is posted in the form of cash). Any such mortgagee shall have
the right, at any time, to subordinate to this Lease any instrument to which
this Lease is otherwise subordinated by operation of this Section 25.
25.2 Notwithstanding Section 25.1, above, to the contrary, Landlord
agrees that the subordination of this Lease to any future mortgage (or ground
lease) shall be conditioned upon the delivery to Tenant of a "Subordination,
Non-Disturbance and Attornment Agreement" ("SNDA") from such future mortgagee
(or ground lessor), in substantially the form attached as Exhibit H hereto or
such other commercially reasonable form of SNDA which may be required by such
mortgagee (or ground lessor), and which shall provide, inter alia, that so long
as Tenant is not in default hereunder (beyond any applicable notice and cure
period) and attorns to such mortgagee (or ground lessor) or any
successor-in-title thereto due to a foreclosure or deed-in-lieu thereof (or a
termination of such ground lease), Tenant's rights under this Lease, including
its right of possession of the Premises, shall not be disturbed in the event of
a foreclosure of such mortgage or deed of trust (or a termination of such ground
lease). Within thirty (30) days after Lease execution by all parties, Landlord
shall obtain an SNDA consistent with this Section from its current mortgagee of
the Building (provided Tenant will execute such SNDA prior to its execution by
Landlord's mortgagee, and as a condition precedent to Landlord's obligation to
obtain such SNDA).
26. SURRENDER OF POSSESSION.
Upon expiration of the Lease Term, Tenant shall promptly and peacefully
surrender the Premises to Landlord, broom clean and free of all of its
furniture, movable fixtures and equipment and otherwise in as good condition as
when received by Tenant from Landlord or as thereafter improved, reasonable use
and wear and tear and damage by insured casualty excepted, all to the reasonable
satisfaction of Landlord. If the Premises are not surrendered as and when
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aforesaid, and in accordance with the terms of this Lease, Tenant shall
indemnify Landlord against all claims, losses, costs, expenses (including
reasonable attorneys' fees) and liabilities resulting from the delay by Tenant
in so surrendering the same, including any claims made by any succeeding
occupant founded on such delay. This indemnification shall survive termination
of this Lease.
27. NON-WAIVER.
Waiver by either party of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition(s), or any subsequent breach of the same or any other term, covenant
or condition of this Lease. However, in the event of a failure of Tenant to pay
a particular rental amount, which payment is subsequently accepted by Landlord,
such acceptance shall operate to cure only the non-payment in question, and not
any other breach or default of Tenant otherwise in effect at the time,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rental amount.
28. HOLDOVER.
28.1 Holdover - Generally. If Tenant shall, without the written
consent of Landlord, hold over after the expiration of the Lease Term
(hereinafter, an "unauthorized holdover"), Tenant shall be deemed to be a tenant
at sufferance, which tenancy may be terminated immediately by Landlord as
provided by applicable state law. During any such holdover tenancy, unless
Landlord has otherwise agreed in writing, Tenant agrees to pay to Landlord a per
diem occupancy charge equal to (A) five percent (5%) of the stated monthly Base
Rent for the last full month of the Lease Term then ending for each day of such
holdover (or 150% of such monthly Base Rent for each month thereof), plus (B)
one hundred percent (100%) of the additional rent which would have been payable
by Tenant for the period of such holdover, calculated on a per diem basis using
the additional rent which had otherwise been payable by Tenant for the last full
month of the Lease Term then ending. Such payments shall be made within fifteen
(15) days after Landlord's demand, and in no event less often than once per
month (in arrears). In the case of a holdover which has been consented to by
Landlord, Tenant shall be deemed to be a month to month tenant upon all of the
terms and provisions of this Lease, except the monthly Base Rent shall be as
agreed by Landlord and Tenant with respect to such consented holdover. Upon
expiration of the Lease Term as provided herein, Tenant shall not be entitled to
any notice to quit, the usual notice to quit being hereby expressly waived under
such circumstances, and Tenant shall surrender the Premises on the last day of
the Lease. Term as provided in Section 26, above. The foregoing described per
diem occupancy charge is in addition to, and not in lieu of, any other claims
for damages which Landlord may have or assert against Tenant in connection with
any unauthorized holdover, including any claims arising out of Tenant's
indemnity under Section 26, above.
29. CONDEMNATION.
29.1 Definitions. The terms "eminent domain," "condemnation," and
"taken," and the like in this Section 29 include takings for public or
quasi-public use, and sales under threat of condemnation and private purchases
in place of condemnation by any authority authorized to
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exercise the power of eminent domain. Any temporary taking for a period in
excess of twelve (12) consecutive months shall be deemed to be a permanent
taking within the meaning of this Section 29.
29.2 Taking. "Taking" shall mean and refer to the acquisition or
taking of property (or any right, title or interest therein) by any governmental
or quasi-governmental authority acting under power of condemnation or eminent
domain, and shall encompass contested as well as uncontested takings as long as
initiated by the applicable governmental or quasi-governmental authority. If the
whole of the Premises is temporarily taken for a period in excess of thirty (30)
days, or is permanently taken, in either case by virtue of a Taking, this Lease
shall automatically terminate as of the date title vests in the condemning
authority, and Tenant shall pay all Base Rent, additional rent, and other
payments up to that date. If (a) twenty percent (20%) or more of the Premises is
permanently taken by virtue of a Taking, or (b) in the case of a Taking of less
than twenty percent (20%) of the Premises, Tenant is unable to make reasonable
use of the balance of the Premises remaining after the Taking, as determined by
Tenant in its reasonable, good faith discretion, or (c) access to the Building
or Premises by Tenant is, by virtue of a Taking, permanently denied, or (d) if
free parking is provided for under this Lease (which Tenant acknowledges is not
the case as of the date hereof), the parking ratio for the Building is, by
virtue of a Taking of any parking areas serving the Building, permanently
reduced to a ratio which fails to meet applicable code requirements after taking
into account any portion of the Building taken and any reasonable substitute
parking provided by Landlord in lieu of the parking areas so taken, then Tenant
shall have the right (to be exercised by written notice to Landlord within sixty
(60) days after receipt of notice of said taking) to terminate this Lease
effective upon the date when possession of the applicable portion of the Land
and/or Building is taken thereunder pursuant to such Taking. If Tenant does not
elect to terminate this Lease as aforesaid, then Landlord shall diligently, and
within a reasonable time, after title vests in the condemning authority, repair
and restore, at Landlord's expense, the portion not taken so as to render same
into an architectural whole to the extent reasonably practicable, and, if any
portion of the Premises is taken, thereafter the Base Rent (and Tenant's Share)
shall be reduced (on a per square foot basis) in proportion to the portion of
the Premises taken. If there is a temporary Taking involving the Premises or
Building, or if a Taking of other portions of the Building or common areas does
not deny Tenant access to the Building and Premises, or if less than twenty
percent (20%) of the Premises is permanently taken by a Taking and Tenant is
able to make reasonable use of the balance of the Premises as determined by
Tenant in its reasonable good faith discretion, then this Lease shall not
terminate, and Landlord shall, as soon as reasonably practicable thereafter,
repair and restore, at its own expense, the portion not taken so as to render
same into an architectural whole to the fullest extent reasonably practicable.
If any portion of the Premises was permanently taken, then the Base Rent (and
Tenant's Share) shall be reduced (on a per square foot basis) in proportion to
the portion of the Premises taken, commencing on the date Tenant is deprived of
the use of such portion of the Premises. If any portion of the Premises was
temporarily taken, then the Base Rent (and Tenant's Share) shall be reduced (on
a per square foot basis) in proportion to the portion of the Premises taken for
the period of such temporary taking, that is, from the date upon which Tenant is
deprived of the use of such portion of the Premises until the date Tenant is
restored to the use of such portion of the Premises.
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29.3 Award. Landlord reserves all rights to damages to the Premises
or the Building, or arising out of the loss of any leasehold interest in the
Building or the Premises created hereby, arising in connection with any partial
or entire taking by eminent domain or condemnation. Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of Tenant's leasehold interest or for interference with Tenant's
business as a result of such taking. The foregoing notwithstanding, Tenant shall
have the right to claim and recover from the condemning authority separate
compensation for any loss which Tenant may incur for Tenant's moving expenses,
business interruption, the taking of Tenant's personal property and any other
damage as may be recoverable by Tenant under the then applicable eminent domain
code (but specifically excluding any leasehold interest in the Building or
Premises), provided that Tenant shall not make any claim that will detract from
or diminish any award for which Landlord may make a claim.
29.4 Mortgagee Rights. Tenant acknowledges that Landlord's right to
any condemnation award may be subject to the rights of Landlord's mortgagee (if
any) in and to such award under the mortgage or deed of trust (if any) which
encumbers the Building and the Premises. Accordingly, Landlord's obligation to
repair and restore, as set forth in Section 29, above, shall be subject to the
requirements of Landlord's mortgagee, with regard thereto, and the time within
which such obligation must be satisfied shall be adjusted as reasonably
necessary to reflect delays occasioned by the exercise by the mortgagee of such
mortgagee's rights.
30. NOTICES.
All notices and demands which may be required or permitted to be given
to either party hereunder shall be in writing, and shall be delivered personally
or sent by United States certified mail, postage prepaid, return receipt
requested, or by Federal Express or other reputable overnight carrier, to the
addresses set out in Section 1.8, and to such other person or place as each
party may from time to time designate in a notice to the other. Notice shall be
deemed given upon the earlier of actual receipt or refusal of delivery. However,
notices shall be deemed given (whether provided in a manner required hereby or
otherwise) if the receiving party acknowledges receipt of such notice.
31. MORTGAGEE PROTECTION.
Tenant agrees to give any mortgagee(s) and/or trust deed holder(s), by
registered mail, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of notice of assignment of rents and leases, or otherwise) of the addresses of
such mortgagee(s) and/or trust deed holder(s). Tenant further agrees that the
mortgagee(s) and/or trust deed holder(s) shall be given the opportunity to cure
such default within the same time period after such written notice to such
mortgagee(s) or trust deed holder(s) as is afforded to Landlord under the terms
of this Lease, including such additional time as may be necessary to complete
such cure if, within thirty (30) days after its receipt of such notice, any
mortgagee and/or trust deed holder(s) has commenced and is diligently pursuing
the remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event Tenant shall not have the right to
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pursue any claim against Landlord, such mortgagee and/or such trust deed
holder(s), including but not limited to any claim of actual or constructive
eviction, so long as such remedies are being so diligently pursued.
32. COSTS AND ATTORNEYS' FEES.
In any litigation between the parties arising out of this Lease, and in
connection with any consultations with counsel and other actions taken or
notices delivered, in relation to a default by any party to this Lease, the
non-prevailing party shall pay to the prevailing party all reasonable expenses
and court costs including attorneys' fees incurred by the prevailing party, in
preparation for and (if applicable) at trial, and on appeal. Such attorneys'
fees and costs shall be payable upon demand.
33. BROKERS.
Tenant represents and warrants to Landlord that neither it nor its
officers or agents nor anyone acting on its behalf has dealt with any real
estate broker other than Landlord's exclusive listing agent, Transwestern Carey
Winston ("Broker") in the negotiating or making of this Lease, and Tenant agrees
to indemnify and hold Landlord, its agents, employees, partners, directors,
shareholders and independent contractors harmless from all liabilities, costs,
demands, judgments, settlements, claims and losses, including reasonable
attorneys fees and costs, incurred by Landlord in conjunction with any such
claim or claims of any broker or brokers other than Broker claiming to have
interested Tenant in the Building or the Premises or claiming to have caused
Tenant to enter into this Lease. Landlord shall pay to Broker any leasing
commission due Broker in connection with this Lease in accordance with, and
subject to the terms, covenants and conditions of a separate written commission
agreement between Landlord and Broker.
34. LANDLORD'S LIABILITY AND DEFAULT.
34.1 No Personal Liability. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of the Landlord are made and intended not for the purpose of binding Landlord
personally or the assets of Landlord generally, but are made and intended to
bind only the Landlord's interest in the Premises and Building, as the same may,
from time to time, be encumbered, and no personal liability shall at any time be
asserted or enforceable against Landlord or its stockholders, officers or
partners or their respective heirs, legal representatives, successors and
assigns on account of the Lease or on account of any covenant, undertaking or
agreement of Landlord in this Lease. Accordingly, and notwithstanding any other
provisions of this Lease to the contrary, Tenant shall look solely to Landlord's
interest in the Premises and Building (including any net proceeds of insurance
or condemnation awards paid to Landlord), and not to any other or separate
business or non-business assets of Landlord, or any partner, shareholder,
member, officer or representative of Landlord, for the satisfaction of any claim
brought by Tenant against Landlord, and if Landlord shall fail to perform any
covenant, term or condition of this Lease upon Landlord's part to be performed,
and as a consequence of such default Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only (i) out of the proceeds
of sale received upon levy against the right, title and interest of Landlord in
the Building and/or (ii) to the extent not
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encumbered by a secured creditor, out of the rents or other incomes receivable
by Landlord from the property of which the Premises are a part.
34.2 Notice and Cure. In no event shall Landlord be in default of
this Lease unless Tenant notifies Landlord of the precise nature of the alleged
breach by Landlord, and Landlord fails to cure such breach within thirty (30)
days after the date of Landlord's receipt of such notice provided (i) that if
the alleged breach is of such a nature that, although curable, it cannot
reasonably be cured within such thirty (30) day period, then Landlord shall not
be in default if Landlord commences a cure promptly after receipt of such
written notice from Tenant and diligently thereafter prosecutes such cure to
completion, and (ii) in the event of an Emergency, such grace or cure period may
be shortened as reasonably necessary given the scope and nature of the
Emergency, provided such shortened grace or cure period shall only apply to
permit the exercise of Tenant's self help rights under Section 34.4, below.
34.3 Rights and Remedies - Generally. In the event of a default by
Landlord after expiration of applicable cure periods, Tenant shall be entitled
to pursue all rights and remedies available at law or in equity except as
limited by this Lease, and in all events excluding consequential damages. In
addition, in no event shall Tenant have any right to terminate this Lease by
virtue of any uncured default by Landlord, except under circumstances which
amount to a constructive eviction under applicable principles of the law of the
state within which the Premises is located (and with respect to which Tenant
satisfies the requirements for a constructive eviction claim under applicable
law). Tenant shall use commercially reasonable efforts to mitigate its damages
in the event of any default by Landlord hereunder, although such duty shall not
preclude Tenant from taking any and all reasonable steps after Landlord's
default hereunder to preserve the provision of telecommunications services to
its customers.
34.4 Tenant's Right to Perform Landlord's Obligations After a
Default by Landlord.
(a) Among other remedies permitted to be exercised by Tenant
upon a default by Landlord of its obligations hereunder after expiration of
applicable cure periods, and without waiving or releasing Landlord from any such
obligation of Landlord, Tenant may, but shall not be obligated to, perform any
such obligation of Landlord (which shall include, inter alia, any repair
obligation of Landlord), and to recover from Landlord the reasonable and actual
costs incurred by Tenant in performing such obligation, which shall be payable
within thirty (30) days after Tenant's written demand accompanied by reasonable
substantiation of the applicable costs. The foregoing right to perform
Landlord's obligations shall only apply after the requisite notice and
opportunity to cure has been afforded to Landlord (including any shortened cure
period permitted in cases of Emergency, as long as Tenant notifies Landlord of
the needed repair or other default as soon as possible after tenant learns of
its existence). If Landlord does not pay the amount so incurred by Tenant within
thirty (30) days after Tenant's written demand, then Tenant shall have the right
to pursue any legal remedies available to it to collect payment subject to the
limitations upon Landlord's personal liability under Section 34.1, above, but
Tenant shall not be entitled to offset such payment against Rent thereafter
payable under this Lease except as specifically set forth in Section 34.4(b),
below. All sums paid by Tenant under the circumstances described herein (and
thus recoverable from Landlord under this Section), including all penalties,
interest and costs paid by Tenant as a result of Landlord's default, if any,
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shall be due and payable by Landlord together with interest thereon at the
Default Rate, which shall be calculated from the, date such costs were incurred
by Tenant until the date of payment.
(b) If Landlord fails to reimburse Tenant for its reasonable
costs and expenses in exercising its rights and remedies pursuant to Section
34.4(a), above, or any other amount owed from Landlord to Tenant pursuant to
this Lease, within thirty (30) days after receipt from Tenant of its written
demand for payment thereof, accompanied by reasonable substantiation of the
amount demanded and establishing Tenant's right thereto, and Landlord does not
dispute Tenant's right to such reimbursement or amount in good faith by a
written communication specifying the nature of the dispute which is delivered to
Tenant prior to the end of such thirty (30) day period, then Tenant may
thereafter deduct the amount which is not in dispute, but which has not been
paid by Landlord within such thirty (30) day period, from the next payments of
Base Rent and Additional Rent payable by Tenant hereunder, until such amount has
been satisfied in full. To the extent Landlord disputes any portion of the
amount demanded by Tenant (as specified in Landlord's written communication as
aforesaid), then Tenant may seek entry of a judgment against Landlord for the
amount thereof, plus interest at the Default Rate and Tenant's reasonable costs
of collection (including reasonable attorney's fees). If Tenant receives a
final, non-appealable judgment against Landlord, and Landlord fails to pay the
amount thereof within thirty (30) days after the same becomes final and
non-appealable, Tenant shall thereafter have the right (in addition to execution
upon Landlord as and to the extent permitted under Section 34.1, above) to
deduct the amount of such judgment against the next payments of Base Rent and
Additional Rent payable by Tenant hereunder, until such amount has been
satisfied in full. Except as set forth in this Section 34.4(b), Tenant shall not
have any right of offset or deduction due to a default by Landlord.
35. ESTOPPEL CERTIFICATES.
Tenant shall, from time to time, within fifteen (15) days of Landlord's
written request, execute, acknowledge and deliver to Landlord or its designee a
written statement stating: the date the Lease was executed and the date it
expires; the date the Tenant entered occupancy of the Premises; the amount of
Base Rent, additional rent and other charges due hereunder and the date to which
such amounts have been paid; that this Lease is in full force and effect and has
not been assigned, modified, supplemented or amended in any way (or specifying
the date and terms of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this leasing (or
identifying any such other agreements); that all conditions under this Lease to
be performed by the Landlord have been satisfied (or specifying any such
conditions that have not been satisfied); that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been received (or
specifying any such contributions that have not been received); that on the date
of such certificate there are no existing defenses or offset which the Tenant
has against the enforcement of this Lease by the Landlord (or specifying any
such defenses or offsets); that no Rent has been paid more than one (1) month in
advance (or, if so, the amount thereof); that no security has been deposited
with Landlord (or, if so, the amount thereof); and/or any other matters
evidencing the status of the Lease as may be required either by a lender or
prospective lender with respect to any loan to Landlord secured or to be secured
by a deed of trust or mortgage against the Building, or by a purchaser or
prospective purchaser of the Building, Landlord's interest therein or Landlord's
ownership interests, which
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written statement shall be in substantially the same form as Exhibit F attached
hereto and made a part hereof by this reference. It is intended that any such
statement delivered pursuant to this paragraph may be relied upon by a
prospective purchaser of Landlord's interest or a mortgagee of Landlord's
interest or assignee of any mortgage upon Landlord's interest in the Building.
If Tenant fails to respond within fifteen (15) days after receipt by Tenant of a
written request by Landlord as herein provided, and such failure continues for
an additional three (3) days after a second written notice to Tenant requesting
that Tenant deliver such estoppel certificate, Tenant shall be deemed to have
given such certificate as above provided without modification and shall be
deemed to have admitted the accuracy of any information supplied by Landlord to
a prospective purchaser or mortgagee.
36. FINANCIAL STATEMENTS.
Within ten (10) days after Landlord's request, which may be made not
more than once per fiscal quarter with regard to quarterly reports, and once per
annum with regard to annual reports, Tenant shall deliver to Landlord (i) an
unaudited quarterly financial statement for both Tenant and Net2000
Communications Group, Inc. ("Guarantor"), which is executing a Guaranty of this
Lease of even date herewith, for the most recent fiscal quarter and (ii) (to the
extent not previously delivered by Tenant to Landlord) an annual financial
statement for both Tenant and Guarantor for the most recent fiscal year. Such
quarterly and annual financial statements shall include, at a minimum, a balance
sheet, a profit and loss statement and (if prepared) accompanying notes, as of
the date prepared. Landlord acknowledges that Tenant may not prepare quarterly
financial statements if and for so long as Tenant's stock (or that of its
affiliated group) is not publicly traded. Tenant hereby agrees and Landlord
hereby acknowledges that Tenant's annual financial statements shall be completed
within ninety (90) days after Tenant's fiscal year-end and that Tenant's
quarterly financial statements shall be completed within forty-five (45) days
after Tenant's fiscal quarter-end. If Tenant obtains audited financial
statements, or provides audited financial statements to any creditor or
prospective creditor (or in connection with any proposed capitalization of the
Company), then the certified public accountant preparing such audited financial
statements shall provide such audited financial statements to Landlord with a
certificate or opinion for the benefit of Landlord to the effect that such
annual financial statements are complete and materially accurate and have been
prepared in accordance with generally accepted accounting principles
consistently applied. If Tenant does not obtain audited financial statements,
then the foregoing certification (e.g., that such annual financial statements
are complete and materially accurate and have been prepared in accordance with
generally accepted accounting principles consistently applied) shall be made to
Landlord by the Chief Financial Officer of Guarantor (with respect to
Guarantor's financial statement) and of Tenant (with respect to Tenant's
financial statement). The foregoing notwithstanding, if and for so long as
Tenant is a publicly traded company, registered as such with the United States
Securities and Exchange Commission (the "SEC"), Landlord agrees to accept the
financial statements provided by Tenant to the SEC as part of its initial
registration and any annual and quarterly filings thereafter made by Tenant
which include such financial statements, in satisfaction of Tenant's obligations
under this Section 36.
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37. TRANSFER OF LANDLORD'S INTEREST.
In the event of any transfer(s) of Landlord's interest in the Premises
or the Building, other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer, to the extent such obligations are assumed by the transferee either
expressly or by operation of law, and Tenant agrees to attorn to the transferee.
38. RIGHT TO PERFORM.
If Tenant shall fail to make any payment or perform any other act on
its part to be performed hereunder, and such failure is not cured within thirty
(30) days after written notice from Landlord (provided that (a) where such
failure is curable, but cannot reasonably be cured within a thirty (30) day
period, Tenant shall not be in default if it commences such performance promptly
after receiving Landlord's notice of Tenant's failure to perform and diligently
thereafter prosecutes the same to completion, and (b) no such grace or cure
period (or such shorter grace or cure period as is set forth below) shall be
required in the event of Emergency), Landlord may, but shall not be obligated
to, perform any such obligation of Tenant, and to recover from Tenant the
reasonable and actual costs incurred by Landlord in performing such obligation,
which shall be payable within thirty (30) days after Landlord's written demand
accompanied by reasonable substantiation of the applicable costs, as additional
rent hereunder. Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the nonpayment of sums
due under this section as in the case of default by Tenant in the payment of
Rent. All sums paid by Landlord and all penalties, interest and costs in
connection therewith, shall be due and payable by Tenant together with interest
thereon at the Default Rate, which shall be calculated from the date incurred by
Landlord until the date of payment.
39. [INTENTIONALLY DELETED]
40. SALES AND AUCTIONS.
Tenant may not display or sell merchandise outside the exterior walls
and doorways of the Premises and may not use such areas for storage. Tenant
agrees not to install any exterior lighting, amplifiers or similar devices in or
about the Premises. Tenant shall not conduct or permit to be conducted any sale
by auction in, upon or from the Premises whether said auction be voluntary,
involuntary, pursuant to any assignment for the payment of creditors or pursuant
to any bankruptcy or other insolvency proceedings.
41. NO ACCESS TO ROOF.
Except as and solely to the extent expressly set forth in Section 51 of
this Lease, Tenant shall have no right of access to the roof of the Premises or
the Building and shall not install, repair or replace any aerial, fan, air
conditioner or other device on the roof of the Premises or the Building without
the prior written consent of Landlord.
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42. SECURITY.
Tenant hereby agrees to the exercise by Landlord and its agents and
employees, within their sole discretion, of such security measures as Landlord
deems necessary for the Building. Tenant may install a security system within
the Premises, provided such system and its installation (i) shall be subject to
Landlord's prior written approval, which shall not be unreasonably withheld,
conditioned or delayed (provided it shall not be unreasonable for Landlord to
deny consent to any system which is not compatible with the building's overall
security and fire safety and life safety systems, or which is not reasonably
usable by any successor tenants in the Premises), (ii) shall be in accordance
with all applicable legal requirements (iii) shall be performed at Tenant's sole
expense, and shall be otherwise be installed in accordance with the provisions
governing Alterations under this Lease.
43. AUTHORITY OF TENANT.
If Tenant is a corporation or partnership, each individual executing
this Lease on behalf of said corporation or partnership represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of said
corporation or partnership, and that this Lease is binding upon said corporation
or partnership.
44. NO ACCORD OR SATISFACTION.
No payment by Tenant or receipt by Landlord of a lesser amount than the
Rent and other sums due hereunder shall be deemed to be other than on account of
the earliest rent or other sums due, nor shall any endorsement or statement on
any check or accompanying any check or payment be deemed an accord and
satisfaction; and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or other sum and to pursue
any other remedy provided in this Lease.
45. [INTENTIONALLY DELETED].
46. PARKING.
(a) Subject to availability, Tenant shall have right during the
Lease Term to purchase from Landlord or from the applicable parking garage
operator (as designated by Landlord) one (1) monthly parking contract in the
Building's parking garage for each 1,500 square feet of net rentable area in the
Premises, at the monthly rate for parking charged by Landlord or the applicable
parking garage operator (as the same may be modified from time to time). The
foregoing right to park in the Building's parking garage shall be on an
unreserved, non-exclusive basis, in common with other tenants of the Building
and any other persons entitled to park therein, upon such terms and conditions
as Landlord or such operator may impose in a non-discriminatory fashion in
connection with the operation of such garage, and shall be subject to
availability. Tenant further agrees that if it does not exercise the foregoing
right to purchase parking contracts within three (3) months after the
Commencement Date for each applicable portion of the Premises, or if it
thereafter terminates one (1) or more of the parking contracts it
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has a right to enter into hereunder, then such right shall be extinguished to
the extent such contracts are so canceled or such right not exercised (provided
nothing herein will restrict Tenant from entering into such parking arrangements
with the parking garage operator as Tenant may independently secure). Landlord
reserves the right in its sole discretion (i) to allocate and assign reserved
parking spaces among some or all of the tenants of the Building or to other
users of the garage (and Tenant shall comply with any such parking assignments),
(ii) to reconfigure the parking area and (iii) modify the existing ingress to
and egress from the parking garage as Landlord shall deem appropriate, as long
as access to such garage is maintained after any such modification is completed.
(b) Tenant acknowledges that the parking garage described in
subparagraph (a), above, includes areas which are dedicated to the use of
particular tenants including the area which may be designated for Tenant's UPS
System, Generator Fuel Tank and other specialized equipment (pursuant to and as
limited by Exhibit C), and Tenant hereby irrevocably consents to such dedicated
usage, as the same may be modified by Landlord from time to time in Landlord's
sole discretion. In addition, Tenant acknowledges that Landlord has leased the
Building's entire parking garage to a parking garage operator, who in turn has
the right to collect parking fees from tenants and others for the use of such
parking spaces on a daily, monthly or other basis. Accordingly, to the extent
Tenant's UPS System, Generator or Generator Fuel Tank or any other specialized
equipment of Tenant is installed within the Building's parking garage, and such
installation utilizes parking spaces otherwise available for the parking of
vehicles, Tenant acknowledges that it shall be required to rent such spaces from
the parking garage operator or from Landlord, and Tenant shall pay to Landlord
(or if Landlord designates or the parking garage lease so requires, the
applicable parking garage operator) for each such parking space (and for each
month or portion thereof during which such use continues) a monthly charge equal
to the monthly rate for parking charged by Landlord or the applicable parking
garage operator (as the same may be modified from time to time), which payment
shall constitute Additional Rent under this Lease and shall be paid on the first
day of each month, in advance, together with Tenant's payments of Base Rent
hereunder (and if paid to Landlord at a time when the parking garage lease is in
effect, Landlord shall be obliged to forward such payment to the parking garage
operator in order to ensure the availability of such spaces for the Tenant's
use). For example, if Tenant's UPS System and Generator Fuel Tank utilizes three
(3) parking spaces, and the monthly parking charge for a single automobile in
the garage equals $160 per month for the entire duration of such utilization,
Tenant shall pay to Landlord (or if Landlord so designates, the applicable
parking garage operator) an amount equal to $480 per month for so long as such
utilization continues.
47. GENERAL PROVISIONS.
47.1 Acceptance. The delivery of any draft of this Lease, including
a so-called "execution draft," shall not constitute an offer of any kind, and
this Lease shall only become effective and binding upon full execution hereof by
Landlord and Tenant, and delivery of a signed copy by Landlord to Tenant.
47.2 Joint Obligation. If there be more than one Tenant, the
obligations hereunder imposed shall be joint and several.
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47.3 Marginal Headings, Etc. The marginal headings, Table of
Contents, lease summary sheet and titles to the sections of this Lease are not a
part of the Lease and shall have no effect upon the construction or
interpretation of any part hereof.
47.4 Choice of Law. This Lease shall be governed by and construed
in accordance with the laws of the State in which the Premises is located
(without regard to the choice of law and/or conflict of law principles
applicable in such State).
47.5 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, inure to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
47.6 Recordation. Except to the extent otherwise required by law,
neither Landlord nor Tenant shall record this Lease, but a short-form memorandum
hereof may be recorded at the request of Landlord or (subject to Landlord's
reasonable approval as to form and content) Tenant, provided that (i) the party
recording any such memorandum shall pay all costs of such recordation, including
any applicable transfer or recordation taxes, and (ii) if Tenant requests that
Landlord record such a memorandum, such memorandum shall provide on its face
that any instrument executed and recorded by Landlord which purports to release
such memorandum of record shall constitute a valid release thereof for all
purposes notwithstanding the fact that Tenant is not a party to such instrument
of release (and Landlord covenants that it will not record such release until
such time as this Lease expires or is terminated).
47.7 Quiet Possession. Upon Tenant's paying the Rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant shall
have quiet possession of the Premises for the Lease Term hereof free from any
disturbance or molestation by Landlord, or anyone claiming by, through or under
Landlord, but in all events subject to all the provisions of this Lease.
47.8 Inability to Perform; Force Majeure. This Lease and the
obligations of the parties hereunder shall not be affected or impaired because
the other party is unable to fulfill any of its obligations hereunder (or is
delayed in doing so) to the extent such inability or delay is caused by reason
of war, civil unrest, strike, labor troubles, unusually inclement weather,
unusual governmental delays, inability to procure services or materials despite
reasonable efforts, third party delays, acts of God, or any other cause(s)
beyond the reasonable control of such party (which causes are referred to
collectively herein as "Force Majeure"), provided (i) in no event shall any
monetary obligations, including without limitation the Tenant's obligation to
pay Base Rent or additional rent, be extended due to Force Majeure except that
to the extent Tenant conducts its banking at a bank which is closed for
operation during any day upon which banks are otherwise normally open for
business because of an earthquake, riot or governmental order, and such closure
in fact causes delay in Tenant's ability to make a payment due under this Lease,
then Tenant's obligation to make such payment shall be excused for the lesser of
(A) the duration of such bank closure due to such causes, or (B) three (3)
business days, (ii) in no event shall financial inability constitute a cause
beyond the reasonable control of a party, and (iii) in order for any party
hereto to claim the benefit of a delay due to Force Majeure, such party shall be
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required to use reasonable efforts to minimize the extent and duration of such
delay, and to notify the other party of the existence and nature of the cause of
such delay within a reasonable time after the such delay first commences. Except
as limited by the foregoing clauses (i), (ii) and (iii), any time specified
non-monetary obligation of a party in this Lease shall be extended one day for
each day of delay suffered by such party as a result of the occurrence of any
Force Majeure.
47.9 Partial Invalidity. Any provision of this Lease which shall
prove to be invalid, void, or illegal shall in no way affect, impair or
invalidate any other provision hereof and such other provision(s) shall remain
in full force and effect.
47.10 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
47.11 Entire Agreement. This Lease, including all attachments,
addenda and exhibits, contains the entire agreement of the parties hereto and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties, not embodied herein, shall be of any force or effect.
47.12 Survival. All indemnities set forth in this Lease shall
survive the expiration or earlier termination of this Lease.
47.13 Consents. If any provision of this Lease subjects any action,
inaction, activity or other right or obligation of Tenant to the prior consent
or approval of Landlord, Landlord shall be deemed to have the right to exercise
its sole and unfettered discretion in determining whether to grant or deny such
consent or approval, unless the provision in question states that Landlord's
consent or approval "shall not be unreasonably withheld" (or a substantially
similar qualification referring to reasonableness) in which event Landlord's
consent shall be subject to Landlord's sole, but reasonable, discretion. Upon
Tenant's request, or where this Lease explicitly requires the same, Landlord
shall provide a written explanation to Tenant of the reason(s) for withholding
any approval.
47.14 Saving Clause. In the event (but solely to the extent) the
limitations on Landlord's liability set forth in Section 8.3 of this Lease would
be held to be unenforceable or void in the absence of a modification holding the
Landlord liable to Tenant or to another person for injury, loss, damage or
liability arising from Landlord's omission, fault, negligence or other
misconduct on or about the Premises, or other areas of the Building appurtenant
thereto or used in connection therewith and not under Tenant's exclusive
control, then such provision shall be deemed modified as and to the extent (but
solely to the extent) necessary to render such provision enforceable under
applicable law. The foregoing shall not affect the application of Section 34 of
this Lease to limit the assets available for execution of any claim against
Landlord.
47.15 Reservation. Nothing herein set forth shall be deemed or
construed to restrict Landlord from making any modifications to any of the
parking and/or common areas serving the Building and/or Premises as of the date
of execution hereof, and Landlord expressly reserves the right to make any
modifications to such areas as Landlord may deem appropriate, including but
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not limited to, the addition or deletion of temporary and/or permanent
improvements therein, and/or the conversion of areas now dedicated for the
non-exclusive common use of tenants (including Tenant) to the exclusive use of
one (1) or more tenants or licensees within the Building, provided in no event
will Landlord modify the parking or common areas in a manner which would deny
Tenant reasonable access to the Premises, or materially and adversely affect
Tenant's use of specialized equipment which is being installed by Tenant therein
pursuant to the terms of this Lease.
47.16 Keys. Landlord shall initially provide Tenant, without charge,
five (5) suite keys and five (5) security keys (to the extent the Building has a
remote entry security system). The cost of any additional or replacement suite
keys or security keys shall be reimbursed by Tenant to Landlord upon demand.
Tenant shall be permitted to change its keys and locks for security purposes,
provided no modification of locks and keys will be effected unless (i) in the
case of manual keys, all such keys are fabricated consistent with the Landlord's
master key for all manual door locks within the Building, and/or Landlord's
management agent is simultaneously provided with keys to any such locks being
modified, so as to ensure that Landlord has a key which will open every manual
door lock to or located within the Premises, (ii) in the case of electronic
entry systems involving card readers or touchpad combinations, Landlord (or
Landlord's management agent) is simultaneously provided with a key-card or the
applicable touchpad combinations, so as to ensure that Landlord has the ability
to gain entry through every electronic door lock to or located within the
Premises. Without limiting Landlord's other available remedies, if Tenant fails
to comply with the foregoing requirements, and as a result, Landlord (or its
agent and contractor) damages or destroys a door or lock or locking system or
similar item in order to gain access to the Premises (or the applicable portion
thereof) on an emergency basis, Tenant shall be solely responsible for all such
damage and destruction, and shall have no claim against Landlord or its agent or
contractor in connection therewith.
47.17 Rule Against Perpetuities. In order to ensure the compliance
of this Lease with any rule against perpetuities that may be in force in the
state in which the Premises are located, and without limiting or otherwise
affecting Landlord's and Tenant's rights and obligations under this Lease, as
stated in the other sections hereof, Landlord and Tenant agree that,
irrespective of the reasons therefor (other than a default by Tenant), in the
event Tenant fails to take possession of the Premises and commence paying Base
Rent hereunder within twenty (20) years after the date of execution of this
Lease, then this Lease, and the obligations of the parties hereunder, shall be
deemed to be null and void and of no further force and effect. Without affecting
the specific timing requirements otherwise applicable thereto under this Lease,
any and all options granted to Tenant under this Lease (including, without
limitation, expansion, renewal, right of first refusal, right of first offer,
and like options) must be exercised by Tenant, if at all, during the term of
this Lease.
47.18 Certain Terminology.
A. The terms "including," "includes" and terms of like import
shall be interpreted to mean "including, but not limited to" and/or "includes,
without limitation."
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B. The terms "herein," "hereunder," "hereinbelow," "above"
and/or "below," and any terms of like import, shall be interpreted to mean this
Lease as a whole, and not merely the Section, paragraph or subparagraph within
which such term is set forth.
C. As used in those provisions of this Lease where Tenant is
agreeing to assume responsibility for certain conduct, actions and/or omissions
of "Tenant," the term "Tenant" shall be construed to mean Tenant, and Tenant's
agents, employees, contractors, subcontractors, assignees, sublessees, licensees
and, while within the Premises, invitees and business visitors. As used in those
provisions of this Lease where Landlord is agreeing to assume responsibility for
certain conduct, actions and/or omissions of "Landlord," the term "Landlord"
shall be construed to mean Landlord and Landlord's agents, employees,
contractors and subcontractors (but not to include any tenants or occupants of
the Building).
D. The term "Emergency" shall mean and refer to any situation
or circumstance where there is an immediate or imminent risk of injury or death
to persons or damage to property unless immediate action is taken to address
such situation or circumstances, as determined by the party invoking such term
in good faith.
48. [INTENTIONALLY DELETED]
49. WAIVER OF JURY TRIAL.
LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ALL
MATTERS ARISING OUT OF THIS LEASE, OR THE USE AND OCCUPANCY OF THE PREMISES. IF
LANDLORD COMMENCES ANY SUMMARY PROCEEDING FOR NON-PAYMENT OF RENT, TENANT WILL
NOT INTERPOSE (AND WAIVES THE RIGHT TO INTERPOSE) ANY NON-COMPULSORY
COUNTERCLAIM IN ANY SUCH PROCEEDING (BUT THE SAME SHALL NOT PRECLUDE TENANT FROM
(I) ASSERTING ANY SUCH CLAIM AGAINST LANDLORD IN A SEPARATE, INDEPENDENT LEGAL
ACTION AND (II) ASSERTING ANY VALID DEFENSES OR COMPULSORY COUNTERCLAIMS IN
LANDLORD'S SUMMARY PROCEEDING FOR NON-PAYMENT OF RENT).
50. RENEWAL OPTION.
A. General. Provided that (i) both at the time of the exercise of
the option hereinafter set forth and at the time of commencement of the Renewal
Term (as hereinafter defined) this Lease is in full force and effect, and
provided further that Tenant is not then in default hereunder beyond the
expiration of any applicable notice and cure period provided for in this Lease
and (ii) Tenant is in occupancy of at least fifty percent (50%) of the Premises
for the purpose of conducting its own business, Tenant is hereby granted the
option to renew the Lease Term for two (2) additional period(s) of sixty (60)
months (the "Renewal Term"), the first such Renewal Term to commence at the
expiration of the initial Lease Term, and the second such Renewal Term to
commence at the expiration of the first Renewal Term. Tenant shall exercise its
option to renew by delivering notice of such election (the "Renewal Notice") to
Landlord not less than nine (9) months nor more than eighteen (18) months prior
to the expiration of the initial Lease Term (for exercise of Tenant's renewal
option with respect to the first Renewal Term) or not less than nine (9) months
nor more than eighteen (18) months prior to the expiration of the first
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Renewal Term (for exercise of Tenant's renewal option with respect to the second
Renewal Term). In the event that Landlord does not receive the Renewal Notice
prior to the expiration of such time period (time being of the essence with
respect thereto), then such option to renew the Lease Term (and any subsequent
renewal option) shall, upon the expiration of such time period, become null and
void and be of no further force or effect.
B. Terms. Each Renewal Term shall be upon the same terms and
conditions of this Lease except that (a) the Base Rent during the applicable
Renewal Term shall be at such annual rate as may be determined by the agreement
of Landlord and Tenant or, if Landlord and Tenant are unable to reach agreement
within twenty (20) days after the date of the Renewal Notice, at an annual rate
equal to the annual fair market rental rate ("FMR") for space comparable to the
Premises for the applicable Renewal Term as determined by the Three Appraiser
Method set forth in Section 50.C of this Lease; (b) Tenant shall have no option
to renew the Lease Term beyond the expiration of the second Renewal Term; (c)
the Premises shall be delivered in their existing condition (on an "as is"
basis) at the time each Renewal Term commences; and (d) the Base Year shall be
adjusted to be the calendar year in which the Renewal Term commences.
C. Three Appraiser Method. If the parties are unable to agree
upon the FMR for space having a comparable size and use as the Premises
("comparable space"), said rental rate shall be determined by arbitration in the
following manner:
(i) Landlord and Tenant shall each appoint one arbitrator who
shall, by profession, be an M.A.I. real estate appraiser, and who shall have
been active over the five (5) year period ending on the date of the Renewal
Notice in the appraisal of office properties in the Central Business District of
Washington, D.C. ("Washington CBD"). Each such arbitrator shall be appointed
within thirty (30) days after the date of the Renewal Notice.
(ii) The two arbitrators so appointed shall, within ten (10)
days of the date of the appointment of the last appointed arbitrator, agree upon
and appoint a third arbitrator who shall be qualified based upon the same
criteria set forth hereinabove for the qualification of the initial two
arbitrators.
(iii) The three arbitrators shall within ten (10) days of the
appointment of the third arbitrator reach a decision the regarding the
prevailing fair market rental for comparable space in the Washington CBD, and
notify Landlord and Tenant thereof.
(iv) The decision of the majority of the three arbitrators
shall be binding upon Landlord and Tenant. Failure of a majority of said
arbitrators to reach agreement shall result in the prevailing fair market rental
for comparable space in the Washington CBD being designated by averaging the
appraisals of the three arbitrators, ignoring for the purposes of such averaging
the high and/or low appraisal which is more than ten percent (10%) in excess of
or less than the middle appraisal.
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(v) If either Landlord or Tenant fails to appoint an
arbitrator within the time period specified in subparagraph (i) hereinabove, the
arbitrator appointed by one of them shall reach a decision and notify Landlord
and Tenant thereof, and such arbitrator's decision shall be binding upon
Landlord and Tenant.
(vi) The cost of arbitration shall be paid by Landlord and
Tenant equally.
In calculating the FMR, the three arbitrators will endeavor to
determine the annual rental rate per square foot that a tenant would pay, and
that a landlord would accept, for comparable space within buildings of the same
quality as the Building and located in the Washington CBD, using a Base Year as
required pursuant to the terms hereof, and otherwise shall take into account all
criteria which would fairly be applicable at the time, as determined by the
appraisers using their experience, which factors may (but shall not necessarily)
include (i) the annual rental rates per square foot for comparable facilities,
if any, (ii) the use to which Tenant puts the leased premises, (iii) the extent
of Tenant's liability for increases in Operating Costs and Taxes, (iv) the
replacement cost for a comparable space, taking into account any specialized
technological equipment and facilities which are installed therein, (v) market
rate concessions, (vi) the length of the renewal term, and (vii) other generally
applicable conditions of tenancy for comparable transactions.
D. New Lease After Renewal Term. Except for the renewal option
set forth above in this Section 50, this Lease may only be extended beyond the
Lease Expiration Date by the parties executing a new lease on Landlord's then
current lease form or by an extension agreement signed by both parties making
specific reference to this Lease. No proposals, offers, correspondence, or the
like shall be legally binding upon Landlord unless and until the terms thereof
are incorporated in either a new lease or a formal amendment to this Lease as
provided in this subsection.
51. ROOF RIGHTS.
51.1 Generally. Subject to (i) compliance with all rules,
regulations, statutes and codes of any governmental authority having
jurisdiction thereover, (ii) compliance with any covenants, conditions and
restrictions applicable to the Building, (iii) the prior rights of other tenants
or occupants of the Building with respect to the use of the roof thereof for dry
coolers, condensers, antennae and communications equipment, and (iv) subject to
Landlord's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed, Tenant shall have the right of access to and
the non-exclusive use of the roof of the Building (without additional charge
therefor except as expressly set forth in this Article 51) for the installation
of dry coolers, condensers, antennae and communication equipment consisting of
not more than six (6) devices which, in the aggregate, will utilize a maximum of
200 square feet on the roof inclusive of the devices themselves and any
appurtenant roof areas needed to accommodate the installation and maintenance of
such devices (Tenant's "Roof Use"); provided further that such installation and
the Roof Use shall not void any roof or other warranty applicable to the
Building and that all such installations shall be located and screened in a
manner acceptable to Landlord in its sole, but reasonable, discretion.
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51.2 Insurance Premiums. If the rate of any insurance carried by
Landlord is increased as a result of Tenant's Roof Use, then Tenant will pay to
Landlord within thirty (30) days after Landlord delivers to Tenant a certified
statement from Landlord's insurance carrier stating that the rate increase was
caused by Tenant's Roof Use, a sum equal to the difference between the original
premium and the increased premium resulting from the Roof Use.
51.3 No Representations. Landlord has not made any representations
or promises pertaining to the suitability of the Building's rooftop for the Roof
Use. Tenant, for the purpose of this paragraph and its right to rooftop access
hereunder, accepts the rooftop in its "as is" condition.
51.4 Compliance with Legal Requirements. Tenant will obtain prior
to installation, any and all necessary licenses, approvals, permits, etc.,
necessary for the installation, maintenance and use of any equipment installed
pursuant to this Section 51. Tenant's Roof Use shall not in any way conflict
with any applicable law, statute, ordinance or governmental rules or regulation
now in force or which may hereafter be enacted. The Tenant will, at its sole
cost and expense, promptly comply or ensure that the Building complies with all
laws, statutes, ordinances, governmental rules or regulations, or requirements
of any board of fire insurance underwriters or other similar bodies now or
hereafter constituted relating to or affecting Tenant's Roof Use. Tenant shall
indemnify and hold Landlord harmless from and against any and all loss, cost
(including reasonable attorney's fees incurred in defending Landlord), damage or
liability arising out of any violations of said laws, statutes, ordinances rule
or regulations.
51.5 Additional Covenants. Tenant's Roof Use shall be exercised:
(1) in such manner as will not create any hazardous condition or interfere with
or impair the operation of the heating, ventilation, air conditioning, plumbing,
electrical, fire protection, life safety, public utilities or other systems or
facilities in the Building; (2) in compliance with all applicable laws, codes
and regulations; (3) in such a manner as will not directly or indirectly
interfere with, delay, restrict or impose any expense, work or obligation upon
Landlord in the use or operation of the Building, and/or the use and operation
of similar pre-existing equipment by other tenants and occupants of the
Building; (4) at Tenant's cost, including the cost of repairing all damage to
the Buildings and any personal injury and/or property damage attributable to the
installation, inspection, adjustment, maintenance, removal or replacement of any
equipment or apparatus on the roofs approved hereunder; and (5) in a manner
which will not void or invalidate any roof warranty then in effect with respect
to the roof of the Building. Tenant's Roof Use shall be used solely in the
ordinary course of Tenant's business operations and Tenant may not sublease,
license or otherwise permit third parties to establish communications
transmission facilities as part of Tenant's Roof Use except as an integral part
of a permitted collocation arrangement under Section 21 of this Lease.
52. UPS, GENERATOR AND GENERATOR RIGHTS.
52.1 Subject to (i) compliance with all rules, regulations,
statutes and codes of any governmental authority having jurisdiction thereover,
(ii) compliance with any covenants, conditions and restrictions applicable to
the Building, (iii) the prior rights of other tenants or
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occupants of the Building with respect to the use of the roof thereof for
communications equipment, (iv) the parking charges required pursuant to Section
45 hereof (to the extent applicable) and (v) subject to Landlord's prior written
consent as to the location and method of installation, which consent shall not
be unreasonably withheld, conditioned or delayed, Tenant shall have the right of
access to and use of a space for the placement and use of Tenant's UPS System,
emergency generator ("Generator") and related Generator Fuel Tank pursuant to
the plans and specifications existing or contemplated under Exhibit C of this
Lease.
52.2 If the rate of any insurance carried by Landlord is increased
as a result of Tenant's installation of the UPS System, Generator and related
Generator Fuel Tank, then Tenant will pay to Landlord within thirty (30) days
after Landlord delivers to Tenant a certified statement from Landlord's
insurance carrier stating that the rate increase was caused thereby, a sum equal
to the difference between the original premium and the increased premium
resulting therefrom.
52.3 Landlord has not made any representations or promises
pertaining to the suitability of the area to be designated within the parking
garage for the installation and operation of the UPS System, Generator and
related Generator Fuel Tank. Tenant, for the purpose of this paragraph, agrees
to accept the space(s) described in Exhibit C for such purpose in its "as is"
condition. The foregoing notwithstanding, and subject to Landlord's right to
maximize the use of the parking garage for vehicle parking purposes, Landlord
agrees to cooperate with Tenant to select an area within the parking garage
which is reasonably suitable for the operation and maintenance of the Generator
and Generator Fuel Tank, provided Tenant provides appropriate specifications to
Landlord prior to such designation to enable Landlord to cause the designation
of such area to be suitable to accommodate such use.
52.4 Tenant will obtain prior to installation, any and all
necessary licenses, approvals, permits, etc., necessary for the installation,
maintenance and use of any equipment installed pursuant to this Section 52.
Tenant's installation, operation and use of the UPS System and related Generator
Fuel Tank shall not in any way conflict with any applicable law, statute,
ordinance or governmental rules or regulation now in force or which may
hereafter be enacted. The Tenant will, at its sole cost and expense, promptly
comply or ensure that the connection of Tenant's UPS System, Generator and
related Generator Fuel Tank to the Building and Premises, and the use and
operation thereof, complies with all laws, statutes, ordinances, governmental
rules or regulations, or requirements of any board of fire insurance
underwriters or other similar bodies now or hereafter constituted relating to or
affecting thereto. Tenant shall indemnify and hold Landlord harmless from and
against any and all loss, cost (including reasonable attorney's fees incurred in
defending Landlord), damage or liability arising out of any violations of said
laws, statutes, ordinances rule or regulations, or arising out of the use,
operation and maintenance of Tenant's UPS System, Generator and related
Generator Fuel Tank.
52.5 Tenant's use and operation of the UPS System, Generator and
related Generator Fuel Tank shall be exercised: (1) in such manner as will not
create any hazardous condition or interfere with or impair the operation of the
heating, ventilation, air conditioning, plumbing, electrical, fire protection,
life safety, public utilities or other systems or facilities in the Building;
(2) in compliance with all applicable laws, codes and regulations; (3) in such a
manner as will not directly or indirectly interfere with, delay, restrict or
impose any expense, work or obligation
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upon Landlord in the use or operation of such Building; and (4) at Tenant's cost
(subject to reimbursement from any applicable Improvement Allowance pursuant to
Exhibit C, if any), including the cost of repairing all damage to the Building
and any personal injury and/or property damage attributable to the installation,
inspection, adjustment, maintenance, removal or replacement of any equipment,
apparatus or facilities pursuant to this Section 52. Such use shall be confined
solely to the ordinary course of Tenant's business operations, and shall be
personal to Tenant and any party to whom Tenant assigns this Lease pursuant to
Section 21.4 hereof.
52.6 In connection with Tenant's use of the UPS System, Generator
and related Generator Fuel Tank, and subject to the above-stated
responsibilities of Tenant, Tenant shall have the right to operate the Generator
at such intervals and for such periods of time as may be recommended by or
required by the manufacturer of such generator, or at such other intervals as
Tenant deems necessary in its reasonable judgment provided (i) Tenant will
provide notice to Landlord of the scheduled times for such regular testing and
operation, (ii) Tenant will use all reasonable and diligent efforts to perform
any such testing or periodic operation outside of Normal Business Hours (it
being acknowledged by Landlord that certain testing and operation will
necessarily take place during peak operational periods, which may include during
Normal Business Hours), and (iii) such testing will be performed in a manner
reasonably calculated to minimize any inconvenience to other tenants and
occupants of the Building, and their respective employees and invitees.
53. RIGHT OF FIRST OFFER ON CONTIGUOUS SPACE.
53.1 Subject to all pre-existing renewal and/or expansion rights of
any other tenants in the Building as of the date hereof, if any, Tenant is
hereby granted a right of first offer on any space in the Building which is
contiguous to the Premises, which for purposes hereof, shall mean space located
on either the second or fourth floors of the building only (such space,
"Contiguous Space"), in accordance with and subject to the terms of this Section
53. Such right of first offer shall apply to all, but not less than all, of each
Contiguous Space that becomes available for lease during the Term of this Lease
(including any extension Term) provided the terms of this Section 53 regarding
the minimum term of any Expansion Lease are satisfied. All references in this
Section 53 to any right of first offer shall mean and refer only to the right of
first offer which is established and applicable under this Section 53. The right
of first offer under this Section 53 shall be "activated" once Landlord has
determined that a Contiguous Space will become available for occupancy as of a
date certain, that no other tenant with such a right has exercised a prior
renewal or expansion right with respect thereto, and Landlord has notified
Tenant of such determination in writing. At such time (hereinafter, each an
"Offer Date"), Landlord shall give notice (an "Offer Notice") to Tenant of the
activation of such right of first offer on such space, including (i) a
description of the rentable area thereof (herein referred to as the "Offer
Space"), (ii) the date on which Landlord estimates in good faith that such Offer
Space will be available for occupancy; (iii) the annual "Base Rent" per square
foot of rentable area which Landlord intends to charge for such space, including
all fixed and/or indexed adjustments to said rate (and which shall be based upon
the fair market rental and escalations for such space under prevailing market
conditions as determined by Landlord in its good faith judgment); (iv) the
proposed lease term for such space (which, during the first four (4) years of
the initial Term of this Lease shall be coterminous with the initial Term hereof
and which continuing at all times thereafter shall be a
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six (6) year term irrespective of whether the same is coterminous with the
initial Term of this Lease); (v) the condition the space is proposed to be
placed in as of the commencement of the proposed lease; and (vi) all other terms
which Landlord intends to offer with respect to such space, including any tenant
improvement allowance (which shall be prorated to reflect the limited term of
the lease in question).
53.2 Tenant may, within ten (10) business days after the receipt of
each such Offer Notice, give notice to Landlord in writing (the "Exercise
Notice") agreeing to lease the Offer Space in accordance with the terms set
forth in the Offer Notice and otherwise as set forth in this Section 53. If
Tenant delivers to Landlord an Exercise Notice which accepts the business terms
stated in Landlord's Offer Notice, then Landlord shall within ten (10) business
days thereafter deliver to Tenant a lease ("Offer Lease") of the Offer Space
having the legal terms consistent with the terms specified in this Lease, except
that the business terms shall conform to those set forth in Landlord's Offer
Notice.
53.3 Should Tenant fail to deliver an Exercise Notice under
Subparagraph 53.2 above within the time provided, then in such event, Tenant's
right of first offer under this Section 53 as to such Offer Space shall be
deemed to have lapsed, Landlord shall be free to lease such Offer Space to a
third party on any terms Landlord deems appropriate, and Tenant's right of first
offer under this Section 53 as to such Offer Space shall be null and void until
the next lease of such Offer Space expires or is terminated. If Tenant shall
fail to execute and deliver the Offer Lease to Landlord within fifteen (15)
business days after delivery to Tenant of an Offer Lease which reflects the
agreed upon terms, other than as a result of delays caused by the actions or
omissions of Landlord, then not only shall Tenant's right of first offer under
this Section 53 be deemed to have lapsed as to such Offer Space, but Tenant's
right of first offer shall, in such event, be terminated and of no further force
and effect. The foregoing notwithstanding, (i) if Landlord has not entered into
a letter of intent with respect to any applicable Offer Space within one-hundred
eighty (180) days after the date upon which Tenant's right of first offer under
this Section 53 as to such Offer Space is deemed to have lapsed (each such date,
the "Lapse Date"), and Landlord is not as of such one hundred eightieth (180th)
day after the Lapse Date actively engaged in good faith lease negotiations with
any tenant prospect for the applicable Offer Space, or (ii) provided Landlord is
as of such one hundred eightieth (180th) day after the Lapse Date actively
engaged in good faith lease negotiations with a tenant prospect for the
applicable Offer Space, if such good faith negotiations are thereafter
terminated or if such negotiations do not result in a fully executed lease
within ninety (90) days of the end of such one hundred eighty (180) day period,
then in either such event, Tenant's right of first offer as to such Offer Space
shall thereupon be reinstituted, and such Offer Space shall again become subject
to Tenant's right of first offer under this Section 53 for an additional period
often (10) business days, as if the activation of such right of first offer had
occurred at the time described in clause (i) or (ii), above, as the case may be.
Time is of the essence of this Section 53.
53.4 Business Terms of Offer Leases.
A. With regard to the right of first offer under this Section
53, the business terms applicable to such Offer Lease shall be as follows: Each
such Offer Lease shall have (i) an initial term commencing on that date which is
sixty (60) days after the date of delivery of possession of
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the applicable Offer Space to Tenant in "as-is" condition, which sixty (60) day
period shall be subject to extension for not more than sixty (60) additional
days, but solely to the extent of any actual delay suffered by Tenant in the
completion of any Tenant Improvements in the Offer Space despite Tenant's due
diligence and the same is either due to (a) any Landlord Delays (as defined in
Exhibit C) and/or (b) Force Majeure (as defined in Section 47.8, above), (ii) an
initial term with a duration as described in this Section 53, above, (iii) Base
Rent and Additional Rent as stated in the Offer Notice, (iv) Tenant paying its
proportionate share of Operating Expenses and Real Estate Taxes in excess of
Operating Expenses and Real Estate Taxes for a Base Year coinciding with the
Base Year set forth in Landlord's Offer Notice, and (v) construction of Tenant
Improvements to be handled in a manner substantially identical to the
construction of Tenant Improvements under this Lease, with such improvement
allowance (if any) as is stated within Landlord's Offer Notice, but without
adjustment of the Commencement Date due to the time of construction of any
Tenant Improvements to the Offer Space. Such Offer Lease will not provide for
any further expansion options, renewal options or other business provisions
unless set forth in the Offer Notice which is accepted by Tenant. Landlord shall
give notice (an "Offer Notice") to Tenant of the activation of such right of
first offer.
53.5 The right of first offer provided for in this Section 53 shall
be personal to Tenant, and may not be assigned by Tenant. Accordingly, upon any
assignment of this Lease by Tenant (other than pursuant to Section 21.4,
herein), this Section 53 shall be null and void and of no further force and
effect.
54. ADDITIONAL SCHEDULES.
The following additional schedules are attached hereto and made a part
of this Lease:
EXHIBIT A-1 Location and Dimensions of Premises
EXHIBIT A-2 Description of Land
EXHIBIT B Declaration of Lease Commencement
EXHIBIT C Construction Exhibit; Landlord's Work and Tenant Work
EXHIBIT D Rules and Regulations
EXHIBIT E Janitorial Specifications
EXHIBIT F Form Estoppel Certificate
EXHIBIT G [Intentionally Deleted]
EXHIBIT H Form of SNDA
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of
Lease, in quadruplicate, on the day and year first above written.
LANDLORD:
WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a Delaware
limited liability company
By: /s/ Richard R. Previdi
----------------------------------------
Richard R. Previdi, Authorized Signatory
TENANT:
NET2000 COMMUNICATIONS REAL ESTATE, L.L.C., a
Delaware limited liability company
By: /s/ Jason Karp (seal)
----------------------------------
Name: Jason Karp
Title: Director Regulatory & Law
Assistant Secretary
Execution Draft
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EXHIBIT 10.23
2/19/99
LEASE
This lease, dated for reference purposes only, as of the 4th day of
January, 1999, is entered into by and between MURDOCK ATRIUM LIMITED
PARTNERSHIP, a Maryland limited partnership ("Landlord"), and NET2000
COMMUNICATIONS REAL ESTATE, INC., ("Tenant");
PREAMBLE
Landlord, in consideration of the rent to be paid and the covenants and
agreements to be performed by Tenant, as hereinafter set forth, does hereby
lease, demise, and let unto Tenant and Tenant hereby leases and accepts from
Landlord that certain space in the "Building," as defined below, shown and
designated on the floor plan attached hereto as Exhibit "A" and incorporated
herein by this reference (the "Premises") for the "Term," as defined below,
unless sooner terminated as herein provided. The Premises are leased by Landlord
to Tenant and are accepted and are to be used and possessed by Tenant upon and
subject to the following terms, provisions, covenants, agreements, and
conditions.
1. PRINCIPAL LEASE PROVISIONS.
Each reference in this Lease to any of the terms described in this
Article I shall mean and refer to the following; however, the other Articles of
this Lease contain numerous refinements and exceptions which qualify the
provisions of this Article; all other terms are as defined in this Lease:
1.1 Landlord's Address: c/o Mega Management Company
PO Box 68
Kannapolis, NC 28082
ATTN: Lynne Scott Safrit
With copy to: Murdock Management Company
575 S. Charles Street, #406
Baltimore, MD 21201
1.2 Tenant's Address: c/o Net2000 Communication, Inc.
8180 Greensboro Drive
McLean, Virginia 22102
Attn: Legal Department
With copy to: Net2000 Communications, Inc.
2195 Fox Mill Road
Herndon, Virginia 20171
Attn: Facilities Manager
1.3 Building: One Market Center
300 West Lexington Street
Baltimore, Maryland 21201
1.4 (a) Rentable Square Footage of the Building:
203,616 square feet
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(b) Rentable Square Footage of Retail Space:
61,536 square feet
(c) Rentable Square Footage of Office Space:
142,080 square feet
1.5 Area of Premises: 16,864 rentable square feet. Tenant shall have the
right, at Tenant's expense, using an architect or other professional approved by
Landlord, which approval shall not be unreasonably withheld or delayed, during
the period after the substantial completion of the Landlord's Work and prior to
the Commencement Date of the Lease Term to verify the accuracy of this figure
using the method for measuring rentable area as described in the Standard Method
for Measuring Floor Area in Office Buildings, ANSI Z65.1-1980 (reaffirmed in
1989), except that the vertical chases, indicated on Exhibit "A", used in common
with telecommunication Tenants of the Building shall be considered rentable
square feet. In the event the rentable area of the Premises is greater or less
than 16,864 square feet, the Tenant's Percentage and the Monthly Rental set
forth below shall be appropriately adjusted.
1.6 Floor Number: Forth Floor
1.7 Suite Number: 0401 A
1.8 Lease Term: 10 years and 6 months plus two 5 year
extension options
1.9 Commencement Date of Lease Term. The Commencement Date of the Lease
shall be the date that Landlord provides Tenant a fully executed Lease and shall
be acknowledged by Landlord and Tenant with a side letter agreement.
1.10 Termination Date of Initial Lease Term. The initial term of the
Lease will terminate at 11:59 p.m. on the day immediately preceding 10 years and
6 months after the Commencement Date unless sooner terminated as provided in
this Lease.
1.11 Monthly Rental During First Lease Year: U.S. $16,161.33
(I.e., 1/12 of $11.50/sq. ft. per year)
1.12 Tenant's Percentage
(a) 8.28% of Building
(b) -0-% of Retail Space
(c) 11.87% of Office Space
1.13 Security Deposit: None
1.14 Brokers: CB Richard Ellis, Inc. (James Grieves)
Telecom Realty Group, Inc. (Howard B.
Horowitz)
1.15 State: Maryland
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1.16 Use of Premises: General office use and switch facility as more
particularly described in section 7.1.
2. PREMISES.
2.1 Premises: Landlord hereby leases the Premises to Tenant and Tenant
hereby leases the Premises from Landlord.
2.2 Common Areas. Tenant shall have, as appurtenant to the Premises, the
non-exclusive right, in common with others, subject to reasonable rules of
general applicability to tenants of the Building from time to time made by
Landlord and of which Tenant is given notice, to the use of the following areas
of the Building: common entrances, lobbies, corridors, elevators, ramps, drives,
service ways, restrooms, and common walkways necessary to access to the Building
(the "Common Area"). Tenant hereby agrees that Landlord shall have the right,
for the purpose of accommodating the other tenants of the Building, to increase
or decrease the configuration and dimensions or to otherwise alter the common
corridors on any floor so long as Tenant's access to the Premises, restrooms,
stairwells, and elevators is not materially interfered with thereby. Landlord
reserves the right from time to time, provided such action does not materially
interfere with Tenant's use of the Premises or its business operations, (a) to
install, use, maintain, repair, replace, and relocate for service to the
Premises and/or other parts of the building pipes, ducts, conduits, wires
appurtenant fixtures, and mechanical systems, wherever located in the Premises
or the Building, and (b) to alter, close, or relocate Common Areas or any
facility therein.
3. CONSTRUCTION, TERM AND POSSESSION.
3.1 Landlord's Work. Landlord shall proceed to do the work (the
"Landlord's Work") that is described in Exhibit B, attached hereto and
incorporated herein by reference. Except for the Landlord's Work, Tenant is
accepting the Premises in its present "as is" condition. Landlord shall tender
the Premises to Tenant upon the Commencement Date. Landlord shall substantially
complete the Landlord's Work within thirty (30) days following the date of this
Lease.
3.2 Tenant's Work: Landlord's Contribution. Upon tender of possession of
the Premises, Tenant agrees to proceed with due diligence to perform the work
more particularly described on Exhibit C attached hereto and incorporated herein
by reference (the "Tenant's Work"), all of such work to be performed at Tenant's
expense in a good and workmanlike manner and in substantial compliance with
Exhibit C. Landlord, at no cost to Tenant, will make available to Tenant at
reasonable times Landlord's building engineer who will assist Tenant in
reviewing documents and will provide information with respect to the Building
insofar as the same is necessary for the prosecution of Tenant's Work. All
Tenant's Work shall be performed in accordance with the Rules and Regulations
for Design and Construction of Tenant Work attached hereto as Exhibit D.
Landlord will give Tenant and Tenant's contractors access to the Premises prior
to the completion of Landlord's Work in order that Tenant may commence Tenant's
Work provided Tenant and Tenant's contractors work in harmony with those of
Landlord and do not delay the completion of Landlord's Work. Tenant's entry for
the purpose of performing Tenant's Work shall be subject to all of the terms,
covenants and conditions of this Lease, including the covenant to maintain
insurance, except for the covenant to pay Rent. Landlord will provide to Tenant
during the period of the performance of Tenant's Work electricity, water and
sewer at no charge to Tenant. During such period, Landlord will also provide, at
no charge to Tenant, heating, ventilation and air conditioning ("HVAC") during
normal business hours as long as it does not interfere with the supplying of
HVAC to the other tenants of the Building. Landlord also agrees to reimburse
Tenant for the cost of the Tenant's Work, such reimbursement not to exceed an
amount equal to $5.00 multiplied by the rentable square footage of the Premises.
As used herein, the term "cost of the Tenant's Work" means the actual, bona
fide, direct out-of-pocket costs paid by Tenant to governmental agencies for
building and
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similar permits, to its architect, to its contractors, sub-contractors, and to
its suppliers, in connection with the performance of the Tenant's Work. In order
to receive payment, Tenant shall submit to Landlord an invoice(s), approved for
payment by Tenant, generated by the general contractor, sub-contractor(s),
vendor(s), or suppliers) evidencing all charges incurred to date. Landlord shall
remit payment directly to the general contractor, sub-contractor, or vendor, for
the amount of each invoice presented within 20 days of receipt of the invoice.
Landlord shall only be obligated to disburse amounts up to the total amount of
the Tenant Improvement Allowance. Once such threshold has been reached, Landlord
shall so notify the Tenant, and Tenant shall assume responsibility for all
remaining payments in connection with Tenant's construction. Prior to
commencement of Tenant's Work to the Premises and the Building, Tenant shall
deliver the plans and specifications therefor to Landlord for its written
approval, which approval shall not be unreasonably withheld, conditioned or
delayed. Tenant's final plans and specifications shall replace Exhibit "C" to
the Lease. Landlord shall respond to Tenant's request for approval of Tenant's
plans and specifications within seven (7) days after receipt thereof; the
failure of Landlord to respond within such period shall constitute approval of
such plans and specifications. In the event Landlord shall not approve the plans
and specifications, Landlord shall notify Tenant of its objections thereto.
Landlord and Tenant shall thereafter work cooperatively and in good faith to
reach agreement upon mutually acceptable plans and specifications. Tenant shall
engage its own contractor and/or construction manager subject to Landlord's
approval (which approval shall not be unreasonably withheld, conditioned or
delayed) to construct the Tenant's Work. Tenant shall not be responsible for
Landlord's own costs related to review, construction management or supervision
fees, cost or expenses related to the Initial Alterations. Landlord agrees to
reasonably assist Tenant in obtaining all necessary permits for the Tenants Work
from appropriate governmental authorities. Tenant shall be granted access to the
Premises during the construction of Tenant's Work 24 hours a day, 7 days a week
for as long as such access and construction does not materially interfere with
the business of existing tenants of the Building.
3.3 Term. The term of this Lease shall be for an initial term commencing
on the Lease Commencement Date (the "Commencement Date"). The initial term shall
end as defined in Section 1.10 herein.
3.4 Tenant's Extension Options.
3.4.1 Tenant shall have two (2) five-year options to extend the term of
this Lease for five (5) years each (the "Extension Options"). In the event
Tenant desires to exercise an Extension Option, Tenant shall be required to give
Landlord written notice of its opinion of the Monthly Rent that should be
payable during the term of the particular Extension Option (the "New Monthly
Rental"), at least six (6) months (but not earlier than nine (9) months) prior
to the commencement date of the applicable extension term. Within thirty (30)
days thereafter, Landlord shall provide to Tenant written notice of whether
Landlord agrees with Tenant's opinion of what the New Monthly Rental should be
or, if not, Landlord's opinion of what the New Monthly Rental should be. If
Tenant does not accept Landlord's determination of what the New Monthly Rental
should be, Tenant shall give Landlord written notice of either (i) Tenant's then
opinion of what the New Monthly Rental should be, (ii) that Tenant does not wish
to exercise the Extension Option, or (iii) that the New Monthly Rental shall be
determined by the arbitration procedure provided below. There shall be no limit
on the number of written notices either Tenant or Landlord may deliver to the
other in their efforts to come to an agreement upon the New Monthly Rental that
should apply to the applicable Extension Term, except that Tenant must inform
Landlord, by written notice received by Landlord at least three (3) months prior
to the commencement of the term of the Extension Option in question, whether
Tenant elects to (a) accept Landlord's last determination of New Monthly Rent of
the Lease, (b) not exercise the applicable Extension Option, or (c) exercise the
Extension Option at the New Monthly Rental as determined by the arbitration
procedure provided below. Absent such timely written notification, Tenant shall
be deemed to have elected not to exercise the Extension Option. Time is of the
essence.
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3.4.2 The New Monthly Rental shall be ninety-five percent (95%) of the
fair market monthly rent for the Premises, the determination of New Monthly
Rental shall take into account the then fair market monthly rent for comparable
vacant space in similar buildings within the downtown Baltimore area taking into
account economic terms such as periodic increases in rent during the term and
"pass throughs" of operating expenses and taxes, if any, for space which would
be paid by a willing Tenant to a willing Landlord, neither of whom is compelled
to rent, for a term of five (5) years, including "tenant concessions," if any,
then being offered on comparable vacant space to prospective new tenants. The
term "tenant concessions" includes, without limitation, such inducements as free
rent, free parking, tenant improvement and other cash allowances and
over-standard tenant improvements. The New Monthly Rental shall not reflect the
value of any improvements to the Premises made by Tenant.
3.4.3 If Landlord and Tenant cannot agree on the New Monthly Rental, and
Tenant has provided timely written notice to Landlord of Tenant's desire to have
the issue determined through arbitration, the matter shall be submitted for
decision to a panel of three (3) arbitrators. Landlord and Tenant shall each
appoint one arbitrator who shall by profession be a licensed commercial real
estate broker or an MAI real estate appraiser, and who shall be familiar with
the Building and have been active (over the ten (10) year period ending on the
date of such appointment) in the brokering or appraisal of properties in the
downtown Baltimore area. Each such arbitrator shall be appointed within fifteen
(15) days after Tenant's notice to Landlord of its election to have New Monthly
Rental determined by this arbitration procedure. The two (2) arbitrators so
appointed shall within fifteen (15) days of the date of the appointment of the
last appointed arbitrator agree upon and appoint a third arbitrator who shall be
qualified under the same criteria set forth above for qualification of the
initial two arbitrators. Failing such agreement, either Landlord or Tenant shall
have the right to petition for the appointment of the third arbitrator by the
then Senior Judge of the Circuit Court for Baltimore City. The three arbitrators
shall, within thirty (30) days of the appointment of the third arbitrator,
endeavor to determine the New Monthly Rental. The decision of the majority of
the three arbitrators shall be binding upon Landlord and Tenant. Landlord shall
pay Landlord's cost of Landlord's arbitrator, Tenant shall pay Tenant's cost of
Tenant's arbitrator and Landlord and Tenant shall equally pay for the cost of
the third arbitrator.
3.4.4 If the arbitrators have not determined New Monthly Rental prior to
the beginning of the term of the Extension Option in question, Tenant shall pay
the Monthly Rental rate previously in effect under the Lease, until such time as
the arbitrators determine the New Monthly Rental. If the arbitration procedure
results in a higher Monthly Rental, Tenant will make up the difference with the
next Monthly Rental payment due. If the arbitration procedure results in a lower
Monthly Rental, Tenant shall receive a credit against its next Monthly Rental,
and any succeeding Monthly Rental payments, if necessary, in an amount equal to
the overpayment.
3.4.5 The Extension Option shall be personal to Tenant or Tenant's
assignee or sublessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Tenant or Tenant's
assignee or sublessee, nor shall the Extension Option be assignable separate and
apart from this Lease.
3.4.6 Tenant shall not have the right to exercise an Extension Option
during the continuance of any Event of Default. The period of time within which
the Extension Option may be exercised shall not be extended or enlarged by
reason of Tenant's inability to exercise such Extension Option prior to the cure
of the Event of Default. All rights of Tenant to any Extension Option shall
terminate and be of no further force or effect even after Tenant's due and
timely exercise thereof, if, after such exercise, but prior to the commencement
date of the term of the Extension Option in question, an Event of Default shall
occur. Landlord's waiver of its right to terminate this Lease due to Tenant's
default in any instance shall not be deemed a waiver of the foregoing conditions
precedent and conditions subsequent to the exercise of any Extension Option.
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3.4.8 All provisions of this Lease shall apply to each extension term
except for the Monthly Rent which shall be determined in accordance with the
above procedures.
3.5 Right of First Refusal.
(a) After the 12th month of this Lease and provided no Event of Default
exists under this Lease on the date such right is exercised or on the date
Tenant has the right to enter into occupancy of space located on the fifth floor
of the Building (the "Contiguous Space"), indicated on the attached Exhibit "H".
Tenant shall have a right of first refusal exercisable during the term of this
Lease, to lease all or part of the Contiguous Space.
(b) Upon the receipt of Landlord from a third party of a bona fide
letter of intent to lease all or part of the Contiguous Space, Landlord shall
notify Tenant in writing (the "Third Party Notice") of the lease terms therein
contained. Tenant shall respond to the Landlord in writing within seven (7)
business days of the receipt of the Third Party Notice indicating its intent or
lack of intent to exercise the rights under this paragraph. Tenant's failure to
notify Landlord within the 7-day period set forth above will entitle Landlord to
thereafter lease the Contiguous Space to such third party upon the terms and
conditions identified in the Third Party Notice.
(c) If Tenant exercises its right of first refusal pursuant to this
paragraph, Tenant shall lease the Contiguous Space pursuant to the terms of the
Third Party Notice including the rentable square feet indicated within the Third
Party Notice.
(d) The amendment to this Lease providing for the lease of the
Contiguous Space shall be executed by Landlord and Tenant within ten (10)
business days of the receipt by Landlord from Tenant of Tenant's notice of
Tenant's intent to lease the Contiguous Space.
4 RENT
4.1 Payment of Rent. From and after the 180th day after the Commencement
Date, Tenant shall pay the Monthly Rental, without any prior demand therefor and
without any deduction or offset whatsoever, in lawful money of the United States
of America, to Landlord on the first day of each calendar month during the term
of this Lease as rent for the Premises for such month. Tenant shall make
payments of rent and other expenses to Landlord at the Building Manager's office
at the Building or at other such address as Landlord may from time to time
request in writing. If the term of this Lease commences other than on the first
day of a month or ends other than on the last day of a month, the rent for a
partial month shall be prorated on a thirty (30) day month, based on the number
of days in such month that this Lease is in effect.
4.2 Monthly Rental. The monthly rental payable during the initial Term
of this Lease shall be as follows ("lease year" shall be defined as each twelve
(12) month period commencing 180 days after the Commencement Date):
1st lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $11.50
2nd lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $11.85
3rd lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $12.20
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4th lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $12.57
5th lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $12.94
6th lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $13.33
7th lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $13.73
8th lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $14.14
9th lease year: 1/12 of the product obtained by multiplying the rentable
area of the Premises by $14.57
10th lease year: 1/12 of the product obtained by multiplying the
rentable area of the Premises by $15.00
The monthly rental payable during each extension Term shall be determined
as provided in Section 3.4 above.
5. OPERATING EXPENSES.
5.1 Payment of Operating Expenses. As used in this Lease, "Base Year
Operating Expenses" shall mean the Operating Expenses for the Building for the
Calendar Year 1999. Beginning on January 1, 2000 and continuing throughout the
remaining term of this Lease, Tenant shall pay to Landlord Tenant's Percentage
of any increase in the Operating Expenses for the Building over Base Year
Operating Expenses as provided in this Section 5.1. Prior to January 1, 2000,
Landlord shall deliver to Tenant an estimate of the amount by which Operating
Expenses for the calendar year 2000 will exceed Base Year Operating Expenses. By
the end of each calendar year thereafter during the term of this Lease, Landlord
shall deliver to Tenant an estimate of the excess of Operating Expenses for the
following calendar year over the Base Year Operating Expenses. Tenant shall pay
to Landlord on January 1, 2000 and on the first day of each month thereafter
during the term of this Lease an amount equal to Tenant's Percentage as set
forth in Section 1.12 times the average monthly Operating Expense for such year
that are in excess of Base Year Operating Expenses as estimated by Landlord.
Within one hundred twenty (120) days following the end of 1999 and of each
calendar year thereafter during the term of this Lease, Landlord shall deliver
to Tenant a statement of the actual Operating Expenses for such calendar year.
If the amount of Tenant's Percentage times the excess of the actual Operating
Expenses for such year over Base Year Operating Expenses exceeds the amount paid
by Tenant to Landlord with respect to Operating Expenses for such year, Tenant
shall pay such excess to Landlord within thirty (30) days of delivery to Tenant
of the statement of the Operating Expenses for such year. If the amounts paid by
Tenant to Landlord with respect to Operating Expenses for such year exceed the
amount of Tenant's Percentage times the excess of the actual Operating Expenses
for such year over Base Year Operating Expenses, such excess shall be credited
against the amounts due from Tenant thereafter pursuant to this Section 5.1, or,
if this Lease has terminated, Landlord shall promptly pay such excess to Tenant,
but in no event later than thirty (30) days. If the term of this Lease ends
other than on the last day of a calendar year, the amount of the excess of
Operating Expenses for such year over Base Year Operating Expenses shall be
prorated based on the actual number of days in such year that this Lease was in
effect, using a 360-day year, and Tenant shall be obligated to pay to Landlord
only the amount of the Tenant's Percentage times that portion of the excess
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for such year that this Lease was in effect. Any delay by Landlord in delivering
any estimate or statement pursuant to this Section shall not relieve Tenant of
its obligations pursuant to this Section except that Tenant shall not be
obligated to make any payments based on such estimate or statement until thirty
(30) days after receipt of such estimate or statement.
Tenant, and its agents, and employees shall have two hundred seventy
(270) days after receiving the statement of actual Operating Expenses to object
to such statement, although this period does not relieve Tenant's obligation to
pay on a timely basis. The books and records shall be kept in accord with
generally accepted accounting principles consistently applied. If Tenant
disputes the accuracy of Landlord's statement, Tenant shall still pay the amount
shown owing, pending resolution of the matter by agreement of the parties or, in
the absence of agreement, by a court of law. Tenant may recover any overpayment
of Operating Expenses (plus interest at 8% per year or the maximum then allowed
by applicable law, whichever is less), because of errors in the statement,
books, or records of Landlord. If Tenant does not give Landlord notice that
Tenant disputes Landlord's calculation of Operating Expenses within the 270-day
period, then Tenant shall be deemed to have accepted as final the amount shown
owing on the statement.
If Landlord and Tenant are unable to agree as to any disputed item,
Tenant may, at its sole cost and expense, audit on its own (engage an
independent certified public accounting firm to audit) Landlord's records
relating to the disputed items, which audit shall be scheduled promptly at the
reasonable convenience of both Landlord and Tenant. Such audit shall take place
in Landlord's offices. If the results of such audit indicate that the aggregate
amount of the disputed items is incorrect, then Landlord shall refund the
discrepancy, and if the amount of the discrepancy is more than five percent (5%)
and at least $1,000, then Landlord shall pay for the reasonable costs of such
audit but in no event shall Landlord be obligated to pay more than $2,500 for
such audit.
5.2 Definition of Operating Expenses.
(a) "Operating Expenses" shall be determined on an accrual basis for each
calendar year by taking into account on a consistent basis all costs of
operation, management, maintenance and repairs of the Building, whether
undertaken by Landlord pursuant to the specific provisions of this Lease or
undertaken by Landlord in the exercise of its reasonable discretion, including,
but not limited to, the costs of cleaning, utilities, air conditioning, plumbing
to the common areas, casualty and liability insurance, Property Taxes and
Assessments, accounting and a market management fee. Operating Expenses shall
also include an amount necessary to amortize the cost of capital improvements
installed to reduce Operating Expenses the cost of replacement of carpeting,
draperies and wall coverings for the common areas of the Building and the cost
of improvements required by governmental agencies, all amortized over the useful
life of such items, in accordance with generally accepted accounting principles,
together with interest at the rate of ten percent (10%) per annum on the
unamortized balance of such costs; provided, however, that in no event shall
such interest rate exceed the maximum rate permitted by law if such amortization
of such costs or expenses is deemed a loan. Operating Expenses shall not include
the costs of tenant improvements, leasing commissions, depreciation, interest,
ground rent and administrative costs not specifically incurred in the operation,
management, maintenance and repair of the Building. Landlord shall fairly
allocate to other tenants of the Building expenses of a type described in
Sections 5.4 and 5.5 and Operating Expenses shall not include any such expenses
which are charged separately to tenants of the Building or others. Operating
Expenses shall not include any expense to the extent paid or reimbursed from
insurance proceeds but Operating Expenses shall include any deductible amount
excluded from insurance coverage. Operating Expenses shall not include costs for
providing services to any area of the roof, Common Area or storage areas of the
Building which may be occupied by any tenant for office or other purposes to the
extent such costs would not have been incurred if such area were used as
unserviced storage or building service area; however, if the cost of providing
any extra service to such area cannot be easily determined, then the cost of
such service shall be determined by
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allocating the costs of such service for the entire Building in the proportion
that the rentable area of such area bears to the rentable area of the Building
including such area. If for any period the Building is not fully occupied,
including the Base Year, if any occupant of the Building is provided with
services or utilities more or less than the service or utilities customarily
provided for tenants of general office space in the Building, or if any services
or utilities are separately charged to tenants of the Building or others,
Operating Expenses shall be adjusted by Landlord so that Tenant's Percentage of
the Operating Expenses is the amount which it would have been if the Building
were 100% occupied by tenants using services and utilities customarily provided
for general office use.
(b) Operating Expenses for the Building shall not include costs of
providing services (such as but not limited to janitorial service) to the Office
Space portion of the Building which are not generally provided to the Retail
Space portion of the Building, but shall include the costs of such services
provided to Common Areas of the Building. Operating Expenses for the Building
shall not include costs of providing services, if any, to the Retail Space
portion of the Building which are not generally provided to the Office Space
portion of the Building. For so long as elevators serve only the Office Space
portion of the Building, Operating Expenses for the Building shall not include
the costs of maintenance and repair or elevators nor for maintenance and repair
of any elevators or escalators for the exclusive use of any one tenant.
Operating Expenses for the Building shall not include the costs of providing
electricity to any tenant's premises within the Building (which such electricity
shall be separately metered or submetered), but shall include costs of providing
electricity to operate all mechanical systems of the Building including systems
which serve any tenant's premises within the Building. Operating Expenses shall
not include: (i) capital expenditures or costs of capital improvements except
those which are made for the purpose of reducing Operating Expenses, or made to
comply with any governmental laws, rules or regulations hereafter enacted, in
either event depreciated over the longest useful life; (ii) costs incurred in
connection with the original construction of the Building or Premises and
accompanying site improvements or in connection with any major change in the
Building or Premises; (iii) interest, principal, late charges, default fees,
prepayment penalties or premiums on any debt owed by Landlord, including any
mortgage debt: (iv) costs of correcting defects in or inadequacy of the initial
design or construction of the Building or Premises; (v) expenses resulting from
the negligence of Landlord, its agents, servants or employees, or another
tenant; (vi) legal fees, space planners' fees, real estate brokers' leasing
commissions and advertising expenses incurred in connection with the development
or leasing of the Building or Premises; (vii) costs for which Landlord is
reimbursed by any tenant or occupant of the Building or by insurance by its
carrier or any tenant's carrier or by anyone else; (viii) any bad debt loss,
rent loss, or reserves for bad debts or rent loss; (ix) expenses of services
provided other tenants in the Building which are not provided to Tenant or for
which Tenant separately pays or is separately charged, including HVAC and
electrical service; (x) costs associated with the operation of the business of
the Landlord, as the same are distinguished from the costs of operation of the
Premises or Building, including company accounting and legal matters, costs of
defending any lawsuits wit any mortgagee, costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest in the
Premises or Building, costs (including attorney fees and costs of settlement
judgments and payments in lieu thereof) arising from claims, disputes or
potential disputes in connection with potential or actual claims, litigation or
arbitration respecting Landlord and/or the Building; (xi) the wages and benefits
of any on-site employees above the level of Building manager; (xii) the wages
and benefits of any employee who does not devote substantially all of his or her
time to the Building unless such wages and benefits are allocated based on a
prorated share of the management company's portfolio which fairly reflects the
actual time spent operating and managing the Building vis-a-vis time spent on
matters unrelated to operating and managing the Building; (xiii) amounts paid as
ground rental by Landlord; (xiv) costs, including permit, license and inspection
costs, incurred with respect to the installation of tenant improvements made for
tenants in the Building or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other occupants
of the Building; (xv) costs paid to Landlord or to affiliates of Landlord for
services in the Building, including management fees, to the extent the same
exceed or would exceed the costs for such services if rendered by unaffiliated
third parties on a competitive basis; (xvi)
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costs for which Landlord has been compensated by a management fee; (xvii) costs
incurred by Landlord due to the violation by Landlord or any tenant of the terms
and conditions of any lease of space in the Building; (xviii) costs not billed
to Tenant within twenty-four (24) months of when incurred, and (xix) costs for
sculpture, painting, or other objects of art.
(c) For each calendar year, Operating Expenses shall be determined for
services provided to the Office Space portion of the Building and not generally
provided to the Retail Space portion of the Building including, but not limited
to, janitorial services and maintenance and repair of elevators serving only the
Office Space portion of the Building.
(d) For each calendar year, Operating Expenses shall be determined for
services, if any, provided to the Retail Space portion of the Building and not
generally provided to the Office Space portion of the Building.
5.3 Definition of Property Taxes. The term "Property Taxes and Assessments"
as used in Section 5.2 shall mean all real and personal property taxes and
assessments, metropolitan charges, sewer rents, ad valorem charges, water rates,
rents and charges, front foot benefit charges, license tax, rental tax,
improvement bonds and other governmental levies imposed on or with respect to
the Building and any property of Landlord or Landlord's agents used principally
in the operation, management, maintenance or repair of the Building, together
with any taxes or assessments imposed in substitution of or as a supplement to
any taxes or assessments previously included within the definition of property
taxes and assessments but excluding any federal, state or local income,
franchise, estate or inheritance tax, and excluding any tax of a type allocated
to Tenant pursuant to Section 5.4.
5.4 Taxes Charged to Tenant. To the extent that an allocation of such taxes
allocable to such excess can be fairly made, Tenant shall pay to Landlord the
amount of any taxes and assessments which accrue during the term of this Lease,
based upon the value of tenant improvements in the Premises in excess of the
value of tenant improvements conforming to Landlord's "Building Standard"
improvements. Pursuant to Section 5.2 et seq. Tenant shall also pay to Landlord,
concurrently with the rent and other payments, the amount of any taxes and
assessments which accrue during the term of this Lease and which are based upon
the rent or other payments by Tenant relating to the Premises or upon the area
or use of the Premises including any gross income tax or excise tax but in each
case excluding federal, state or local income tax or franchise tax. At
Landlord's election, Tenant shall pay such taxes and assessments ten (10) days
prior to the date such taxes and assessments are due or shall pay a monthly
impound in an amount sufficient to accumulate sufficient funds to pay such taxes
and assessments when due. Landlord shall apply all amounts received from Tenant
pursuant to this Section in payment of the taxes and assessments described in
this Section. The amounts by which any refunds relating to such taxes and
assessments payable by Tenant and any payment by Tenant to Landlord pursuant to
this Section exceed the amounts actually paid by Landlord shall be refunded
promptly, not to exceed thirty (30) days, to Tenant if Tenant is otherwise in
compliance with its obligations pursuant to this Lease.
5.5 Additional Expenses Payable by Tenant.
(a) Tenant shall pay the cost of all electricity used in the Premises as
measured by separate meters or submeters for the Premises. Tenant shall pay a
reasonable charge determined by Landlord for any utilities or services required
to be provided by Landlord by reason of any use by Tenant of any utilities or
services in excess of utilities or services customarily provided for general
office use in the Building or by reason of any recurrent use of the Premises at
any time other than the normal business hours of generally recognized business
days and shall also pay any costs reasonably incurred by Landlord to meter or
otherwise measure the amount of such utilities or services used by Tenant. If
the replacement cost of improvements in the Premises in excess of such
replacement cost if only Landlord's "Building Standard" improvements were
installed in the Premises or Tenant's use or the conduct of business on the
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Premises or in the Building, whether or not with Landlord's consent and whether
or not otherwise permitted by this Lease, results in any increase in premiums
for the insurance carried by Landlord with respect to the Building, Tenant shall
pay any such increase in premiums within thirty (30) days after being billed by
Landlord.
(b) For purposes of this Lease the normal business hours of generally
recognized business days are as set forth in Paragraph 3 of the Rules and
Regulations attached as Exhibit "E" of this Lease.
5.6 Tenant's Percentage.
(a) Tenant's Percentage, as set forth in Section 1.12(a) above, is based
on the Area of Premises, as set forth in Section 1.5 above, and the Rentable
Square Footage of the Building, as set forth in Section 1.4(a) above. Tenant's
Percentage, as set forth in Section 1.12(b) if the Premises is located within
the Retail Space portion of the Building or as set forth in Section 1.12(c) if
the Premises is located within the Office Space portion of the Building, is
based on the Area of the Premises and the Rentable Square Footage of the Retail
Space portion of the Building, as set forth in Section 1.4(b) above, or the
Rentable Square Footage of the Office Space portion of the Building, as set
forth in Section 1.4(c) above, as applicable. If the Area of the Premises or the
Rentable Square Footage of the Building or the Rentable Square Footage of the
Retail Space or Office Space (as applicable) change significantly, Tenant's
Percentage(s) shall be adjusted accordingly.
(b) The amount payable by Tenant pursuant to Section 5.1 above
determined pursuant to Section 5.2 above shall be Tenant's Percentage of the
Building as to Operating Expenses of the Building plus Tenant's Percentage of
the Retail Space or Office Space (as applicable) as to Operating Expenses for
services provided to the Office Space or Retail Space portions of the Building
(as applicable).
5.7 Janitorial Service, Electric Service and HVAC. Tenant shall be
responsible for providing, at Tenant's expense, its own janitorial service,
janitorial supplies, restroom supplies, its own electrical service for lighting,
office machines, switchgear and equipment located in the Premises, light fixture
tube and ballast replacement, and all heating, ventilation and air conditioning
("HVAC") services, all of which shall be paid for by Tenant. Accordingly,
Operating Expenses shall not include these services for the Premises but, shall
include the expense of providing janitorial service, electric service and HVAC
services to the Common Areas of the Building.
5.8 Cap on Operating Expense Pass Through. To the extent that the
aggregate amount of the Operating Expenses for any calendar year subsequent to
the calendar year 1999 (other than expenses incurred for the payment of property
taxes, insurance and utilities) exceed one hundred five percent (105%) of the
Operating Expenses (other than expenses incurred for the payment of property
taxes, insurance and utilities) during the prior calendar year (the "Cap") than
Tenant's share of the amount of the excess over the Cap applicable to such year
shall not be passed through to the Tenant.
6. SERVICES AND UTILITIES.
6.1 Services to be Provided by Landlord and Services to be Provided by
Tenant.
(a) Landlord shall, at all times, furnish the Premises with elevator
service and shall furnish water for lavatory and drinking purposes. Landlord
shall not be required to furnish air conditioning, heating, and ventilation to
the Premises, but shall be required to provide such to the Common Areas of the
Building comparable to that of a first-class office building.
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(b) Tenant shall be responsible for providing, at Tenant's expense, its
own janitorial service, restroom supplies, janitorial supplies, electricity for
the lighting, office equipment and other equipment and machinery located within
the Premises. The location for the switchgear for Tenant's direct service is
shown on Exhibit C (Description of Tenant's Work). If direct metering is not
possible electricity will be submetered to the Premises with a direct pass
through of the cost of the electricity without additional fee or mark up by
Landlord. Tenant shall pay for replacement of all lighting tubes, ballasts, and
bulbs as required. Tenant shall be responsible for providing, at Tenant's
expense, its own HVAC system to provide air conditioning, heating and
ventilation to the Premises and shall maintain temperatures within the Premises
sufficient to prevent freezing or damage to the Premises or the Building
systems.
6.2 Maintenance and Repair by Landlord. Landlord shall maintain the
Common Areas of the Building in a first-class condition, shall maintain the
plumbing, heating, ventilation, air conditioning, elevator, electrical, and
other mechanical systems of the Building in good working order, shall make
necessary repairs and replacements to the roof and the shell and structural
components of the Building, and shall repair promptly any damage to the Premises
and the Building as provided in Article 10.
6.3 Interruption of Service. Except if arising out of the negligent act
or omission of Landlord, its employees and agents, Landlord shall not be liable
and the Monthly Rental and other payment to Landlord shall not abate for
interruptions to the telephone, plumbing, heating, ventilation, air
conditioning, elevator, electrical, or other mechanical systems or cleaning
services, by reason of accident, emergency, repairs, alterations, improvements,
or shortages or lack of availability of materials or services. At any time
during the term of this Lease, Landlord may conserve any utilities or services
without abatement of rent or other expenses if undertaken by Landlord as
required by any governmental agency. Notwithstanding the foregoing, Tenant shall
receive full reimbursement for rent paid for each day beyond the initial
seventy-two (72) hour period that there occurs an interruption of service that
materially adversely impacts Tenant's operations.
6.4 Tenant Access and Security. Tenant shall, subject to compliance with
Landlord's rules and regulations relating thereto, attached as Exhibit "E", have
access to the Premises, to the loading dock, to the roof to the mechanical and
electrical rooms of the Building and to the Tenant's related equipment within
the Building twenty-four (24) hours per day, seven (7) days per week. Landlord
will provide "on-site" security for the Building twenty-four (24) hours per day,
seven (7) days per week. Tenant shall have the right to install its own security
system within the Premises provided it gives a key, or code, (as appropriate) to
Landlord for access in case of an emergency.
7. USE AND OCCUPANCY BY TENANT.
7.1 Use by Tenant. Tenant shall have the right to occupy and use the
Premises for office and communications purposes including the installation,
operation and maintenance of communication, electronic and optronic equipment
and facilities relating to the transmission of voice, video, data and other
communication signals, a switch facility and customer collocation provisioning
equipment, its specialty equipment identified in Sections 15.19.2 through
15.19.8 and other uses normally related thereto that Landlord approves. Without
limiting the foregoing, but subject to availability, Tenant shall have the
right, at no additional charge or rent by Landlord, to install, operate, repair,
maintain and replace its fiber optic cable and related equipment in horizontal
and vertical shafts, risers and pathways within the Building for the purpose of
providing communication services to other occupants of the Building upon
Landlord's approval of plans and specifications for such work, such approval
shall not be unreasonably withheld, conditioned or delayed. Tenant shall not
permit anything to be done in or about the Premises that would violate any
applicable law or regulation or that would constitute a nuisance to the
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other tenants or occupants of the Building or that would significantly interfere
with the use of any area of the Building other than the Premises.
7.2 Rules and Regulations. Provided the same do no conflict with the
provisions of this Lease, Tenant and its employees, agents, and visitors shall
observe faithfully the Rules and Regulations attached hereto as Exhibit "E" and
made a part hereof, and such other and further reasonable Rules and Regulations
as Landlord may from time to time adopt. Landlord shall not be liable to Tenant
for violation of any Rules and Regulations or the breach of any provision in any
lease by any other tenant or other party in the Building.
8. MAINTENANCE, REPAIRS, AND ALTERATIONS.
8.1 Maintenance and Repair. During the term of this Lease, Tenant shall
take good care of the Premises, the fixtures and building systems therein and
all systems, wherever located, that are installed by Tenant and are in addition
to, or in lieu of, the base building systems. Tenant shall maintain them in good
order, condition, and repair in a quality and class equal to the original work,
ordinary and reasonable wear excepted. During the term of this Lease, Tenant
shall maintain at its own expense all plumbing facilities and the area in which
such plumbing facilities are located within the Premises, except the restrooms
located in the core of the Building, in good order, condition and repair as they
are on the commencement of the term of this Lease, ordinary and reasonable wear
excepted. To the extent that the installation described in Tenant's Work or any
alterations or other installations made by Tenant increase the Landlord's cost
of maintaining and repairing the base building (including the base building
systems) the excess cost, as reasonably determined by Landlord shall be paid by
Tenant to Landlord promptly upon demand therefore.
8.2 Alterations. Tenant shall have the right, at Tenant's expense, to
make nonstructural and structural alterations to the Premises and its facilities
and equipment outside the Premises provided they do not adversely affect the
Building's mechanical or electrical systems or the operation of the Building,
except as otherwise provided under this Lease. In addition, Tenant shall have
the right to make structural alterations should such be necessary so that the
floor area within the Premises can support the following loads: Equipment-150
lbs./sq. ft., Storage Batteries-200 lbs./sq. ft., and Office Use-60 lbs./sq. ft.
Tenant shall also have the right to block the interior of the exterior windows
of the Premises. Design plans for any alteration shall be prepared by an
architect reasonably approved by Landlord, and shall be subject to the review
and approval of Landlord, which shall not be unreasonably withheld, conditioned
or delayed. Landlord shall notify Tenant of its approval or disapproval within
seven (7) business days after receipt of the plans for the proposed alteration
and the failure to do so within the 7day period shall be deemed to be an
approval. All design and installations shall be in accordance with the Rules and
Regulations for Design and Construction of Tenant Work attached to this Lease as
Exhibit D. Tenant shall have the right to solicit competitive bids for Tenant's
alteration work by contractors approved by Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed. Tenant shall have the right to
perform alteration work twenty-four (24) hours per day, seven (7) days per week
and shall have access to other common areas as long as Tenant's construction
does not adversely affect the business of other tenants of the Building or their
use and enjoyment thereof. Tenant covenants and agrees that all work done by
Tenant shall be performed in full compliance with all applicable laws, statutes,
rules, orders, ordinances, regulations, and requirements of the federal, state,
and local governments, and all their departments and bureaus, as well as the
requirements of the Association of Fire Underwriters, or similar governing
insurance body. Tenant shall pay all costs for such additions, alterations, and
improvements including any additions, alterations, and improvements to the
Premises required by any governmental agency during the term of this Lease.
Except as otherwise provided in this Lease, all alterations, additions, and
improvements to the Premises shall become part of the realty and belong to
Landlord and, at the end of the term hereof, all alterations, additions and
improvements to the Premises or elsewhere made by Tenant shall, at Landlord's
election, in writing at the time of approval of the same,
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either be removed and the Premises repaired to the extent any damage was caused
by removal or remain on the Premises without compensation of any kind to Tenant,
except that any Trade Fixtures which are installed and paid for by Tenant shall
remain the property of Tenant and may be removed by Tenant during the term of
this Lease provided Tenant repairs any damage to the remaining improvements of
the Premises caused by the removal of such fixtures. Tenant's Trade Fixtures
shall mean Tenant's machinery, HVAC system, telecommunications equipment,
specialized equipment, furniture, antennas, fuel tank, generator, batteries and
other fixtures and equipment of Tenant used in connection with its
telecommunications business. At no time will Tenant's Trade Fixtures be deemed
fixtures or appurtenant to the Building. If so requested by Tenant at the time
approval for an alteration is requested, Landlord will specify in writing which
of the fixtures and equipment will be required to be removed by Tenant upon the
expiration or sooner termination of the term of this Lease; however, Tenant
shall not be required to remove conduits or building standard partitioning.
Tenant shall have the right to remove at any time, and shall, unless Landlord
otherwise agrees, be required to remove at the expiration or sooner termination
of the term of this Lease Tenant's Trade Fixtures.
9. INSURANCE AND INDEMNIFICATION.
9.1 Landlord's Insurance and Waiver. During the term of this Lease,
Landlord shall obtain and keep in full force and effect fire and extended
coverage insurance for the Building and public liability insurance in such
reasonable amounts with such reasonable deductions as would be carried by a
prudent owner of a similar building in the area, or which the first mortgagee of
the Building reasonably deems necessary in connection with the operation of the
Building. Landlord may obtain insurance for the Building and the rents from the
Building against such other perils as Landlord reasonably considers appropriate.
Tenant acknowledges that it will not be a named insured in such policy and that
it has no right to receive any proceeds from any such insurance policies carried
by Landlord.
9.2 Tenant's Insurance. During the entire term of the Lease, Tenant
shall obtain and keep in full force and effect, at its sole cost and expense,
the following insurance: (i) fire and extended coverage insurance, (ii)
comprehensive general liability insurance, including personal injury and
property damage insuring against all claims and liability arising out of the use
or occupancy of the Premises with limits as appropriate to Tenant's use of the
Premises but not less than $2,000,000, (iii) insurance against loss or damage
arising from pollution by oil or other hazardous materials, including clean up
costs. All insurance policies shall provide that Landlord be name as an
additionally insured and they cannot be canceled without twenty (20) days prior
written notice to Landlord and any other person holding an interest in the
Building designated by Landlord in writing to Tenant. Tenant shall deliver
certificates of insurance evidencing such policies to Landlord on request, but
not more than once in any twelve-(12) month period. Tenant may, by written
notice of such election to Landlord, elect to be a self-insurer of its property
such as office furniture, furnishings, equipment, files and supplies, cash,
securities, antiques, art objects, and jewelry. As an alternate to copies of
Tenant's insurance policies, Landlord agrees to accept certificates of such
insurance which are in a form reasonably satisfactory to Landlord.
9.3.1 Indemnification. Tenant hereby waives all claims against
Landlord, its agents and employees for loss, theft, or damage to equipment,
furniture, records, and other property on or about the Premises, for loss or
damage to Tenant's business or death or injury to persons on or about the
Premises or the Building, except to the extent caused by the negligence or
willful misconduct of Landlord, its agents or employees. Tenant shall indemnify
and hold harmless Landlord, its agents and employees from and against any and
all claims and liability for the loss, theft, or damage to property on or about
the Premises except Tenant's indemnification shall not include an
indemnification for liability for the negligence or willful misconduct of
Landlord, its agents or employees. Tenant shall indemnity and hold Landlord, its
agents and employees harmless from and against any and all claims and liability
arising from any breach or default by Tenant in the performance of any
obligation of Tenant under this Lease or arising from the negligence or willful
misconduct of Tenant, its agents, employees, or visitors.
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Landlord shall not be liable to Tenant for any negligence or act of any occupant
or invitee of any owner or occupant or invitee of any owner or occupant of any
property adjoining the Building other than Landlord, its agents and employees.
In case any action, suit or proceeding is brought against Landlord by reason of
any such occurrence, Tenant, upon Landlord's request, will at Tenant's expense
resist and defend such action, suit or proceeding, or cause the same to be
resisted and defended by counsel designated by the insurer whose policy covers
the occurrence or by counsel designated by Tenant and approved by Landlord,
which approval shall not be unreasonably or arbitrarily withheld, conditioned or
delayed. The obligations of the Tenant shall survive any termination of the
Lease.
9.3.2 Indemnification of Tenant. Landlord hereby waives all claims
against Tenant, its agents and employees for loss, theft, or damage to
equipment, furniture, records, and other property on or about the Building, for
loss or damage to Landlord's business or death or injury to persons on or about
the premises or the Building, except tot he extent caused by the negligence or
willful misconduct of Tenant, its agents or employees. Landlord agrees to
indemnify Tenant and hold Tenant harmless from any and all liability, loss, cost
(including reasonably attorneys' fees) or obligation on account of, or arising
out of any loss, including, without limitation, any loss by reason of injury to
person or property, caused by Landlord's or its agents' negligence or willful
misconduct. Landlord shall indemnify an hold Tenant, its agents and employees
harmless from and against any and all claims and liability arising from any
breach or default by Landlord in the performance of any obligation of Landlord
under this Lease or arising from the negligence or willful misconduct of
Landlord, its agents, employees, or visitors. Tenant shall not be liable to
Landlord for any negligence or act of any occupant or invitee of any owner or
occupant of any property adjoining the Building or Premises other than Tenant,
its agents and employees. In case any action, suit or proceeding is brought
against Tenant by reason of any such occurrence, Landlord, upon Tenant's
request, will at Landlord's expense resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
by the insurer whose policy covers the occurrence or by counsel designated by
Landlord and approved by Tenant, which approval shall not be unreasonably or
arbitrarily withheld, conditioned or delayed. The obligations of the Landlord
shall survive any termination of the Lease.
9.4 Waiver of Subrogation. Without limiting the obligation of Tenant
and Landlord to maintain insurance which permits waiver of subrogation Landlord
and Tenant hereby waive all causes of action and rights of recovery against each
other, against all subtenants or assignees of Tenant, against all other tenants
of the Building and their assignees and sublessees and against any other person
or entity holding an interest in the Building (together, the "Affected
Parties"), and against the agents, officers, and employees of the Affected
Parties, for any loss occurring to the property of the Affected Parties
resulting from any of the perils insured against under any and all casualty
insurance policies in effect at the time of any such loss regardless of cause of
origin of such loss, including the negligence of the Affected Parties or the
agents, officers, or employees of the Affected Parties, to the extent of any
recovery on such policies of insurance, except to the extent that any of such
policies of insurance are invalidated, in whole or part, by said waiver, and so
long as such policies of insurance shall contain (and Landlord and Tenant hereby
agree to use their best efforts to cause such policies to contain), by
endorsement or otherwise, a clause in such form or having substantially the same
effect as the following: " It is hereby stipulated that this insurance shall not
be invalidated in whole or in part should the insured or any of them waive in
writing prior to a loss any or all rights of recovery against any person or
entity for loss occurring to the property described herein." Any self-insurance
by Tenant shall be deemed to include such waiver of subrogation against the
Affected Parties. The obligation of Landlord to use its best efforts to cause
such policies to contain the above-described clause shall not obligate Landlord
to obtain such insurance from insurance companies unacceptable to Landlord nor
to incur premium charges therefor which exceed one hundred ten percent (110%) of
the premium charges for such insurance which does not include such a clause. The
obligation of Tenant to use its best efforts to cause such policies to contain
the above-described clause shall not obligate Tenant to obtain such insurance
for the benefit of the Affected Parties other than Landlord from insurance
companies unacceptable to Tenant nor to incur premium
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charges therefor which exceed one hundred ten percent (110%) of the premium
charges for such insurance which does not include such a clause benefiting the
Affected Parties other than Landlord. Landlord shall promptly notify Tenant in
writing if such policies of Landlord do not contain the above-described clause.
Tenant shall promptly notify Landlord in writing if such policies of Tenant do
not contain the above-described clause, and in such event, Landlord shall
promptly endeavor to notify the other Affected Parties of such event. This
Section 9.4 is not meant to provide a waiver of claims or amount over and above
the insurance limits provided herein.
10. DAMAGE OR DESTRUCTION
10.1 Repair of Damage. If the Premises or the Building are damaged or
destroyed by fire or other casualty covered by the usual form of fire and
extended coverage, Landlord shall commence repair or restoration within sixty
(60) days of such damage or destruction and shall diligently pursue such repair
and restoration to completion unless this Lease is terminated as provided
herein. Landlord shall pay the cost of repair to any damage or destruction of
the Building or the Premises. Tenant shall pay the reasonable cost of repair of
any damage or destruction of the Building caused by the negligence or willful
misconduct of Tenant, its employees, agents, or visitors. Tenant shall vacate
such portion of the Premises as Landlord reasonably requires to enable Landlord
to repair the Premises or Building.
10.2 Abatement. If the Premises are damaged or destroyed by fire or
other casualty not caused by the negligence or willful misconduct of Tenant, its
agents, employees, or visitors, the Rent shall abate until such damage or
destruction is repaired in proportion to the reduction of the area of the
Premises usable by Tenant. Except as specifically provided in this Lease, this
Lease shall not terminate, Tenant shall not be released from any of its
obligations under this Lease, the rent and other expenses payable by Tenant
under this Lease shall not abate and Landlord shall have no liability to Tenant
for any damage or destruction to the Premises or the Building of any
inconvenience or injury to Tenant by reason of any maintenance, repairs,
alterations, decoration, additions, or improvements to the Premises or the
Building.
10.3 Termination by Landlord. If the Building is damaged or destroyed,
Landlord shall have the option to terminate this Lease within sixty (60) days of
such damage if Landlord reasonably determines that the cost of repair to the
Building exceeds thirty percent (30%) of the value of the Building exclusive of
the land prior to such damage. If the Premises are damaged or destroyed,
Landlord shall have the option to terminate the term of this Lease within sixty
(60) days of the date of such damage or destruction if the cost of repair of the
Premises, as reasonably determined by Landlord, exceeds the insurance proceeds
estimated by Landlord to be payable to Landlord for such damage or destruction,
unless the Tenant agrees in writing to pay any cost of repairs of the Premises
in excess of such insurance proceeds within fifteen (15) days of receipt by
Tenant of written notice from Landlord of its intention to terminate this Lease
pursuant to this sentence. If such repairs to the Premises or the Building take
more than one hundred eighty (180) days and adversely affect Tenant's use of the
Premises, then Tenant shall have the option to terminate this Lease upon written
notice to Landlord.
10.4 End of Term. Landlord shall not have any obligation to repair,
reconstruct or restore the Premises during the last twelve (12) months of the
term of this Lease or any extension thereof, as a result of any damage to the
Premises if the cost of any such repair, reconstruction, or restoration as
reasonably estimated by the Landlord exceeds the then Monthly Rental. If
Landlord elects not to repair the Premises of the Building pursuant to this
Section 10.4, Tenant may elect to terminate this Lease within thirty (30) days
of receipt of Landlord's notification of its election not to repair pursuant to
this Section 10.4. If Tenant elects to terminate this Lease as provided in this
Section, this Lease shall terminate thirty (30) days following the election by
Tenant to terminate this Lease. If Tenant does not elect to terminate this Lease
in such thirty (30) day period, the rent and other expenses payable by Tenant
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shall not abate, Landlord may repair the Premises at Tenant's cost and expense,
and Tenant shall deposit with Landlord in advance an amount estimated by
Landlord as the cost of such repair.
11. CONDEMNATION.
11.1 The term of this Lease shall terminate as to the portion of the
Premises taken or condemned by any authority under the power of eminent domain
or transferred by Landlord by agreement with such authority under threat of
condemnation, with or without any condemnation action being instituted, as of
date such authority requests possession of such portion of the Premises. The
Monthly Rental shall be adjusted in the proportion that the square footage of
the portion of the Premises taken bears to the total square footage of the
Premises prior to such taking. Tenant shall not be entitled to any compensation,
allowance, claim, or onset of any kind against the Landlord or any condemning
authority, as damages or otherwise, by reason of being deprived of the Premises
or by the termination of this Lease, except that Tenant shall be entitled to
such portion of any separate award for any improvements to the Premises paid for
by Tenant in an amount not to exceed the unamortized cost of such improvements
with such costs amortized over the term of this Lease, without reference to any
unexercised options, and the cost of Tenant's moving expenses and the loss of
business of Tenant. Any portion of the Building other than the Premises taken by
eminent domain or dedicated to public use shall upon such taking or dedication
be excluded from the area over which Tenant is granted rights hereunder, and
this Lease shall continue in full force and effect without any reduction in
rental. If such taking by eminent domain materially disrupts Tenant's use of the
Premises, Tenant shall have the option to terminate this Lease upon written
notice to Landlord.
12. ASSIGNMENT AND SUBLETTING
12.1 Consent Required. Tenant shall deliver to Landlord, promptly
following execution, an executed copy of any assignment, sublease, or agreement
relating to the Premises, regardless of whether or not such assignment,
sublease, or agreement is permitted by this Lease or requires Landlord's
consent. Except as hereinafter provided Tenant shall not assign, sublease or
otherwise transfer by operation of law or otherwise this Lease or any interest
herein without the prior written consent of Landlord which shall not be
unreasonably withheld, conditioned, or delayed. If Tenant desires at any time to
assign or otherwise transfer this Lease or sublease all or a portion of the
Premises under circumstances where Landlord's consent is required, it shall
first notify Landlord of its desire to do so and shall submit in writing to
Landlord: (i) the name of the proposed assignee or sublessee, (ii) the nature of
the proposed assignee's or sublessee's business to be carried on in the
Premises, (iii) a copy of the proposed assignment or sublease and any other
agreements to be entered into concurrently with such assignment or sublease, and
(iv) such financial and other information as Landlord may reasonably request
concerning the proposed assignee or sublessee. Landlord may condition its
consent to any assignment or sublease on the execution by such assignee or
sublessee of a written assumption by such assignee or sublessee of the
obligations of Tenant under this Lease. Tenant shall pay Landlord's reasonable
direct out-of-pocket expenses in reviewing such proposed assignment or sublease
not to exceed $1,000. Landlord shall respond to Tenant's request to assign or
sublease this Lease in a timely manner not to exceed fifteen (15) days. This
Lease may not be assigned or sublet without complying with the provisions of
this Section in reliance on any law relating to bankruptcy or debtor's rights
generally unless adequate assurance of future performance is provided Landlord
including adequate assurance of the source of rent and other expenses due under
this Lease for the entire term of this Lease and unless the assignee or
sublessee and the proposed use of the Premises by the assignee or sublessee are
consistent with the type of other tenants in the Building and the use by such
tenants of their Premises. Without sharing any rents, Tenant shall have the
right to utilize portions of the Premises for the colocation of equipment of its
customers (including, but not limited to other telecommunications carriers,
internet service providers, and vendors), it being agreed that such colocation
arrangement does not constitute an assignment or subleasing of the Premises. A
collocation arrangement is an arrangement
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whereby an entity other than the Tenant places equipment and facilities within
the Premises for use in the provision of telecommunications or information
services. Tenant shall be solely responsible for such equipment including any
loss or damage thereto. Notwithstanding the foregoing, Landlord's consent shall
not be required and Tenant shall not be required to share any excess rent to the
following: (i) an assignment of this Lease pursuant to a merger of Tenant into
another entity, (ii) an assignment of this Lease pursuant to a consolidation of
Tenant with another entity, (iii) an assignment of this Lease pursuant to a sale
of all or substantially all of the assets of Tenant or (iv) an assignment or
sublease to an entity that controls Tenant, is controlled by Tenant or is
controlled by an entity that also controls Tenant. Landlord's consent shall not
be considered unreasonably withheld if (i) the proposed subtenant's financial
responsibility does not meet the same criteria, Landlord is then using, to
select comparable Building tenants, (ii) the proposed assignee refuses to assume
the obligations of the Tenant under the Lease, (iii) at the time the request is
made, Tenant is in default under this Lease beyond any applicable cure period
(iv) the assignee or sublessee is an agency of a local, state or federal
government or (v) the assignee or sublessee is engaged in a business that
adversely affects the reputation of the Building or the other tenants use or
enjoyment of the Building. Notwithstanding the foregoing, Tenant shall be
permitted to assign this Lease to an affiliate without Landlord's consent.
"Affiliate means any partnership, corporation or other entity in which Tenant
owns a twenty percent (20%) or greater equity interest or any entity
controlling, controlled by or under common control with Tenant after applying
the attribution rules of Section 318 of the Internal Revenue Code.
12.2 Prohibitions. Any sale, assignment, encumbrance or other transfer
of this Lease and any subleasing or occupation of the Premises which does not
comply with the provisions of this Section shall be void and shall be a default
under this Lease.
12.3 Payments to Landlord. Except as provided in this Lease, Tenant
shall pay to Landlord promptly following receipt fifty percent (50%) of the
amount by which all sublease rental and other payments received by Tenant from
any subtenant exceeds the total of the rental or other amounts payable by Tenant
pursuant to Section 4 for the portion of the Premises subleased with the rental
or other amounts payable by Tenant for the Premises allocated on the basis of
square footage. The provisions of this Section shall apply regardless of whether
or not such assignment, subleasing or occupation is made in compliance with the
terms of this Lease. Any payments made to Landlord pursuant to this Section, or
Landlord's acceptance or endorsement thereof, shall not constitute a consent to
any assignment, subleasing or occupation or cure any default under this Lease.
12.4 No Release. Any sale, assignment, encumbrance, subleasing,
occupation or other transfer shall not release Tenant from any of Tenant's
obligations hereunder or if the Landlord's consent is given be deemed to be a
consent to any subsequent assignment, subleasing or occupation. The collection
or acceptance of rent or other payment by Landlord from any person other than
Tenant shall not be deemed the acceptance of any assignee or subtenant as the
Tenant hereunder or a release of Tenant from any obligation under this Lease. If
any assignee, sublessee or successor of Tenant defaults in the performance of
any obligation under this Lease, Landlord may proceed directly against Tenant
without the necessity of exhausting any remedies against such assignee,
sublessees or successors.
12.5 Additional Tenant Rights. Landlord acknowledges and agrees that,
notwithstanding anything to the contrary contained in this Lease:
(a) Tenant shall be permitted to pledge, mortgage, hypothecate or
otherwise grant a lien, security interest or collateral assignment (whether
pursuant to a security agreement, deed of trust, collateral assignment, mortgage
or other instrument) (a "Lien") in and to all right, title and interest of
Tenant in and to this Lease, including, without limitation, the right to occupy
the Premises pursuant to the terms hereof, to Northern Telecom, Inc.
(individually and/or as agent for itself and other lenders) and its successors
and assigns or any refinancing or replacement lender (hereinafter collectively
called
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"Lenders") in connection with certain debt financing to Tenant or to any of its
affiliates as security for such debt financing.
(b) Provided that no default has occurred that is then outstanding,
beyond the applicable cure period therefore (as such cure period may be extended
pursuant to Subsection C below), Lender shall be permitted to foreclose upon any
such Lien (or accept an assignment in lieu of foreclosure) and transfer and
assign all right, title and interest to Tenant in and to this Lease pursuant to
or subsequent to such foreclosure and, in the event of any such foreclosure,
transfer or assignment, and provided (i) Lender or its successor-in-interest
expressly assumes in writing and agrees to perform each of Tenant's covenants,
duties and obligations which will arise and accrue from and after the date of
such foreclosure, transfer or assignment and (ii) if the Lender or
successor-in-interest is an entity other than Northern Telecom, Inc. the same
has been approved by Landlord, which approval shall not be unreasonably
withheld, Landlord agrees that it will recognize Lender of its
successor-in-interest as the successor-in-interest to Tenant under this Lease as
if Lender or its successor-in-interest (as applicable) were Tenant under this
Lease.
(c) Within ten (10) business days after written request by Tenant,
Landlord will execute and deliver in favor of Lender an estoppel certificate or
other instrument in form reasonably acceptable to Landlord and such Lender
pursuant to which Landlord will (i) confirm the existence, validity and binding
effect of this Lease, (ii) confirm that Landlord is the owner and holder of this
Lease, (iii) confirm that, to Landlord's current, actual knowledge, no monetary
default and no other default has occurred under the terms of this Lease (or
specifying any defaults which have occurred, which are continuing and of which
Landlord is currently, actually aware), (iv) agree to provide Lender a copy of
any notice of default delivered to Tenant hereunder, and (v) agree that, prior
to any termination of this Lease as a result of a default of Tenant hereunder,
Landlord will provide written notice of such default to Lender at its principal
office in Richardson, Texas to the attention of Charles M. Helm and afford
Lender a period of not less than thirty (30) days within which to cure such
default.
(d) Landlord hereby agrees that all property of Tenant now and hereafter
located on the Premises shall be and remain personal property of Tenant
notwithstanding the manner in which such property shall be attached or affixed
to the Premises. Landlord hereby further agrees that, notwithstanding the order
of perfection or priority of any security interest or lien under applicable law,
any security interest or lien for rent or similar charges or other indebtedness,
liabilities or obligations owing to Landlord under or in connection with the
Lease, whether arising by operation of law or otherwise, whether now existing or
hereafter arising, and each and every right which Landlord now has or hereafter
may have, either to levy or distrain upon any property of Tenant or any interest
therein ("Lender's Collateral") or to claim or assert title to Lender's
Collateral, or make any other claim against Lender's Collateral, whether under
the Lease or the laws of the State in which the Premises are located whether by
reason of a default under the Lease or otherwise, expressly is hereby made and
shall be subject and subordinate in every respect to any security interest or
lien of other right, title of interest of Lender in Lender's Collateral, no
matter when acquired. During the term of this Lease and for sixty (60) days
following the termination thereof, Lender and its agents and legal
representatives, without any liability or accountability whatsoever to Landlord
(except for damages, if any, to the Premises caused thereby and the obligation
to pay rental, both as provided hereinbelow), (a) may remove any or all of
Lender's Collateral located at the Premises from the Premises (i) whenever
Lender, in its sole discretion, believes such removal is necessary to protect
Lender's interests in Lender's Collateral or (ii) whenever Lender shall seek to
sell or foreclose upon Lender's Collateral; and (b) shall have access to the
Premises and Lender's Collateral at all times. Landlord grants to Lender a
license to enter onto the Premises and consents and agrees that Lender and/or
its representatives of agents may at any time during the term of this Lease and
for sixty (60) days following the termination thereof, enter onto the Premises
to inspect Lender's Collateral, to take possession of Lender's Collateral and to
remove any or all of Lender's Collateral from the Premises or exhibit for sale
and/or conduct one or more sales of Lender's Collateral on the Premises, and
Landlord will not in any manner hinder, interfere or prevent any of the
foregoing.
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Lender agrees to repair any damage caused by Lender or its agents or
representatives as a direct result of any such removal of Lender's Collateral
from the Premises by Lender or its agents or representatives. During any
possession and occupancy of the Premises by Lender, Lender's obligation to
Landlord shall include only the obligation to pay the rental that accrues during
such period of possession and occupancy if and to the extent that Tenant has not
paid such rental. Lender shall have no obligation to cure any defaults of Tenant
under the Lease, however Landlord shall not be precluded from exercising its
remedies in the event of default. If at any time, from time to time, Landlord
ever comes into possession or control of any proceeds of any of Lender's
Collateral, such proceeds shall be held by Landlord for the benefit of Lender,
to the extent of its interest therein, and the same shall forthwith be paid and
delivered to Lender.
(e) Landlord shall, upon request by Tenant, deliver to Lender a
subordination agreement executed by Landlord consistent with clause (d) and
otherwise in a form reasonably acceptable to Lender and to Landlord.
13. DEFAULT AND REMEDIES.
13.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default: (i) the failure by Tenant
to make any payment of rent or any other payments required to be made by Tenant
under this Lease when due if such failure continues for ten (10) days after
written notice by Landlord to Tenant of such failure; (ii) the failure by Tenant
to observe or perform any of the provisions of this Lease to be observed or
performed by the Tenant if such failure continues for a period of thirty (30)
days after written notice by Landlord to Tenant of such failure, or such other
period if this Lease specifically provides a different period for a particular
failure, after written notice by Landlord to Tenant of such failure, provided,
however, that with respect to any failure which cannot reasonably be cured
within thirty (30) days, an Event of Default shall not be considered to have
occurred if Tenant commences to cure such failure within such thirty (30) day
period and continues to proceed diligently with the cure of such failure; (iii)
the making of any general assignment or general arrangement for the benefit of
creditors by Tenant, or the filing by or against Tenant of a petition to have
Tenant adjudged bankrupt or a petition for reorganization or arrangement under
bankruptcy law or law affecting creditor's rights unless, in the case of a
petition filed against Tenant, such petition is dismissed within ninety (90)
days; the appointment of a trustee or a receiver to take possession of the
Premises where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days; or (iv) Tenant
transfers or agrees to transfer this Lease or possession of all or any portion
of the Premises without Landlord's prior written consent unless Landlord's
consent is not required per the terms of this Lease.
13.2 Remedies. On the occurrence of an Event of Default, Landlord may
at any time thereafter, with or without notice or demand and without limiting
Landlord in the exercise of a right or remedy, which Landlord may have by reason
of such default or breach, do the following:
(i) Landlord may elect to continue the term of this Lease in full force
and effect and not terminate Tenant's right to possession of the Premises, in
which event, Landlord shall have the right to enforce any rights and remedies
granted by this Lease or by law against Tenant, including, without limitation,
the right to collect when due rental or other sums payable hereunder. Landlord
shall not be deemed to have elected to terminate this Lease unless Landlord
gives Tenant written notice of such election to terminate. Landlord's acts of
maintenance or preservation of the Premises or efforts to relet the Premises
shall not terminate this Lease.
(ii) Landlord may elect by written notice to Tenant to terminate this
Lease at any time after the occurrence of an Event of Default, and in such event
Landlord may, at Landlord's option, declare this Lease and Tenant's right to
possession of the Premises terminated, re-enter the Premises,
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remove Tenant's non-telecommunications related property therefrom and store it
for Tenant's account in a commercially reasonable manner and a location in which
is disclosed in writing to Tenant and at Tenant's expense (but Landlord shall
not be required to effect such removal), all such expenses for removal and
storage shall constitute additional rent due hereunder whether or not this Lease
is terminated, eject all persons from the Premises and recover damages from
Tenant as hereinafter provided. Any such re-entry shall be permitted by Tenant
without hindrance. Landlord shall not thereby be liable in damages for such
re-entry or be guilty of trespass, forcible entry or unlawful detainer for such
re-entry. If Landlord elects to so terminate this Lease and Tenant's right to
possession or if this Lease and Tenant's right to possession are terminated by
operation of law, such termination shall cancel all Tenant's options, if any, to
extend or renew the term of this Lease.
(iii) Landlord may notify any subtenant of the Premises of the existence
of an Event of Default by Tenant in writing and thereafter all rent or other
amounts due from any subtenant of the Premises shall be paid to Landlord and
Landlord shall apply such rent or other amounts in payment of the amounts due
from Tenant under this Lease. The delivery of such notice to any subtenant and
the collection of such rent or other amounts by Landlord shall not terminate
this Lease.
13.3 Damages on Termination. At Landlord's election and upon the
occurrence of an event of default by Tenant, Landlord may recover damages from
Tenant in addition to all other remedies available, but without duplication by
any other means for collection of base rent reserved hereunder, an amount equal
to the present value, discounted by the then current discount rate at the
Federal Reserve Bank of Richmond, of the difference between the rent or other
sums payable by Tenant to Landlord for the term of this Lease after the date of
termination, as if this Lease were still in effect, and the reasonable rental
value of the Premises for such period as proved by Tenant, so long as such
rental value is less than the rental amount set forth in this Lease, or any
renewal thereof. On termination of this Lease by reason of Tenant's breach,
Landlord may also recover as damages from Tenant all of the rent or other sums
payable by Tenant pursuant to this Lease after the date of termination, as if
this Lease were still in effect, until such time as Landlord has re-leased the
entire Premises, reduced by any rent or other payments which Landlord receives
for the use of any portion of the Premises prior to re-leasing the entire
Premises. On termination of this Lease by occurrence of an Event of Default,
Landlord may also recover as damages from Tenant that portion of any leasing
commissions paid or payable by Landlord applicable to the unexpired term of this
Lease and all reasonable costs incurred in re-leasing the Premises including
advertising costs, the costs of refurbishment and alterations of the Premises
and the cost of any concessions which the Landlord gives to re-lease the
Premises. If Landlord re-leases the Premises following a termination by
occurrence of an Event of Default, the rent charged by Landlord on such
re-leasing shall be deemed to be the rental value of the Premises for the
purpose of calculation of the damages which Landlord may recover from Tenant and
Landlord shall use its best efforts to mitigate damages.
13.4 Late Charge. If Tenant fails to make any payment of rent, expenses
or other amounts required of Tenant under this Lease within ten (10) days of the
date such amount is due as set forth in this Lease, then, in addition to any
other amounts recoverable by Landlord hereunder, Tenant shall pay Landlord a
late charge in an amount equal to $0.05 for each dollar past due.
Notwithstanding the foregoing, if Tenant fails, on two (2) separate occasions
within any twelve (12) month period, to make any payment of rent, expenses or
other amounts required of Tenant under this Lease within ten (10) days of the
date each such payment is due, then for the remainder of the Lease Term, Tenant
shall pay a late charge in an amount equal to $0.05 for each dollar past due if
Tenant thereafter fails to pay any payment of rent or other amount required
under this Lease promptly when due. Such late charge shall be due
notwithstanding the fact that no notice is given by Landlord to Tenant of such
failure to pay. The late charge provided in this Section shall be the sole
damages which Landlord may recover from Tenant for the delay by Tenant in making
any payment within ten (10) days from the date such payment is due until thirty
(30) days after the date such payment is due, but this Section shall not limit
Landlord's right to
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recover any other amount due pursuant to this Lease, Landlord's damages
equivalent to the amount of the rent or other payments if this Lease is
terminated, Landlord's damages or costs for Tenant's failure to pay for a period
beyond thirty (30) days from the date such payment is due, Landlord's reasonable
cost and expense in connection with any litigation and Landlord's right to any
other remedy such as terminating this Lease, recovering possession of the
Premises or injunctive relief, which remedies shall be governed by Sections 13.2
and 13.3 of this Lease.
13.5 Past Due Obligations. All amounts which Tenant is obligated to pay
Landlord pursuant to this Lease or when due shall bear interest at twelve (12%)
per annum from the due date until paid, unless otherwise specifically provided
herein. If a late charge is due with respect to such amount pursuant to Section
13.4, such interest shall commence to accrue thirty (30) days following the date
such amount is due. The payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
13.6 Non-Exclusive Remedies. The remedies of Landlord set forth in this
Section 13 shall not be exclusive, but shall be cumulative and in addition to
all rights and remedies now or hereafter provided or allowed by law or equity,
including, but not limited to, the right of Landlord to seek and obtain an
injunction and the right of Landlord to damages in addition to those specified
herein, except that the provisions of Section 13.4 shall limit Landlord's right
to damages as specified therein. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future law if Tenant is
evicted or dispossessed for any cause or if Landlord obtains possession of the
Premises by reason of the breach by Tenant of any of its obligations under this
Lease. Except as provided in this Lease, either party hereby expressly any right
which either party may have to a jury trial in connection with any such legal
proceedings.
13.7 General Landlord Cure Provision. In the event Tenant defaults in
the performance of any of the terms, covenants, or conditions of this Lease, or
fails to comply with any of the laws, statutes, ordinances, rules, orders,
regulations or requirements of any governmental authority, then in such case
Landlord shall have the immediate right, in addition to all rights and remedies
outlined in this Section 13, to cure such default or noncompliance for the
account of and at the cost and expense of Tenant, and the full amount so
expended by Landlord, so long as reasonably incurred, plus interest at the rate
of twelve percent (12%) per annum thereon, shall immediately be due and owing by
Tenant to Landlord as additional rent hereunder.
14. ADDITIONAL RIGHTS OF LANDLORD.
14.1 Entry by Landlord. Landlord and its agents and employees shall
have the right to enter the Premises at all reasonable times, upon twenty-four
(24) hours prior written notice and accompanied by a representative of Tenant,
unless in case of an emergency situation, to examine the same, to make such
maintenance and repairs of the Premises and such maintenance, repairs,
alterations, decorations, additions and improvements to other portions of the
Building as Landlord is required under this Lease and to show the Premises at
reasonable times to prospective tenants during the last six (6) months of the
term of this Lease. Landlord may erect, use and maintain pipes and conduits in
and through the Premises provided such pipes and conduits do not detract from
the appearance of the Premises and do not adversely interfere with Tenant's
operations. Notwithstanding the foregoing, Landlord understands that as a
condition of Tenant's operations, Tenant requires a "dry environment" and that
any pipes or conduits located within the Premises (other than those presently
existing and those that may be located in the telecommunication closets) be free
of any liquids or, if containing liquids, be so designed, located, and installed
as to minimize the likelihood of jeopardizing Tenant's operations. Landlord
shall thus consult with Tenant prior to erecting any pipes which are to contain
liquid and shall coordinate with Tenant to ensure that the erection of such
pipes does not in any way jeopardize Tenant's
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operations. Landlord shall take reasonable precautions to minimize the
disruption to Tenant of any entry to the Premises by Landlord as provided in
this Section.
14.2 Building Planning. Intentionally Omitted
14.3 Transfer by Landlord. Landlord may transfer its interest in the
Premises and this Lease without the consent of Tenant, at any time and from time
to time. The obligations of Landlord pursuant to this Lease shall be binding
upon Landlord and its successors only during their respective period of
ownership except that Landlord and its successors shall be relieved of their
obligation to refund security deposits and other funds to Tenant which they have
received from Tenant or a predecessor Landlord only to the extent they transfer
such amounts to their respective transferees. In addition, Landlord may lease
any portion of the Building to others on such terms and for such purposes as
Landlord considers appropriate and. may terminate or modify leases with others
for any portion of the Building without any obligation to Tenant and without
relieving Tenant of any obligation under this Lease, so long as such actions do
not materially impact Tenant.
14.4 Landlord's Default. In the event Landlord fails to observe and
perform any covenant or obligation required to be observed or performed by
Landlord under the Lease or this Addendum and such failure of performance
continues for a period of thirty (30) days after written notice thereof from
Tenant to Landlord (unless such failure cannot reasonably be cured within such
thirty (30) day period and Landlord shall fail within such period to commence
and diligently pursue the curing of such failure), Tenant may undertake all
reasonable action to cure Landlord's failure of performance and Landlord agrees
to reimburse Tenant for all reasonable sums expended or reasonable obligations
incurred by Tenant in connection therewith (including reasonable attorney's
fees). In the event Landlord is in default of the Lease and in the event of an
emergency situation, Tenant shall have the right, upon reasonable verbal or
written notice to Landlord, to undertake all reasonable action to immediately
cure Landlord's default and Landlord agrees to reimburse Tenant for all
reasonable sums expended or reasonable obligations incurred by Tenant in
connection therewith (including reasonable attorney's fees). Landlord shall not
be liable to Tenant if Landlord is unable to fulfill any of its obligations
under this Lease if Landlord is prevented, delayed or curtailed from so doing by
reason of any cause beyond Landlord's reasonable control. Tenant shall further
be permitted to terminate this Lease without any charge or penalty in the case
of repeated breach of this Lease by Landlord provided Landlord must default at
least twice in any given twelve (12) month period, which is not cured within the
cure period provided in Section 14.4 if the breach has a material adverse effect
upon the Tenant's ability to conduct its business on the Premises, or four (4)
times over the term of the Lease for such termination right to apply. Any notice
to Landlord by Tenant of Landlord's default under this Lease shall also be
concurrently provided by registered or certified mail, to any holder of a
mortgage or similar security instrument covering the Premises, whose address
shall have been furnished to Tenant ("Mortgagee Notice"). The Mortgagee's Notice
shall offer such mortgagee an opportunity to cure the default concurrent with
that of Landlord.
14.5 Subordination. Landlord warrants and represents to Tenant that
there are no underlying leases, mortgages and deeds of trust which presently
affect the Building or any part of the Building. This Lease may, at the option
of Landlord, be subordinate to any ground or underlying leases, mortgages, deeds
of trust or other lien which may hereafter affect the Building or any part
thereof and Tenant will execute and deliver upon the demand of Landlord from
time to time reasonable instruments desired by Landlord, subordinating, in the
manner requested by Landlord, this Lease to such lease, mortgage, deed of trust
or other lien, provided the holder of such lease, mortgage, deed of trust or
lien agrees that in the event of termination of such lease or foreclosure of
such mortgage, deed of trust or lien, any successor to any interest of Landlord
in the Building will not disturb Tenant's possession of the Premises if Tenant
attorns to such successor as Landlord and otherwise performs its obligations
under this Lease. Tenant agrees that Tenant shall attorn to any Landlord under
any ground lease affecting the Building in the event of the termination or
cancellation of such ground lease or to any purchaser upon
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foreclosure or sale pursuant to any lien. Landlord may from time to time grant
or declare such restrictions or covenants as may be reasonably required by
Landlord or adopt and record such parcel maps, subdivision maps or condominium
plans as may be reasonably required by Landlord relating to all or any portion
of the Building and the provisions of all such documents shall be senior to this
Lease and Tenant shall sign any of such documents upon receipt of Landlord
provided such documents do not interfere with the use of the Premises by Tenant
as permitted by this Lease or conflict with the provisions of this Lease. Tenant
acknowledges the right of the holder of any first mortgage or other first
security interest in all or any part of the Building to subordinate its first
mortgage or other first security interest either in whole or in part to this
Lease. Tenant agrees at any time, and from time to time, upon not less than
fifteen (15) days notice, to execute, acknowledge and deliver to such holder the
Tenant's agreement to such subordination in such form as such holder may
reasonably require. Without limiting the generality of the foregoing, the form
of subordination of the first mortgage or other first security interest may
provide that it does not affect, is not applicable to, and expressly excludes
the following: (i) the prior right, claim and lien of the first mortgage or
first security interest in, to and upon any award or other compensation
heretofore or hereafter to be made for any taking by eminent domain of any part
of the Building, and to the right of disposition thereof in accordance with the
provisions of the first mortgage or first security interest; (ii) the prior
right, claim and lien of the first mortgage or first security interest in, to
and upon any proceeds payable under all policies of fire and rent insurance upon
the Building, or any part thereof, and as to the right of disposition thereof in
accordance with the terms of the first mortgage or first security interest; and
(iii) any lien, right, power or interest, if any, which may have arisen or
intervened in the period between the recording of the first mortgage or first
security interest and the execution of this Lease, or any lien or judgment which
may arise at any time under the terms of this Lease.
14.6 Lender's Rights. On receipt of written request from Landlord,
Tenant shall enter into a written agreement with Landlord and any ground lessor
or any holder of any encumbrance on the Building in a form reasonably
satisfactory to such ground lessor or holder which provides, among other things,
as follows: (i) Tenant shall attorn to such ground lessor or encumbrances on
termination of its ground lease or foreclosure of its encumbrance; (ii) without
the written approval of such ground lessor or encumbrances, Tenant shall not
make any payments to Landlord more than thirty (30) days prior to the date such
payment is due pursuant to this Lease, Tenant shall not subordinate its interest
in this Lease to any subsequent ground lease or encumbrance, and Landlord may
not terminate this Lease or modify this Lease and; (iii) any subordination,
termination or modification in violation of such agreement shall be invalid.
Notwithstanding anything contained in this Lease to the contrary, Tenant shall
be obligated to subordinate its interest under the Lease to any ground lessor or
any lien or encumbrance which may hereafter be placed on, against or affecting
the Premises only it; and on the condition that, Landlord shall provide Tenant
with a non-disturbance agreement in favor of Tenant from such ground lessor or
the holder of such or lien or encumbrance in a form reasonably approved by
Tenant. Upon the Commencement Date, there exists no lender or ground lessor of
the Building.
14.7 Estoppel Certificate. Tenant shall upon fifteen (15) days written
notice from Landlord execute, acknowledge and deliver to Landlord a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect or, if modified, stating the nature of such modifications and certifying
that this Lease as so modified is in full force and effect; (ii) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
the Landlord hereunder, or specifying such defaults if any are claimed; (iii)
setting forth the date of commencement of rents and the date of expiration of
the term of this Lease and setting forth any options of Tenant to extend the
term of this Lease, the nature of such options and whether any such options have
been exercised by Tenant; and (iv) stating the amount of security deposit made
by Tenant to Landlord and amount and period covered by any prepayments of rents
or other charges by Tenant. Any such statement may be relied upon by any then
existing or prospective lessor, purchaser or encumbrances of all or any portion
of the real property of which the Premises are a part.
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14.8 Financial Information. From time to time from the date of execution
of this Lease through the term of this Lease, but not more than once per year,
Tenant shall, upon ten (10) days prior written notice from Landlord, provide
Landlord with a current financial statement generated in Tenant's usual course
of business, and such statement shall be prepared in accordance with generally
accepted accounting principles, consistently applied, and if such is the normal
practice of Tenant, shall be audited by an independent certified public
accountant.
15. MISCELLANEOUS.
15.1 Brokers. Tenant represents and warrants to Landlord that it has not
had dealings with any broker or finder other than as listed in Section 1.14
hereof in locating the Premises and that it knows of no other person who is or
might be entitled to a commission, finder's fee or other like payment in
connection herewith and does hereby indemnify and agree to hold Landlord
harmless from and against any and all claims, liabilities and expenses that
Landlord may incur should such representation and warranty be incorrect.
Landlord agrees to indemnify and hold Tenant harmless from any claims or
liability to any broker or other person arising out of or relating to any
agreement by Landlord to pay a brokerage commission, finder's fee or like
payment to such broker or such person relating to the leasing of the Premises;
provided, however, that Landlord shall not be obligated to Tenant for any claims
or liability to any broker or other person with whom Tenant has dealing
concerning the Building whose identity Tenant has failed to disclose to Landlord
as required by this Section 15.1.
15.2 Holding Over. If Tenant, without Landlord's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof such occupancy shall be a tenancy from month-to-month upon all the
provisions of this Lease, except that (a) the Monthly Rental during such tenancy
shall be payable at one hundred fifty (150%) of the Monthly Rental for the last
month of the term, and (b) all options and rights of first refusal, if any,
granted under the term of this Lease shall be terminated and be of no further
effect during such month-to-month tenancy.
15.3 Performance. All payments to be made under this Lease shall be made
without prior legal notice or demand unless otherwise provided herein, in legal
currency of the United States of America. Time is hereby made of the essence of
each and every one and all of the terms, covenants and conditions to be kept,
observed or performed under this Lease.
15.4 Notices. Any notices required or permitted to be given under this
Lease shall be in writing and may be delivered personally or by certified mail
to the Landlord at the address set forth in Section 1.1 and to Tenant at the
address set forth in Section 1.2. A copy of any notice to Landlord shall also be
mailed to MURDOCK MANAGEMENT COMPANY, 575 SOUTH CHARLES STREET, BALTIMORE,
MARYLAND 21201, and to such other parties as such addresses as Landlord requests
in writing. Any notice given by mail shall be deemed received two (2) business
days following the date such notice and the required copies are mailed as
provided in this Section. Either party may change its address for purposes of
this Section by giving the other party written notice of the new address in the
manner set forth above. Any notice required by this Lease shall be deemed to
constitute the notice required by the laws of the State set forth in Section
1.14 above.
15.5 Merger. There shall be no merger of this Lease or of the leasehold
estate hereby created with the fee estate in the Premises or any part thereof by
reason of the fact that the same person, firm, corporation or other legal entity
may acquire or hold, directly or indirectly, this Lease or the leasehold estate
and the fee estate in the Premises or any interest in such fee estate without
the prior written consent of the holders of any mortgages or similar security
instruments covering the leased Premises.
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15.6 Termination. On termination of the Lease, Tenant shall execute and
deliver to Landlord immediately upon Landlord's request a quitclaim deed in
recordable form transferring to Landlord any interest of Tenant in the Premises.
15.7 Applicable Laws. This Lease shall be governed by and construed in
accordance with the laws of the State set forth in Section 1.14 above.
15.8 Professional Fees. If Tenant or Landlord brings any action for any
damages or other relief against the other or for a declaration or determination
of any matter relating to this Lease, including a suit by Landlord for the
recovery of rent or other payments from Tenant or for possession of the
Premises, the losing party shall pay to the prevailing party a reasonable sum
for attorneys', architects', engineers', brokers' and other professionals' fees
in such suit, and such obligation shall be incurred on commencement of any
action whether or not such action is prosecuted to judgment or final
determination.
15.9 Modification. This Lease and any other written agreements dated as
of the date of this Lease contain all of the terms and conditions agreed upon by
the Landlord and Tenant with respect to the Premises and the Building. All prior
negotiation correspondence and agreements are superseded by this Lease and any
other contemporaneous documents. No officer or employee of any party has any
authority to make any representation or promise not contained in this Lease and
other contemporaneous documents, and each of the parties hereto agrees that it
has not executed this Lease in reliance upon any representation or promise not
set forth in this Lease or such contemporaneous documents. This Lease may not be
modified or changed except by written instrument signed by Landlord and Tenant.
15.10 Relationship of Parties. Neither the method of computation of rent
nor any other provisions contained in this Lease nor any acts of the parties
shall be deemed or construed by the parties or by any third person to create the
relationship of principal and agent or of partnership or of joint venture or of
any association between Landlord and Tenant, other than the relationship of
Landlord and Tenant.
15.11 Waiver and Waiver of Jury Trial. The acceptance of rent or other
payments by Landlord, or the endorsement or statement on any check or any letter
accompanying any check or other payment shall not be deemed an accord or
satisfaction or a waiver of any obligation of Tenant regardless of whether or
not Landlord had knowledge of any breach of such obligation. Failure to insist
on compliance with any of the terms, covenants or conditions hereof shall not be
deemed a waiver of such terms, covenants or conditions nor shall any waiver or
relinquishment of any right or power hereunder, at any one time or more times,
be deemed a waiver or relinquishment of such rights and powers at any other time
or times or under any other circumstance(s). Landlord and Tenant hereby waive
trial by jury in any action or proceeding or counterclaim brought by either
party hereto against the other party on any and every matter, directly or
indirectly, arising out of or with respect to this Lease.
15.12 Partial Invalidity. If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable the remainder of this Lease or the applications of such
term or provision to persons or circumstances other than those as to which it is
invalid or unenforceable shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforced to the fullest extent
permitted by law.
15.13 Interpretations. Any uncertainty or ambiguity existing herein
shall not be interpreted against either party because such party prepared any
portion of this Lease, but shall be interpreted according to the application of
rules of interpretation of contracts generally.
15.14 Successors and Assigns. This Lease shall be binding upon and shall
inure to the benefit of the parties hereto and their respective permitted heirs,
representatives, successors and assigns.
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15.15 Tenant as Partnership. If a partnership or more than one legal
person executes this Lease as Tenant, (i) each partner is jointly and severally
liable for keeping, observing and performing all the terms, covenants,
conditions, provisions and agreements of this Lease to be kept, observed or
performed by Tenant, and (i) the term "Tenant" as used in this Lease shall mean
and include each of them jointly and severally and the act of or notice from, or
notice or refund to, or the signature of, any one or more of them, with respect
to this Lease, including but not limited to, any renewal, extension, expiration,
termination or modification of this Lease, shall be binding upon each and all of
the persons constituting Tenant with the same force and effect as if each and
all of them have so acted or so given or received such notice or refund or so
signed. Termination of Tenant, if a partnership, shall be deemed to be an
assignment jointly to all of the partners, who shall thereafter be subject to
the terms of this Lease is if each and all such former partners had initially
signed this Lease as individuals.
15.16 Tenant as Corporation. If Tenant executes this Lease as a
corporation, then Tenant and the persons executing this Lease on behalf of
Tenant represent and warrant that the individuals executing this Lease on
Tenant's behalf are duly authorized to execute and deliver this Lease on its
behalf in accordance with the By-Laws of Tenant, and that this Lease is binding
upon Tenant in accordance with its terms.
15.17 Recordation. Tenant covenants that it will not, without Landlord's
prior written consent, record this Lease or offer this Lease for recordation. If
at any time, Landlord or any mortgagee of Landlord's interest in the Leased
Premises shall require the recordation of this Lease, such recordation shall be
at Landlord's expense. If at any time Tenant shall require the recordation of
this Lease, such recordation shall be at Tenant's expense. If the recordation of
this Lease shall be required by any valid governmental order or if any
governmental authority having jurisdiction in the matter shall assess and be
entitled to collect transfer taxes or documentary stamp taxes, or both transfer
taxes and documentary stamp taxes on this Lease, Tenant will execute such
acknowledgments as may be necessary to effect such recordation, and pay, upon
request of Landlord, one-half (1/2) of all recording fees, transfer taxes and
documentary stamp taxes payable on or in connection with this Lease or such
recordation.
15.18 Exhibits. All exhibits, riders and schedules, if any, attached
hereto shall be deemed a part of this Lease.
15.19.1. ADA Compliance and Environmental Matters.
(a) Landlord warrants and represents to Tenant that to the best of the
Landlord's knowledge, the base Building (and the Premises saving and excepting
the Tenant's Work) comply with the requirements of all applicable laws, codes
and ordinances, including the Americans With Disabilities Act (the "ADA").
Landlord further warrants and represents to Tenant that to the best of the
Landlord's knowledge (a) any use, storage, treatment, or transportation of
Hazardous Substances (as defined below) which has occurred in or on the Building
prior to the date hereof has been in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, and (b) no release, leak,
discharge, spill, disposal, or emission of Hazardous Substances has occurred in,
on, or under the Building, and the Building and Premises is free of Hazardous
Substances (other than those normally kept by owners and tenants of similar
buildings and used in compliance with applicable Hazardous Substances laws) as
of the date hereof. As used in this Lease, "Hazardous Substances" means any
asbestos and any hazardous or toxic substance, material, or waste that is or
becomes regulated by any local governmental authority, the State of Maryland, or
the United States Government. The term "Hazardous Substance" includes, without
limitation, any material or substance that is (i) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), as amended and the regulations issued thereunder, (ii)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section
6903), as amended and the
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regulations issued thereunder, or (iii) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601), as amended and the regulations issued thereunder.
(b) Tenant shall ensure that the Tenant's Work as well as all future
alterations to the Premises made by Tenant complies with all applicable laws,
codes and ordinances, including the ADA. Tenant shall comply with all
environmental laws in its use and operation of the Premises. Except for
batteries and diesel fuel, Tenant shall not cause any Hazardous Substances to be
used, collected, generated, stored, or disposed of on, under, or about, or
transported to or from, the Premises or Building (collectively, the "Hazardous
Substances Activities"), without first giving Landlord written notice of such
Hazardous Substances Activities, and then only in compliance (which shall be at
Tenant's sole cost and expense) with all applicable laws, rules, ordinances,
statutes, regulations, and requirements and using all necessary and appropriate
precautions. Landlord shall not be liable to Tenant for any Hazardous Substances
Activities by Tenant, Tenant's employees, agents, contractors, licensees,
invitees, or guests. Tenant shall indemnify, defend with counsel acceptable to
Landlord, and hold Landlord and its agents and others claiming any interest in
the Premises by, through, or under Landlord, harmless from any claims, losses,
expenses, damages, costs, and liabilities arising out of Tenant's Hazardous
Substances Activities on, under, or about the Premises. Landlord and its agents
and others claiming any interest in the Premises by, through, or under Landlord,
shall not be liable to Tenant regardless of whether Landlord has approved
Tenant's Hazard Substances Activities.
15.19.2 Antennae/Satellite Dish. Subject to local, state and federal
regulations, Tenant will have the non-exclusive right to install on the roof of
the Building for Tenant's use only and at no additional rental cost, satellites,
antennae and other receiving and transmitting equipment, together with
self-supporting communications towers and related equipment provided the area
occupied by the same does not exceed, in the aggregate, 100 square feet, at no
additional rental cost to Tenant. All such installations will be in a good and
workmanlike manner and at Tenant's sole cost and expense and Tenant will
maintain the same in compliance with all local, state and federal laws and
regulations and Landlord's reasonable insurance requirements. Landlord will have
the right to approve all proposed roof installations (including the locations
thereof and the plans and specifications therefore), such approval shall not be
unreasonably withheld, conditioned, or delayed. All conduit locations and
installation methods will be subject to Landlord's prior written approval, such
approval shall not be unreasonably withheld, conditioned, or delayed. Tenant's
equipment shall not interfere with the use or operation of any other satellite
dishes, antennae, lines or equipment installed on the roof of the Building prior
to Tenant's installation.
15.19.3 Conduits and Chases. Conduits and Risers. Subject to local,
state and federal regulations, Tenant shall have the non-exclusive right at no
additional rental cost to install conduits and or piping in designated risers,
shown and designated on the floor plans attached hereto as Exhibit "H" and
incorporated herein by this reference ("Telecommunications Master Plan"). The
designated use for the conduit and the maximum allowable quantities of conduits
permitted within the riser's spaces shall be as follows:
<TABLE>
<CAPTION>
Conduit/Service Quantity Size Conduit/Pipe
<S> <C> <C> <C>
Electric (4) 4" C
Generator (4) 4" C
Grounding (2) 2" C
Controls & Alarms (4) 1 1/2" C
Telephone (2) 4" C
GPS Antennae (1) 2" C
HVAC Piping (2) 6" P
Fuel (2) 1" P
Misc. (2) 1 1/2" C/P
Fiber Optics (6) 4" C
</TABLE>
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All such installations shall be in a good and workmanlike manner and at Tenant's
sole cost and expense and Tenant shall maintain the same in good condition and
in compliance with all local, state and federal laws and regulations and
landlord's reasonable insurance requirement. Landlord shall have the right to
approve all such proposed installations (including the locations thereof and
plans and specifications therefore) which shall not be unreasonably withheld,
conditioned or delayed. Pull boxes and junction boxes will not be permitted in
the riser spaces. All cables or wires within the riser spaces shall be in
conduit. Tenant shall not interfere with the use or operation of any other lines
and equipment installed in the risers. Provided Tenant obtains all necessary
governmental consents in connection therewith, Tenant shall also have the right
to construct up to two (2) diverse (with as much separation as possible)
telecommunication entrances (up to three (3) 4-inch conduits at each entrance
for a total of six (6)) to the Building. Tenant shall also have the right to
install up to two manholes adjacent to the Building in connection with these
entrances. The construction of these entrances and manholes may include the
removal and replacement of curbing and sidewalks at Tenant's expense. Any
conduit installed by Tenant shall become the property of Landlord upon the
expiration or sooner termination of the Lease term. Subject to Landlord's
approval (i.e., such that same does not adversely impact other Tenant spaces and
business operation) Tenant shall have the right to core drill during business
hours. Other telecommunications providers co-located with or servicing Tenant
shall have the right to use conduit and or riser space allocated to Tenant as
indicated above with no additional rental cost or fee from Landlord. In
addition, Tenant shall not be required to use any riser or cable management
company to provide services, or interconnect, to other portions of the Building.
15.19.4 Battery Installation. Tenant shall have the right at its sole
cost to install in the Premises sealed batteries as an emergency backup for the
operation of Tenant's equipment in the event of primary power failure. Such
installation (including the plans and specifications therefore) shall be subject
to the approval of the Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed. Such installation shall be subject to Building
rules and regulations and shall comply with all local, state and federal laws
and regulations.
15.19.5 Emergency Generator. Tenant shall have the right, at Tenant's
sole cost and at no additional rental cost to Tenant, to install a 750KW/480
volt emergency generator at the location on the roof of the Building shown on
Exhibit F (attached hereto) and a 2,000 gallon fuel tank, or a combination of
tanks which do not exceed a total of 2,000 gallons, at the location in the
Building shown on Exhibit G (attached hereto). All necessary fuel lines and
hook-ups shall be at Tenant's expense at locations reasonably approved by
Landlord. Such installation (including the plans and specifications therefore)
shall be subject to the approval of the Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed and Tenant shall maintain the same
in good condition and in compliance with all local, state and federal laws and
regulations and Landlord's reasonable insurance requirements. Tenant shall have
the right to test the emergency generator as necessary, provided Tenant takes
reasonable steps to minimize any disruption to other tenants of the Building and
at a time approved by the Landlord, which approval shall not be unreasonably
withheld or delayed. Landlord acknowledges that testing on occasion will be
required during normal business hours to account for peak telecommunications
loads. Tenant shall have 24 hour, seven (7) days per week, access to Tenant's
fuel tank area and generator for as long as Tenant adheres to reasonable
Security requirements of the Building.
15.19.6 Electrical Power and Electrical Grounding System. Landlord shall
provide Tenant with 800-amps of electric at 480 volts, 3-phase from the
Building's existing electrical distribution system. Landlord shall identify
Tenant's point of connection on the Building's existing electrical distribution
system, which shall consist of one 800-amp feed connection. Until such time
Tenant is connected to Tenant's permanent 800-amp service, Tenant shall be
permitted to use the existing 200-amp,
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480-volt, 3-phase service within the Premises for construction. Once Tenant is
connected to Tenant's permanent 800-amp service, the temporary 200-amp service
in the Premises will shall not be available to Tenant. Tenant shall also have
the right to install an electrical grounding system at a location and pursuant
to plans and specifications approved by Landlord. All costs associated with the
maintenance of the grounding system shall be borne by Tenant with no additional
fee or markup by Landlord. If Tenant requires additional electrical capacity in
the future beyond the 800-amps, Landlord agrees to use it's best efforts to
accommodate Tenant to connect to the Building's 480-volt, 3-phase service
located in the basement at Tenant's expense. In no event shall Landlord be held
liable for the unavailability for Tenant's additional capacity on the Building's
480-volt, 3-phase service. If additional capacity is not available on the
Building's 480-volt service, subject to Landlord's reasonable approval, which
approval shall include the plans and specifications therefore and shall not be
unreasonably withheld, conditioned, or delayed, Tenant shall have the right, at
Tenant's expense to contract directly with the local power company for Tenant's
additional electric requirements or connect to the Building's 13.2Kv electrical
service.
15.19.7 Air Conditioning. Subject to Landlord's reasonable approval,
which approval shall include the plans and specifications therefore and shall
not be unreasonably withheld, conditioned, or delayed, Tenant shall install a
separate HVAC system to the Premises which shall be in lieu of the base building
system currently serving the Premises at no additional rental cost to Tenant.
The condensing units for Tenant's HVAC system shall be installed at the
locations shown on Exhibit F. All costs associated with the operation of
Tenant's HVAC systems shall be borne by Tenant. The installation shall be in a
good and workmanlike manner and Tenant will maintain the same in good condition
and in compliance with all local, state and federal laws and regulations and
Landlord's reasonable insurance requirements. The base building HVAC ductwork
shall be capped and sealed in a good and workmanlike manner. The main trunk
lines including the distribution loop on Tenant's floor for the base building
HVAC system located within the Premises shall not be removed or altered,
however, Tenant may remove the main distribution loop on Tenant's floor provided
Tenant replaces such at the end of the Lease term, or any renewal thereof.
15.19.8 Fire Protection. Subject to Landlord's reasonable approval,
which approval shall include the plans and specifications therefore and shall
not be unreasonably withheld, conditioned, or delayed, Tenant shall have the
right to install, at its sole cost an FM200 fire suppression system that is
independent of the Building's fire suppression system and also a pre-action fire
suppression system that is connected to the Building existing sprinkler system
at no additional cost (both of which must be connected to the Building's five
alarm system). Any system shall comply with all federal, state and local laws
and regulations and Landlord's insurance underwriter requirements (i.e.,
designed to FM standards) and shall not reduce the efficiency or capacity of the
base building fire suppression system. Tenant shall maintain the FM200 system or
pre-action system in good condition, shall provide Landlord with twice yearly
inspection reports, upon Landlord's request, from a sprinkler company approved
by Landlord and shall provide a Landlord maintenance schedule for the system, if
so requested by Landlord, that is satisfactory to Landlord prior to the Rent
Commencement Date of the Lease. Tenant shall perform the scheduled maintenance
of the system at Tenant's expense.
15.19.9 Tenant's Signage. Tenant shall have the right to install
signage, approximately 2' X 10' in dimension, on the upper facade of the 3-story
portion of the Building (subject to applicable building and other codes relating
thereto and to Landlord's approval which shall not be unreasonably withheld,
delayed or conditioned). Tenant shall be listed on the lobby directory and shall
have the right to install signage at the entrance to its Premises, provided the
same has been approved by Landlord as aforesaid.
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15.19.10 Summary of Additional Space Outside of Premises. Landlord has
agreed that Tenant may use space outside of Tenant's Premises for placement of
an emergency generator (500 square feet), placement of HVAC condensing units
(500 square feet), placement of fuel storage (300 square feet), and placement of
antennas, dishes, and other receiving and transmitting equipment (100 square
feet). The approximate total square feet outside the Premises shall be 1,400
square feet. There shall be no rental charge or other fees associated with
Tenant's use of such space. All additional space outside of Tenant's Premises
shall be subject to the terms and conditions of the Lease and shall be Tenant's
responsibility to maintain and repair at Tenant's expense.
15.19.11 Standard of Consent. The terms "approval of Landlord" or
"approval of Property Manager" or words of similar import shall mean that such
approval shall not be unreasonably withheld, conditioned or delayed. The terms
"opinion or judgement of Landlord" or "opinion or judgment of Property Manager"
or words of similar import shall mean that the exercise of such judgement shall
be reasonable.
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IN WITNESS WHEREOF, the parties hereto hereby execute this Lease, as of
the day and year first above written.
LANDLORD:
WITNESS: MURDOCK ATRIUM LIMITED
PARTNERSHIP, a Maryland Limited Partnership
/s/ Patsy H. Moser By: /s/ Illegible
- --------------------- -------------------------------------------
Title: Vice President
Date: 2/19/99
-----------------------------------------
TENANT:
NET2000 COMMUNICATIONS
REAL STATE, INC.
/s/ Illegible By: /s/ Jason Karp
- --------------------- -------------------------------------------
Title: Jason Karp
Date: 2/19/99
-----------------------------------------
32
<PAGE> 33
NOTICE OF LEASE TERM DATES
DATE: June 1, 1999
TO: Net2000 Communications Real Estate, Inc.
c/o Net2000 Communications, Inc.
8180 Greensboro Drive
McLean, Virginia 22102
Attn: Legal Department
RE: Lease dated November 1, 1998, between MURDOCK ATRIUM LIMITED
PARTNERSHIP, "Landlord", and NET2000 COMMUNICATIONS REAL
ESTATE, INC., "Tenant", concerning Suite 0401A, located at
One Market Center, 300 West Lexington Street, Baltimore,
Maryland 21201.
We wish to advise and/or confirm as follows:
1. That Tenant has possession of the subject Premises and acknowledges
that under the provisions of the subject Lease, the term of said Lease shall
commence as of March 1, 1999, and terminate on August 31, 2009.
2. That in accordance with the subject Lease, the Monthly Rental shall
commence to accrue on September 1, 1999.
3. That in accordance with the subject Lease, the Operating Expenses
commenced to accrue January 1, 2000.
AGREED AND ACCEPTED:
TENANT: LANDLORD:
NET2000 COMMUNICATIONS MURDOCK ATRIUM LIMITED PARTNERSHIP,
REAL ESTATE, INC. A MARYLAND LIMITED PARTNERSHIP
By: /s/ Kathy Dickerson By: /s/ Illegible
--------------------------------- ---------------------------------
Title: Vice President HR & Admin Title: Vice President
------------------------------ ------------------------------
WITNESS: WITNESS:
/s/ Kelly Johnson /s/ Patsy Moser
---------------------------- ----------------------------
33
<PAGE> 1
EXHIBIT 10.24
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease") made as of the 21st day of June,
1999, by and between Virginia Electric and Power Company, a Virginia public
service corporation (Sublandlord"), and Net2000 Communications Real Estate,
Inc., a Delaware corporation (Subtenant").
WHEREAS, Sublandlord is a party to a certain lease by and between
Sublandlord, as lessee, and James River Plaza Company, a Minnesota General
Partnership ("James River"), as lessor, dated December 28, 1976 (the "Existing
Lease"), the Collateral Assignment of Lease and Rents between James River and
Bankers Life Company, Society for Savings, American United Life and United
Benefit Life Insurance Company dated December 28, 1976 (the "Collateral
Assignment"), the Assignment of Lease between James River, as assignor, Dominion
Resources, Inc., a Virginia corporation ("DRI"), as assignee, and Landlord dated
November 18, 1985 (the "Assignment"), and the Amendment to lease Agreement
between DRI and Sublandlord dated September 1, 1997 (the "Amendment") (the
Existing Lease, the Collateral Assignment, the Assignment and the Amendment are
hereinafter collectively referred to as the "Master Lease") in which Sublandlord
leased, as tenant, from James River the building located at 701 East Cary Street
(also known as "One James River Plaza"), Richmond, Virginia (the "Building"). A
true and correct copy of the Master Lease is attached hereto and by this
reference made a part hereof as Exhibit A; and
WHEREAS, Sublandlord and Subtenant desire that Subtenant (a) sublease from
Sublandlord a portion of the Building comprising approximately 8,000 rentable
square feet on level 1B of the Building (the "1B Space"), as more particularly
delineated on the floor plan attached hereto and by this reference made a part
hereof as Exhibit B, and (b) sublease from Sublandlord a portion of the Building
comprising approximately 900 rentable square feet on levels 2B and 3B of the
Building (the "2B and 3B Space"), as more particularly delineated on the floor
plan attached hereto and by this reference made a part hereof as Exhibit C (the
1B Space and the 2B and 3B Space are hereinafter collectively referred to as the
"Subleased Premises").
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. LEASING
Sublandlord subleases to Subtenant the Subleased Premises, and Subtenant
subleases from Sublandlord the Subleased Premises, upon and subject to the
covenants, agreements and conditions contained in this Sublease.
<PAGE> 2
2. TERM
(a) Except as otherwise provided in this Sublease, the term of this
Agreement shall be for a period of ten (10) years (the "Initial Term") and shall
commence upon the date this Agreement has been fully executed by Sublandlord and
Subtenant (the "Sublease Commencement Date"); provided however, that if on or
before August 1, 1999, this Sublease shall not be fully executed by Sublandlord
and Subtenant this Sublease shall become automatically null and void and neither
party shall have any liability or responsibility whatsoever to the other under
this Sublease, except as set forth herein. The term of this Sublease shall
automatically renew for two (2) successive periods of five (5) years each
(collectively, the "Renewal Terms", and individually a "Renewal Term"), provided
Subtenant is not in default under this Sublease, unless Subtenant notifies
Sublandlord in writing of Subtenant's intention to terminate this Sublease at
least twelve (12) months prior to the expiration of the Initial Term or the
first Renewal Term, as the case may be. Notwithstanding any provisions in this
Sublease to the contrary, the Term of this Sublease shall automatically
terminate, without further action by the Subtenant or Sublandlord and without
any further liability or responsibility whatsoever by either party to the other,
except for any liabilities and obligations which expressly survive any
termination or expiration of this Sublease, upon any termination or expiration
of the Master Lease or any renewal thereof. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Any reference herein to the "Term" shall be deemed to
include the Initial Term and any Renewal Terms.
(b) Notwithstanding the date of the Sublease Commencement Date set forth
above in Paragraph 2(a), Subtenant and Sublandlord agree that Subtenant took
possession of the Subleased Premises on May 1, 1999 (the "Possession Date"), at
its sole risk, pursuant to a letter agreement between Subtenant and Sublandlord
dated April 30, 1999, a copy of which is attached hereto and by this reference
made a part hereof as Exhibit D, for the purpose of preparing the Subleased
Premises for occupancy by Subtenant. Except as provided in the letter agreement,
all of the provisions of this Sublease shall apply and shall supersede the
letter agreement commencing as of the date of this Sublease and continuing
through the expiration or earlier termination of the Term.
3. INCORPORATION OF MASTER LEASE
(a) This Sublease is expressly subject and subordinate to the Master Lease,
the terms and provisions of which are expressly incorporated herein by this
reference (except as otherwise provided in Paragraph 3(b) of this Sublease).
Except for the payment of rent, Subtenant shall, with respect to the Subleased
Premises, perform and observe all of the applicable obligations, terms,
covenants and conditions of the Master Lease which are to be performed or
observed by Sublandlord, as Tenant, under the Master Lease. Subtenant shall not
take any action or fail to take any action that shall cause Sublandlord to be in
default under the Master Lease, regardless of the provisions of Paragraph 3(b)
of this Sublease. Subtenant shall be entitled to receive the benefit of all
utilities, services, maintenance, repairs and replacements provided to
Sublandlord
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<PAGE> 3
by DRI under the Master Lease, if any, as they apply to the Subleased Premises,
provided, however, Subtenant understands, acknowledges and agrees that
Sublandlord shall have no liability whatsoever to Subtenant if DRI shall not
provide any such utilities, services, maintenance, repairs or replacements or
shall not otherwise timely and properly comply with or perform its obligations,
covenants and agreements under the Master Lease for any reason not due to a
default by Sublandlord under the Master Lease which is not caused by or does not
directly, indirectly or consequentially arise out of or in connection with or
does not relate to any default by Subtenant under this Sublease or any act,
omission, negligence, or willful or criminal act of Subtenant or its agents,
employees, officers, contractors, tenants, concessionaires, servants, licensees,
invitees, guests, successors, customers or assigns. All capitalized terms used
in this Sublease Agreement, unless specifically defined herein, shall have the
same meaning and definition as used in the Master Lease.
(b) Notwithstanding the foregoing, Subtenant shall have no obligation with
respect to the following provisions of the Master Lease, and such provisions of
the Master Lease are expressly not incorporated into this Sublease: 3; 4; 5(a)
and 5(b); 6(a), 6(b)(i); 7(a); 11; 12(a); 12(b), 12(c), 12(d); 13(e)(I),
13(e)(ii); 14; 15; 16; 17; 22; Schedule B, Schedule C, Schedule D; and the
Collateral Assignment. If the Master Lease terminates, this Sublease shall
terminate and the parties shall be relieved of any further liability or
obligation under this Sublease; provided, however, that if the Master Lease
terminates as a result of the occurrence a default by Sublandlord under the
Master Lease, which is not caused by, or does not directly, indirectly or
consequentially arise out of or in connection with, or does not relate to, any
default by Subtenant under this Sublease or any act, omission, negligence or
willful or criminal act of Subtenant or its agents, employees, officers,
contractors, tenants, concessionaires, servants, licensees, invitees, guests,
successors, customers or assigns, then Sublandlord shall be liable to Subtenant
for all direct damages suffered by Subtenant as a result of such termination.
(c) Sublandlord agrees that (except as set forth in the sentence
immediately following) it will not, without the prior written consent of
Subtenant, enter into an agreement with DRI, the effect of which would be to
terminate or materially adversely affect Subtenant's use and occupancy of the
Subleased Premises substantially in accordance with the terms of this Sublease.
The immediately preceding sentence shall not, however, prevent Sublandlord from
exercising any right available to Sublandlord pursuant to the master Lease to
terminate the Master Lease, including, but not limited to, following a casualty
or condemnation affecting the Building and/or the common areas of the Building
(the "Common Areas") or a default by DRI under the Master Lease. In the event of
a conflict between the Master Lease and the Sublease, the terms of the Master
Lease shall prevail. Sublandlord represents and warrants that the Master Lease
is in full force and effect and that it is not in default under the Master Lease
as of the date of this Sublease.
4. RENT
(a) During the Term of this Sublease, commencing on the date which shall be
sixty (60) days after the Possession Date (the "Rent Commencement Date") and
continuing on the first day of each month thereafter during the Term, Subtenant
will pay to Sublandlord for the
3
<PAGE> 4
Subleased Premises an annual base rent of One Hundred Sixty-Five Thousand Seven
Hundred and 00/100 ($165,7000.00) Dollars (the "Annual Rent"), payable in
advance in equal monthly installments of Thirteen Thousand Eight Hundred Eight
and 33/100 ($13,808.33) Dollars. Annual rent shall not include Subtenant's own
electricity and janitorial services, for which Subtenant shall pay separately.
The Annual Rent shall be increased, starting on the date which is eighteen (18)
months from the Rent Commencement Date and thereafter each and every subsequent
year during the Initial Term of this Sublease on the anniversary of the Rent
Commencement Date by an amount equal to three percent (3%) of the immediately
preceding year's Annual Rent (except for the second rent increase which shall be
based on the six (6) month period beginning on the date which is eighteen (18)
months from the Rent Commencement Date and ending on the second anniversary of
the Rent Commencement Date) (the "Initial Term Rent Escalation"). Sublandlord
shall notify Subtenant of the first Initial Term Rent Escalation. Sublandlord's
failure to provide such notice shall not be a waiver of Sublandlord's right to
collect the Initial Term Rent Escalation, and Subtenant shall pay on demand all
the Initial Term Rent Escalation amounts not collected by Sublandlord should
Sublandlord fail to provide such notice or collect the Initial Term Rent
Escalation. If the Sublease Commencement Date shall not be on the first day of a
month, the first payment of Annual Rent shall be due and payable on the Rent
Commencement Date and Sublandlord shall prorate the Annual Rent for the period
from the Rent Commencement Date to the first day of the first full calendar
month after the Rent Commencement Date. The prorated Annual Rent shall be
computed by multiplying one (1) monthly installment of Annual Rent by a
fraction, the numerator of which is the number of calendar days from the Rent
Commencement Date to the first calendar day of the first full calendar month
after the Rent Commencement Date and the denominator of which is the actual
number of days in the month.
(b) Subtenant shall deliver the monthly installments of the Annual Rent to
Sublandlord on or before the first (1st) day of each calendar month of the Term.
All Annual Rent and other amounts due under this Sublease payable by Subtenant
to Sublandlord shall be paid to Sublandlord in lawful money of the United
States, without any prior notice or demand therefor except as set forth in
Paragraph 4(a), and without abatement, deduction, setoff, recoupment, or
counterclaim. All payments of Annual Rent and other amounts due under this
Sublease shall be sent to Sublandlord at One James River Plaza, P.O. Box 26666,
Richmond, Virginia 23261, Attention: Senior Real Estate Administrator, or to
such other party or place as Sublandlord may from time to time designate in
writing.
(c) If Subtenant notifies Sublandlord of Subtenant's intent to renew this
Sublease as set forth in Paragraph 2(a) twelve (12) months before the expiration
of the Initial Term or twelve (12) months before the end of the first Renewal
Term, as the case may be, then Sublandlord and Subtenant agree to negotiate a
mutually agreeable Annual Rent for such Renewal Term, and escalation thereof, if
any, for the Subleased Premises. If Sublandlord and Subtenant cannot agree on
Annual Rent for such Renewal Term, and escalation thereof, if any, for the first
Renewal Term or the second Renewal Term, on or before six (6) months before the
end of the Initial Term or the first Renewal Term, then this Sublease shall not
be renewed and shall terminate at the end of the Initial Term of the first
Renewal Term, as the case may be, without further actions by the Subtenant or
Sublandlord and without any further liability or responsibility
4
<PAGE> 5
whatsoever by either party to the other, except for any liabilities and
obligations which expressly survive the termination or expiration of this
Sublease.
(d) Subtenant covenants and agrees to pay to Sublandlord, from time to time
as provided in this Sublease, and as "Additional Rent":
(i) a late charge equal to five percent (5%) of any installment of
Annual Rent or Additional Rent, which is not received by Sublandlord within
ten (10) days after the due date thereof;
(ii) interest at an annual rate equal to twelve percent (12%)
("Interest") on all installments of Annual Rent and Additional Rent not
received within five (5) days after the due date, until the date payment is
actually received by Sublandlord;
(iii) all other costs, expenses, amounts and sums which Subtenant
agrees to pay to Sublandlord and/or to third parties (including, but not
limited to, the amounts described in Paragraph 29(a) of this Sublease) in
those circumstances in which Subtenant shall fail or refuse to pay such
third parties and the same is paid instead by Sublandlord, together with
Interest from the date paid by Sublandlord until the date payment is
actually received by Sublandlord;
(iv) Sublandlord's reasonably estimated cost per gallon of diesel fuel
consumed by Subtenant's generator located in the 3B Space (the "Fuel
Payment"). Subtenant's diesel fuel consumption from Sublandlord's tank
located at level 3B of the Building shall be measured by direct metering.
Sublandlord shall provide Subtenant with a bill at the end of the month for
the Fuel Payment. Subtenant shall deliver the Fuel Payment to Sublandlord
on or before the fifth (5th) day of each calendar month.
In the event of any failure by Subtenant to pay any Additional Rent,
Sublandlord shall have all the rights, powers and remedies provided for in this
Sublease or at law or in equity or otherwise in the event of the nonpayment of
Annual Rent.
5. SECURITY DEPOSIT
Subtenant shall give Sublandlord a check in the amount of Ten Thousand
Dollars ($10,000.00) on the Sublease Commencement Date as a security deposit
(the "Security Deposit") to be held by Sublandlord in an non-interest bearing
account. During the Term, if Sublandlord determines, in its reasonable
discretion, that any deduction is to be made from the Security Deposit for
charges arising under this Sublease or by law, Sublandlord will give written
notice to Subtenant of such deduction and the reason for such deduction within
thirty (30) days after Sublandlord makes such deduction. Subtenant agrees to pay
Sublandlord such sums as may be necessary to restore the Security Deposit to the
amount set forth above.
Within 30 days after the termination of this Sublease, Sublandlord may
apply the Security Deposit to offset any damages Sublandlord has sustained due
to Subtenant's failure to (a)
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<PAGE> 6
maintain the Subleased Premises, (b) surrender possession of the Subleased
Premises as specified in paragraph 14(a) hereof (reasonable wear and tear
excepted), or (c) fully comply with the terms of this Sublease. Any remaining
balance shall be applied to unpaid Annual Rent and/or unpaid Additional Rent.
Sublandlord shall provide Subtenant with an itemized written accounting, showing
all such deductions and the reasons for such deductions. Within thirty (30) days
after the termination or expiration of this Sublease, Sublandlord shall give or
mail to Subtenant the Security Deposit of its balance, and any interest earned
thereon.
If Sublandlord sells, assigns or otherwise transfers all of its interest in
the Subleased Premises during the Term or does not renew the master Lease,
Subtenant agrees that Sublandlord may transfer the Security Deposit to the
purchaser or DRI, respectively. Upon written notice to Subtenant of such
Security Deposit transfer, the Sublandlord shall no longer have any obligations
or responsibility to Subtenant with regard to the Security Deposit.
6. ASSIGNMENT AND SUBLETTING
(a) Subtenant may not assign its interest in this Sublease or sublet all or
any part of the Subleased premises without the prior written consent of
Sublandlord, such consent to be in Sublandlord's sole and absolute discretion.
No permitted assignment or subletting shall relieve Subtenant of any liability
for the payment of Annual Rent, Additional Rent or other obligations under this
Sublease. Any attempted assignment or subletting by Subtenant under this
Sublease without Sublandlord's prior written consent shall be void and shall
constitute a default by Subtenant under this Sublease. An assignment by
operation of law shall also be deemed a prohibited assignment under this
Paragraph 6. In addition, for the purposes of this Paragraph 6, the word
"assignment" shall be defined and deemed to include the following: (a) any
dissolution or reorganization of Subtenant; or (b) the sale or other transfer of
more than twenty-five percent (25%) of the capital stock of Subtenant or the
sale of more than twenty-five (25%) in value of the assets of Subtenant. any
acceptance of Annual Rent by Sublandlord after any unpermitted assignment shall
not constitute approval thereof by Sublandlord. Subtenant's rights under this
Sublease may not become and shall not be listed by Subtenant as an asset under
any bankruptcy, insolvency or reorganization proceedings. No consent to any
assignment or subletting shall be deemed to be a consent to any further
assignment or subletting and the prior written consent of Sublandlord to the
same shall be required in each instance. Notwithstanding the provisions of this
Paragraph 6(a), Subtenant may (i) assign its rights under this Sublease to an
entity which controls Subtenant, is controlled by Subtenant, or which is under
common control with Subtenant without Sublandlord's prior approval; or (ii)
assign its rights under this Sublease to an entity that acquires Subtenant or
control of Subtenant after obtaining Sublandlord's prior written consent, such
consent not to be unreasonably withheld, conditioned, delayed.
(b) Notwithstanding the provisions of Paragraph 6(a) above, Sublandlord
agrees that Subtenant may allow Subtenant's telecommunications customers
("Subtenant's Telecommunications Customers") to co-locate their
telecommunications equipment and facilities in the Subleased Premises; provided,
however, that Subtenant's Telecommunications Customers shall be required to
comply with all the terms and conditions of this Sublease. Subtenant shall be
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<PAGE> 7
responsible and liable for Subtenant's Telecommunications Customers compliance
with all the terms and conditions of this Sublease.
7. PERSONAL PROPERTY AND FIXTURES
All of Subtenant's personal property placed or installed in the Building,
the Common Areas and the Subleased Premises pursuant to this Sublease shall be
and remain Subtenant's property and shall remain in the Building, the Common
Areas and the Subleased Premises at Subtenant's sole risk. Sublandlord shall not
be liable for and Subtenant hereby releases Sublandlord from any and all
liability for theft of Subtenant's personal property or any damage thereto.
Provided Subtenant is not in default under this Sublease, Subtenant shall remove
its personal property, so long as Subtenant shall repair and restore any damage
or injury to the Building the Subleased Premises and the Common Areas to the
condition in which the Building, the Subleased Premises and the Common Areas to
the condition in which the Building, the Subleased Premises and the common Areas
existed on the Possession Date, reasonable wear and tear, loss by fire or other
casualty or condemnation not caused by Subtenant, or repairs which are
Sublandlord's or DRI's obligation, excepted, unless Sublandlord waives such
right in writing. Subtenant's "personal property" shall include the
telecommunications switch and peripheral equipment, the emergency generator, the
backup battery system, the emergency HVAC units, the electric disconnect switch,
the security system and the rooftop antenna ("Subtenant's Equipment"), but shall
not include the conduits, cabling, the electrical wiring, the fire suppression
system, or any structural alteration.
8. REPAIR, MAINTENANCE AND ALTERATIONS
(a) Throughout the Term of this Sublease, Subtenant shall, at its sole cost
and expense, keep and maintain the Subleased Premises and every part thereof and
all property located therein, in good condition and repair, reasonable wear and
tear excepted. In addition, Subtenant shall, at its sole cost and expense,
promptly repair and replace any damage or injury to the Subleased Premises, the
Building and the Common Areas and the plumbing, electrical, HVAC, security and
safety systems of the Building which is in any manner whatsoever caused in whole
or in part by any act, omission, negligence or willful or criminal act of
Subtenant or any of its employees, agents, officers, contractors, servants,
licensees, tenants, concessionaires, guests, invitees, successors or assigns or
Subtenant's Telecommunications Customers. Sublandlord shall have the right to
make any repairs and replacements which Subtenant does not commence within three
(3) days after receiving written notice from Sublandlord of the need for such
repairs and does not thereafter diligently and continuously pursue to
completion. Subtenant shall pay Sublandlord all reasonable costs and expenses of
such repairs within thirty (30) days after receipt of invoice therefor, together
with Interest thereon from the date the invoice is given to Subtenant to the
date paid. Upon the expiration or termination of this Sublease, Subtenant shall
surrender the Subleased Premises to Sublandlord in as good condition as they
were in at the Possession Date, reasonable wear and tear, loss by fire or other
casualty or condemnation not caused by Subtenant, or repairs which are
Sublandlord's or DRI's obligation, excepted, unless such right has been waived
in writing by Sublandlord.
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(b) Subtenant shall have the right to make any alterations to the Building,
the Common Areas and the Subleased Premises necessary for the operation of
Subtenant's telecommunications business after obtaining Sublandlord's written
consent to such alterations, such consent not to be unreasonably withheld,
conditioned, or delayed, Prior to making any alterations to the Subleased
Premises, the Common Areas and/or the Building, Subtenant shall first submit the
plans and specifications for the alterations to Sublandlord for Sublandlord's
written approval, such approval not to be unreasonably withheld, delayed, or
conditioned. Sublandlord shall use reasonable efforts to approve or disapprove
the plans and specifications within ten (10) business days after Sublandlord's
receipt of such plans and specifications. Such plans and specifications shall be
deemed approved if Sublandlord does not approve or disapprove the plans in
writing within said 10-day period. subtenant shall also submit in writing to
Sublandlord the names of Subtenant's general contractor, construction manager,
subcontractors, architect and engineer for Sublandlord's written approval of
Subtenant's general contractor, construction manager and subcontractors, such
approval not to be unreasonably withheld, delayed or conditioned. Sublandlord
shall use reasonable efforts to approve or disapprove Subtenant's general
contractor construction manager and subcontractors, within ten (10) business
days after Sublandlord's receipt of such information. Subtenant's general
contractor, construction manager and subcontractors shall be deemed approved if
Sublandlord does not approve or disapprove Subtenant's general contractor,
construction manager and subcontractors, in writing within said 10-day period.
If Sublandlord and Subtenant are unable to agree upon any plans or
specifications that Subtenant submits to Sublandlord prior to the Rent
Commencement Date, then Subtenant shall have the right to terminate this
Sublease upon ten (10) days prior written notice to Sublandlord. If Subtenant
terminates this Sublease prior to the Rent Commencement Date in accordance with
the previous sentence, then Subtenant shall restore the Building, the Common
Areas and the Subleased Premises to their condition as of the Possession Date,
reasonable wear and tear excepted, and shall be responsible for all of
Subtenant's liabilities and obligations that survive the termination of this
Sublease. Subtenant's alterations to the Subleased Premises and the Building
shall not interfere with any occupant's use of the Building. Subtenant shall
have the right to perform alterations twenty-four (24) hours a day, seven (7)
days a week with reasonable access to freight elevators and other common areas
of the Building provided Subtenant shall coordinate the performance of such
alterations with Sublandlord prior to the commencement of the alterations so
that Subtenant's alterations will not interfere with any occupant's use of the
Building. Subtenant shall fully indemnify DRI and Sublandlord (including their
respective partners, stockholders, officers, directors, employees, agents,
representatives, contractors, tenants, concessionaires, guests, licensees, and
invitees) and their respective successors and assigns for any and all direct and
indirect costs, injuries, expenses, including, but not limited to, attorneys'
fees, claims and damages Sublandlord and DRI may incur as a result of any
alteration to the Building or the Subleased Premises made by or on behalf of
Subtenant. All such alterations shall be made at Subtenant's sole cost and
expense. No such alterations shall decrease the value of the Building. Any and
all alterations, additions, or other improvements made by Subtenant, with or
without the consent of Sublandlord, regardless of how attached (except movable
trade fixtures), shall become immediately upon installation and thereafter
remain the property of Sublandlord, without compensation therefor to Subtenant,
unless otherwise agreed to in writing by Sublandlord; provided, however,
Sublandlord shall have the right to require that Subtenant, upon the termination
or at the
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expiration of this Sublease, remove any or all such alterations, additions and
improvements and restore the Subleased Premises and the Building to their
original condition as of the Possession Date, reasonable wear and tear, loss by
fire or other casualty or condemnation not caused by Subtenant, or repairs which
are Sublandlord's or DRI's obligation, excepted, unless such right has been
waived in writing by Sublandlord. Subtenant agrees to maintain, replace and keep
in good order and repair any and all such alterations, additions and
improvements during the Term of this Sublease.
(c) All maintenance, repairs and replacements to be made and/or performed
by Subtenant under this Sublease shall be made in a good and workmanlike manner
consistent with the quality of labor and materials used in the Building and in
compliance with all applicable laws, ordinances, rules and regulations of
governmental and private authorities (including underwriters and rating
bureaus).
(d) Sublandlord represents and warrants to Subtenant that the floor load
for the Subleased Premises is greater than 80 lbs. per usable square foot.
(e) Subtenant shall have the right to reinforce the floor load capacity to
obtain the capacities required. The floor load requirements will be determined
as part of the architectural plans Subtenant shall submit to Sublandlord for
alterations. All such construction and alterations shall be subject to the terms
and conditions of Paragraph 8(b) hereof.
(f) Subtenant shall have the right to replace the existing fire suppression
system in the Premises with an independent system that shall comply with all
local building and fire codes and ordinances. The installation of such fire
suppression system shall also comply with all local codes and ordinances. All
such construction and alterations shall be subject to the terms and conditions
of Paragraph 8(b) hereof.
(g) Subtenant shall have the right to reroute any water pipe or drain that
passes through the Subleased Premises and provides services to other areas of
the Building. In the event these pipes or drains cannot be rerouted, Subtenant
shall have the right to "pan" the pipes and drains to a main Building drain
provided by the Sublandlord. All such construction and alterations shall be
subject to the terms and conditions of Paragraph 8(b) hereof.
(h) Subtenant shall have the right to install and operate one (1) Global
Positioning Satellite antenna (the "GPS Antenna") on the roof of the Building.
Subtenant shall not be charged any license fee or rent for this right. The
location of the GPS Antenna shall be subject to Sublandlord's consent, such
consent to be in Sublandlord's sole discretion. All such installation,
construction and maintenance shall be subject to the terms and conditions of
Paragraph 8(b) hereof.
(i) Subtenant shall have the right to install, maintain, operate, repair,
replace and remove a 500 KW emergency generator in the 3B Space (the
"Generator"). Subtenant shall have the right to use fuel from Sublandlord's
diesel fuel tank on level 3B for the operation of the Generator in accordance
with the terms and conditions of Paragraph 4(d)(iv) hereof.
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Sublandlord shall assist Subtenant in obtaining approval from local authorities
to locate the Generator in such area. If approval cannot be obtained, Subtenant
shall notify Sublandlord immediately, and Sublandlord shall work with Subtenant
to provide a suitable alternative. Subtenant shall be responsible for and liable
for any damages caused by the operation of the Generator and use by Subtenant
storage of fuel and shall defend, indemnify and hold harmless DRI and
Sublandlord (including their respective partners, stockholders, officers,
directors, employees, agents, representatives, contractors, tenants,
concessionaires, guests, licenses and invitees) and their respective successors
and assigns in accordance with the terms and conditions of Paragraph 9(d) hereof
for any and all direct and indirect cost, injuries, expenses, including, but not
limited to, attorney's fees, claims and damages Sublandlord and DRI may incur as
a result of Subtenant's installation, maintenance, operation, repair,
replacement and removal of the Generator. All such construction, installation,
maintenance, operation, repair, replacement and removal shall be subject to the
terms and conditions of Paragraph 8(b) hereof.
(j) Subtenant shall have the right to install, at its sole expense,
emergency power batteries within the Subleased Premises having sufficient
capacity to sustain Subtenant's telecommunications operations for at least eight
(8) hours. The batteries for such power plant shall be of the sealed, suspended
electrolyte, lead acid design, all in compliance with applicable codes. All such
construction alterations, and installation shall be subject to the terms and
conditions of Paragraph 8(b) hereof.
9. COMPLIANCE, INSURANCE AND INDEMNITY
(a) Subtenant shall not use the Subleased Premises, the Common Areas or the
Building for any unlawful purpose or so as to constitute a nuisance. Subtenant
shall also, at Subtenant's sole expense, comply with all federal, state, county,
city and municipal laws, ordinances and regulations affecting the Subleased
Premises, the Building and the Common Areas, now existing or hereafter enacted.
(b) During the Term, Subtenant shall comply with all of the insurance
requirements set forth in the Master Lease as applicable to the Subleased
Premises. Commencing on the Possession Date and continuing at all times
thereafter through the Expiration Date, Subtenant shall also, at its sole cost
and expense, maintain worker's compensation insurance covering its employees in
statutory limits and commercial general public liability and property damage
insurance of the mutual benefit of DRI, as owner, Sublandlord and Subtenant,
with combined single limits of coverage of at least Five Million and 00/100
Dollars ($5,000,000) (with appropriate cross-liability endorsements so showing),
all of which insurance policies shall insure against all liability of Subtenant
and Subtenant's representatives, contractors, tenants, concessionaires, agents,
servants, employees, guests, licensees, invitees, successors and assigns arising
out of and in connection with Subtenant's use and occupancy of the Building, the
Subleased Premises and the Common Areas, and which shall insure Subtenant's
performance of its indemnity provisions contained in this Sublease. Subtenant
shall deliver to Sublandlord certified copies of the certificates of all
original insurance policies that it is required to maintain under this Sublease
upon Subtenant's execution of this Sublease and at least twenty (20) business
days prior to the renewal dates thereof. If Subtenant fails to provide the
insurance coverage,
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certificates and/or receipts as required to be maintained by it under this
Sublease, then Sublandlord may obtain such coverage without any prior notice to
Subtenant and Subtenant shall reimburse the cost thereof to Sublandlord
immediately on demand.
(c) Anything in this Sublease to the contrary notwithstanding, Subtenant
hereby releases and waives unto Sublandlord and DRI (including their respective
partners, stockholders, officers, directors, employees, agents, representatives,
contractors, tenants, concessionaires, guests, licensees, invitees), and their
respective successors and assigns, all rights to claim or recover damages for
any injury, loss, cost or damage to persons or to the Subleased Premises,
whether or not caused by Sublandlord or DRI or their respective partners,
stockholders, officers, directors, employees, agents, representatives,
contractors, tenants, concessionaires, guests, licensees, invitees, successors
or assigns. All policies of insurance carried or maintained by Subtenant
pursuant to this Sublease shall contain, or be endorsed to contain, a provision
whereby the insurer waives all rights of subrogation against DRI, Sublandlord
and Subtenant, respectively. To the extent that Sublandlord and DRI are
self-insured, the foregoing waiver of subrogation shall be deemed to have been
given by Sublandlord and DRI, respectively, for any matter that would be covered
under a general fire and casualty liability insurance policy.
(d) Subtenant shall indemnify, defend, and hold DRI and Sublandlord and
their respective partners, directors, shareholders, officers, representatives,
agents, employees, contractors, servants, guests, invitees, licensees, tenants,
concessionaires, successors and assigns harmless from and against any and all
claims arising out of (i) Subtenant's use or occupancy of the Subleased Premises
or any part thereof, (ii) any activity, work, or other thing done, permitted or
suffered by Subtenant in or about the Subleased Premises, the Building, the
Common Areas, or any part thereof, (iii) any breach or default by Subtenant in
the performance of any if its obligations under this Sublease or the Master
Lease, (iv) any act, omission, negligence or willful or criminal conduct of
Subtenant, or any officer, representative, agent, employee, contractor, servant,
invitee, guest, tenant, licensee, concessionaire, successor or assign of
Subtenant or any of Subtenant's Telecommunications Customers, or (v) Subtenant's
operation of a telecommunications business; and in each case from and against
any and all damages, losses, liabilities, lawsuits, proceedings, causes of
action, penalties, costs and expenses (including, but not limited to, attorneys'
fees and costs at all tribunal levels) arising in connection with any such claim
or claims as described in (i) through (v) above, or any action brought thereon.
If such action be brought against DRI and/or Sublandlord, Subtenant, upon notice
from Sublandlord, shall defend the same through one or more counsel selected by
Subtenant's insurer or other counsel acceptable to DRI and Sublandlord in DRI's
and Sublandlord's sole and absolute discretion. subtenant assumes all risk of
damage or loss to its property or injury or death to persons in, on, or about
the Subleased Premises, from all causes except the deliberate act, gross
negligence or intentional misconduct of Sublandlord. In addition, subject to the
terms of Paragraph 8(c), Sublandlord shall indemnify, defend and hold Subtenant
harmless from and against any and all claims arising out of (vi) any activity,
work, or other thing done by Sublandlord in or about the Subleased Premises,
(vii) any breach or default by Sublandlord in the performance of any of its
obligations under this Sublease, or (viii) any gross negligence or willful
misconduct of Sublandlord or any officer, agent, employee or contractor of
Sublandlord; and in each case from and against any and all damages, losses,
liabilities, costs and expenses
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(including attorneys' fees and costs at all tribunal levels) arising directly in
connection with any such claim or claims as described in (vi) through (viii)
above, or any action brought thereon. If such action be brought against
Subtenant, Sublandlord, upon notice from Subtenant, shall defend the same
through counsel selected by Sublandlord's insurer, or other counsel reasonably
satisfactory to Subtenant. Sublandlord assumes all risk of damage or loss to its
property or injury or death to persons in, on or about the Building and the
Common Areas from all causes except the act, omission, negligence or willful or
criminal conduct of Subtenant or its employees, representatives, officers,
shareholders, agents, servants, contractors, tenants, concessionaires,
licensees, invitees, guests, successors or assigns. The provisions of this
Paragraph 8 shall survive the expiration or sooner termination of this Sublease.
All furnishings, fixtures, equipment, effects and property of every kind,
nature and description of Subtenant and all persons claiming by, through or
under Subtenant which, during the Term or any access to or occupancy of the
Subleased Premises by Subtenant or anyone claiming by, through or under
Subtenant, may be in the Subleased Premises, shall be there at the sole risk and
hazard of Subtenant, and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by leakage or bursting of water pipes,
steam pipes or other pipes, by theft, or from any other cause, no part of said
loss or damage is to be charged to or to be borne by DRI or Sublandlord unless
the same shall be due to the gross negligence or willful misconduct of DRI or
Sublandlord or their respective employees, agents, servants, successors or
assigns. Notwithstanding the foregoing exculpation from liability, Sublandlord
shall use all reasonable efforts to respond after receiving notification from
Subtenant of emergency situations wherein such conditions or occurrences
threaten to cause interruption or damage to Subtenant's telecommunications
equipment, including, if necessary, entering into the premises of other tenants
to cause the cessation of such adverse conditions or occurrences.
(e) Subtenant's insurance policies required by this Sublease shall: (i) be
issued by insurance companies licensed to do business in the Commonwealth of
Virginia with general policyholder's ratings of at least A and a financial
rating of at least VIII in the most current Best's Insurance Reports available
on the Possession Date, or if such ratings are changed or discontinued, the
parties shall agree to a comparable method of rating insurance companies; (ii)
name Sublandlord and DRI as additional insureds, as their interests may appear;
(iii) provide that the insurance not be cancelled or materially changed in the
scope or amount of coverage unless thirty (30) days advance notice is given to
Sublandlord and DRI; (iv) be primary policies, non-contributing with, or in
excess of, the coverage that any additional insured may carry; (v) provide that
any loss shall be payable notwithstanding any act or negligence of Sublandlord,
Subtenant or DRI which might result in a forfeiture thereunder of such insurance
or the amount of proceeds payable; (vi) have contractual coverage endorsements
insuring indemnities under this Sublease; and (vii) be maintained during the
entire Term.
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10. CONDITION OF SUBLEASED PREMISES
Sublandlord shall deliver the Subleased Premises to Subtenant in the
following condition at Sublandlord's sole cost and expense:
(a) Any asbestos in the Subleased Premises or in any riser/shaft or roofing
material required for Subtenant's conduit, telecommunication entrances or
equipment shall be removed in compliance with all applicable laws at
Sublandlord's expense. If such asbestos cannot be removed, all such asbestos
shall be abated in compliance with all applicable laws at Sublandlord's expense.
(b) Notwithstanding any construction by or on behalf of Subtenant,
throughout the Term of this Sublease, Sublandlord shall keep the Building,
including the roof, in good order and repair at Sublandlord's sole cost and
expense, unless any damage to the Building is caused by Subtenant or its
employees, agents, contractors, licensees, or invitees or Subtenant's
Telecommunications Customers, in which case Subtenant shall, at Subtenant's sole
cost and expense, promptly repair such damage to Sublandlord's satisfaction. To
the best of Sublandlord's knowledge, the Building and the Subleased Premises are
in compliance with all applicable laws, codes and ordinances. If the Subleased
Premises and the Building are not in compliance with such laws, codes and
ordinances then Sublandlord shall promptly cure any such non-compliance, at
Sublandlord's sole cost and expense, unless such non-compliance is caused by
Subtenant or its employees, agents, contractors, licensees, or invitees or
Subtenant's Telecommunications Customers, in which case Subtenant shall, at
Subtenant's sole cost and expense, promptly cure such non-compliance. Subtenant
represents to Sublandlord that it has examined and inspected the Subleased
Premises, found them to be satisfactory for Subtenant's use and accepts them in
their "as is" condition, subject to latent defects.
11. DEFAULT OF SUBTENANT
An Event of Default shall occur under this Sublease (a) if Subtenant shall
fail to pay any installment of Annual Rent, Additional Rent, or other sums under
this Sublease within five (5) days after Subtenant's receipt of written notice
of Sublandlord's non-receipt thereof; (b) if Subtenant shall breach or fail to
observe or perform any of the covenants, conditions, obligations and agreements
of Subtenant under this Sublease (other than those described in Paragraph 11(a)
hereof), and such failure shall continue and not be remedied within ten (10)
business days after Subtenant's receipt of written notice thereof from DRI or
Sublandlord, provided, however, that if a default is not, with due diligence
and/or the payment of money, reasonably capable of being cured within such ten
(10) business day period, then Sublandlord shall not be entitled to exercise its
remedies hereunder if Subtenant commences curing such default within said ten
(10) business day period and thereafter continues to prosecute diligently the
completion of such cure within such longer period as is reasonably necessary
under the circumstances, which period for completion of the curing of such
default shall not in any event be after the time which would cause Sublandlord
to be in default or would subject the Sublandlord to liability under the Master
Lease; (c) if Subtenant files (or has filed against it and not stayed or vacated
within sixty (60) days after filing) any petition or action for relief under any
creditor's law (including bankruptcy,
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reorganization, or similar action), either in state or federal court; (d) if
Subtenant or Guarantor makes any transfer in fraud of creditors as defined in
Section 548 of the United States Bankruptcy Code (11 U.S.C. 548, as amended or
replaced) or has a receiver appointed for its assets (and such appointment shall
not have been stayed or vacated within thirty (30) days); (e) if Subtenant
permits the issuance, perfection or recordation of any mechanic's lien as an
encumbrance against title to the Building or the Subleased Premises on account
of any repairs or improvements constructed by or on behalf of Subtenant and
Subtenant shall not, within thirty (30) days after receipt of written notice of
such lien, cause said lien to be removed or bonded off; or (f) if Subtenant
makes an assignment for the benefit of creditors. In addition to any other
lawful right or remedies which it may have, Sublandlord may do the following:
(i) terminate this Sublease by written notice to Subtenant specifying a date
therefor, which shall be no sooner than five (5) days following receipt of such
notice by Subtenant, and this Sublease shall then terminate on the date so
specified; or (ii) repossess the Subleased Premises, and with or without
terminating this Sublease, relet the same at such amount as Sublandlord desires,
in its sole and absolute discretion, and if the amount for which the Subleased
Premises are relet is less than the Annual Rent, Additional Rent and all other
obligations of Subtenant to Sublandlord hereunder, Subtenant shall immediately
pay the difference, on demand, to Sublandlord, but if in excess of Annual Rent,
Additional Rent and all other obligations of Subtenant hereunder, the entire
amount obtained from such reletting shall belong to Sublandlord, free of any
claim of Subtenant thereto, except that any such excess shall reduce any accrued
present or future obligations of Subtenant under this Sublease. Upon the
occurrence of an Event of Default, all expenses of Sublandlord in repairing,
restoring, or altering the Subleased Premises for reletting as general office
space or telecommunications co-location space, together with leasing fees and
all other expenses in seeking and obtaining a new tenant, shall be charged to
and be a liability of Subtenant. Sublandlord's attorneys' fees and costs in
pursuing any of the foregoing remedies, or in collecting any Annual Rent or
Additional Rent due by Subtenant hereunder, shall be paid by Subtenant.
Subtenant further agrees that Sublandlord may obtain an order for unlawful
detainer from any court of competent jurisdiction without prejudice to
Sublandlord's rights to otherwise collect rents from Subtenant.
All rights and remedies of Sublandlord are cumulative, and the exercise of
any one shall not be an election excluding Sublandlord at any other time from
exercising a different or inconsistent remedy. No exercise by Sublandlord of any
right or remedy granted herein shall constitute or effect a termination of this
Sublease unless Sublandlord shall so elect by written notice delivered to
Subtenant. Sublandlord's delay in asserting or prosecuting any right, claim or
cause of action accruing hereunder is not and shall not be deemed to be a waiver
of, and shall not prejudice the same, or any other right, claim or cause of
action, accruing hereunder at any time. No waiver by Sublandlord of any covenant
or condition shall be deemed to imply or constitute a further waiver of the same
at a later time, and acceptance of Annual Rent or Additional Rent by
Sublandlord, even with knowledge of a default by Subtenant, shall not constitute
a waiver of such default. No acceptance by Sublandlord of a lesser sum than the
Annual Rent, late charges, Additional Rent, Interest or other sums then due
shall be deemed to be other than on account of the earliest installment of such
payments due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction,
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and Sublandlord may accept such check or payment without prejudice to
Sublandlord's right to recover the balance of such installment or to pursue any
other remedy in this Sublease provided.
12. LIENS
Subtenant shall not create or permit to be created or to remain, and, shall
promptly discharge or remove or otherwise render ineffective by payment or
posting of a surety bond, or otherwise, within thirty (30) days after filing of
such lien, at its sole cost and expense, any lien, encumbrance or charge (each
or all of which are herein referred to as "Lien") upon the Building, the Common
Areas, or the Subleased Premises, or any part thereof, that arises from the use
or occupancy of the Subleased Premises by Subtenant or by reason of any labor,
service or material furnished or claimed to have been furnished to Subtenant or
by reason of any construction, repair or demolition by or on behalf of
Subtenant. Notice is hereby given that Sublandlord shall not be liable for the
cost and expense of any labor, services or material furnished or to be furnished
with respect to the Subleased Premises, the Building or the Common Areas at or
by the direction of Subtenant or anyone holding the Subleased Premises or any
part thereof by, through or under Subtenant and that no laborer's, mechanic's or
materialman's or other lien for any such labor, service or materials shall
attach to or affect the interest of Sublandlord or DRI in and to the Subleased
Premises, the Building or the Common Areas. Nothing in this Sublease contained
shall be deemed or construed in any way as constituting the consent or request
of Sublandlord or DRI, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or the furnishing of any materials for any specific improvements or repair
to or of the Subleased Premises, the Building or the Common Areas or any part
thereof, nor as giving Subtenant any right, power or authority on behalf of
Sublandlord or DRI to contract for or permit the rendering of any services or
the furnishing of any materials that would give rise to the filing of any lien
against the Subleased Premises, the Building, the Common Areas or any part
thereof. If Subtenant fails to discharge, remove or otherwise render ineffective
by payment, posting of a surety bond, or otherwise, any Lien or to pay the cost
of compliance with any regulation as hereinabove provided, Sublandlord, without
declaring a default hereunder and without relieving Subtenant of any liability
hereunder, and/or DRI may, but shall not be obligated to, discharge or pay the
same, either by paying the amount claimed to be due or by procuring the
discharge of such Lien by deposit or by bonding proceedings, and any amount so
paid by Sublandlord and/or DRI and all costs and expenses incurred by
Sublandlord and/or DRI in connection therewith shall constitute Additional Rent
hereunder and shall be paid by Subtenant to Sublandlord on demand with Interest
thereon.
13. SUBORDINATION AND ATTORNMENT
(a) This Sublease is automatically subject and subordinate to the rights of
DRI in and to the Building and to the lien of all present and future mortgages,
deeds of trust or similar instruments which may now or hereafter encumber the
Building, the Common Areas, or the Subleased Premises, as well as to all present
and future advances under all replacements, consolidations, renewals,
extensions, modifications and refinancings of such mortgages, deeds of trust or
similar instruments. The foregoing provisions shall be self-operative and no
further instrument of subordination shall be required to effectuate such
subordination. Upon request by
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Sublandlord or DRI, however, Subtenant shall, within seven (7) days after
request to do so, execute and deliver such documents confirming this
subordination as Sublandlord and/or DRI may furnish provided such will not
materially, adversely change the terms of this Sublease or unreasonably
interfere with Subtenant's use and occupancy of the Subleased Premises.
Subtenant covenants and agrees to attorn to any successor to Sublandlord's
interests in the Subleased Premises. Subtenant agrees to execute within seven
(7) days after receipt of written request therefor, and as often as requested,
estoppel certificates confirming any factual matter requested therein which is
true and is within Subtenant's knowledge regarding this Sublease, the Subleased
Premises, or Subtenant's use thereof, including, but not limited to, date of
occupancy, the Sublease Commencement Date, the Possession Date, the Rent
Commencement Date, the amount of Annual Rent and Additional Rent due and date to
which Annual Rent and Additional Rent are paid, whether or not Subtenant has any
defense or offsets to the enforcement of this Sublease or the Annual Rent or
Additional Rent payable hereunder or knowledge of any default or breach by
Sublandlord, and that this Sublease, together with any modifications or
amendments, is in full force and effect. Subtenant shall attach to such estoppel
certificate copies of this Sublease and all modifications or amendments. To the
extent not inconsistent with this Paragraph 13(a), the provisions of Paragraph
29(j) shall also apply to the estoppel certificates described in this Paragraph
13(a).
Subtenant agrees to give DRI notice of, and an opportunity (which shall in
no event be less than forty-five (45) days after written notice thereof is
delivered to the mortgagee as herein provided) to cure any Sublandlord default
under this Sublease; and Subtenant agrees to accept such cure if effected by
DRI. No termination of this Sublease by Subtenant shall be effective until such
notice has been given and the cure period has expired without the default having
been cured. Further, Subtenant agrees to permit DRI (or purchaser at any
foreclosure sale or deed in lieu thereof), and its successors and assigns on
acquiring Sublandlord's interest in the Subleased Premises and/or this Sublease,
to become Sublandlord hereunder, with liability for all such Sublandlord's
obligations. Subtenant agrees to attorn to any successor sublandlord, provided
such successor or assign agrees not to disturb the Subtenant's possession
hereunder so long as Subtenant is in full compliance with this Sublease.
(b) Subtenant covenants and agrees to attorn to any successor to
Sublandlord's interests in the Subleased Premises.
14. SURRENDER - HOLDING OVER
(a) Upon the termination of this Sublease for reasons other than
Subtenant's default under Sublease or expiration of the Sublease, Subtenant
shall remove all of its facilities and equipment, including, but not limited to,
the Additional Equipment and Facilities, from the Subleased Premises, repair any
damage to the Subleased Premises, the Common Areas or the Building resulting
from such removal and restore the Subleased Premises to a condition mutually
agreed upon by Sublandlord and Subtenant at the time of such expiration or
termination, normal wear and tear and damage not caused solely by Subtenant
excepted, unless such obligations to restore the Subleased Premises, or any part
thereof, to a condition mutually agreed upon by Sublandlord and Subtenant at the
time of such expiration or termination, have been waived in
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writing by Sublandlord. If Subtenant fails to remove all of its facilities and
equipment, including but not limited to, the Additional Equipment and
Facilities, from the Subleased Premises on or before thirty (30) days after the
termination or expiration of this Sublease, all such facilities and equipment,
including, but not limited to, the Additional Facilities and Equipment, shall
become the personal property of Sublandlord without any compensation to
Subtenant therefor.
(b) If Subtenant shall hold over the expiration or sooner termination of
this Sublease, such holding over shall not be deemed a renewal of this Sublease
but shall be deemed to create a tenancy-at-sufferance terminable upon no more
than seven (7) days notice to Subtenant. During any such holding over, Subtenant
shall continue to be bound by all of the terms and conditions of this Sublease,
except that during such tenancy-at-sufferance, Subtenant shall pay rent at the
rate equal to one hundred twenty-five percent (125%) of the Annual Rent and
Additional Rent payable during the immediately preceding year of the Term. The
increased rent during such holding over is intended to partially compensate
Sublandlord for losses, damages and expenses anticipated to be incurred by
Sublandlord as a result of such holding over. If Sublandlord loses a prospective
tenant because Subtenant fails to vacate the Subleased Premises on the
expiration or sooner termination of this Sublease, Subtenant will be liable for
all damages, costs and expenses, including, but not limited, to fees of
attorneys, brokers, experts and consultants, directly, indirectly and
consequentially incurred by Sublandlord because of Subtenant's wrongful failure
to vacate timely, less the amount of the holdover rent in excess of one hundred
percent (100%) of the then applicable Annual Rent.
15. BROKER'S DISCLOSURE AND COMMISSIONS
Sublandlord and Subtenant hereby represent, covenant, and warrant to the
other that neither of them has dealt with any real estate broker, finder or
other person with respect to this Sublease in any manner. Sublandlord and
Subtenant shall indemnify, defend, and hold harmless the other from any and all
damages resulting from claims that may be asserted against the other resulting
from a breach of this covenant. The provisions of this paragraph shall survive
the expiration or sooner termination of this Sublease.
16. TELECOMMUNICATION ENTRANCES AND CONDUITS
Subtenant shall have the right to construct, or have constructed on its
behalf, up to three (3) diverse telecommunication entrances from the exterior of
the Building to the Subleased Premises. Subtenant may extend this right to a
third party provided the entrances are constructed for the benefit of Tenant.
All such construction shall be subject to the terms and conditions of Paragraph
8(b) hereof. Any aforementioned telecommunication entrances shall become the
property of the Sublandlord and shall be surrendered with the Subleased Premises
upon the expiration of this Sublease or earlier termination. Subtenant shall
also have the right to core drill from the Subleased Premises to the lowest
level of the Building as necessary or saw cut the slab 1 to install new power
and data conduits. Subtenant shall have the right to install up to six 4-inch
conduits per riser. All such construction and installation shall be subject to
the terms and conditions of Paragraph 8(b) hereof.
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17. PERMITS
Subtenant shall be responsible for obtaining, at its cost and expense, any
and all permits necessary for the operation of its telecommunications business
and for any construction, improvements and/or alterations performed by or on
behalf of Subtenant within the Subleased Premises, within the Building, or
outside of the Building. Sublandlord agrees to cooperate with Subtenant to
obtain any such permits.
18. UTILITIES
(a) Sublandlord shall make approximately 600 amps 480 volt, 3-phase, 4-wire
A/C of electric capacity available to Subtenant in the Subleased Premises.
Subtenant shall extend such A/C electric capacity from Sublandlord's switch gear
facility located on level 1B to the Subleased Premises, at Subtenant's sole cost
and expense. Subtenant shall also obtain, at its own expense, and pay for its
entire supply of electric current, which current shall be measured by direct
separate metering by the local power company or by submetering if such direct
separate metering is not available. If Subtenant requires additional
electricity, Subtenant will have the right, at its sole cost and expense, with
the cooperation of the Sublandlord, to reconfigure Subtenant's switch equipment
and facilities and to make application directly to the public utility serving
the Building for such additional electricity.
(b) Sublandlord shall provide Subtenant with electricity, at no cost to
Subtenant, from the Possession Date to the Rent Commencement Date (the
"Construction Period"). Subtenant shall be responsible for paying for its own
electricity during the Term of this Sublease after the Rent Commencement Date in
accordance with the provisions of Paragraph 18(a) hereof.
(c) Sublandlord shall provide Subtenant with heating and air conditioning
for the Subleased Premises at levels similar to those maintained in Class "A"
office buildings ("HVAC Service").
(d) Sublandlord shall not be liable for the interruption of any of the
above-mentioned services caused by strikes, lockouts, accidents or other causes
beyond the reasonable control of Sublandlord. Any such interruption of service
shall never be deemed an eviction or disturbance of Subtenant's use and
possession of the Subleased Premises or any part thereof, or render Sublandlord
liable to Subtenant for damages, or relieve Subtenant from performance of
Subtenant's obligation under this Sublease, unless the interruption is the
result of Sublandlord's gross negligence or willful misconduct. Sublandlord
shall use its best efforts to restore the interrupted service within a
reasonable time after interruption if the cause of interruption is subject to
Sublandlord's control. If such interruption of the above-mentioned services is
within Sublandlord's control and such interruption continues for more than five
(5) consecutive business days, then rent shall be abated until such time as all
such above-listed services are restored.
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19. FENCING
Subtenant shall have the right to fence or screen in the 1B Space provided
Subtenant complies with the terms and conditions of Paragraph 8(b) hereof for
the construction and installation of any such fence or screen. Subtenant shall
provide Sublandlord with all keys, cards or other devices necessary for
Sublandlord to gain access to the 1B Space behind such screens or fences. Upon
the termination of this Sublease for reasons other than Subtenant's default or
expiration of this Sublease, Subtenant shall remove any and all such fences and
screens, repair any damage to the Subleased Premises, the Common Areas or the
Building done by such removal, and restore the Subleased Premises to their
original condition, normal wear and tear and damage not caused solely by
Subtenant excepted, unless such obligations to restore the Subleased Premises,
or any part hereof, to their original condition have been waived in writing by
Sublandlord.
20. SECURITY
Subtenant shall have the right to install a private security system for the
Subleased Premises provided Subtenant complies with the terms and conditions of
Paragraph 8(b) hereof. Subtenant shall provide Sublandlord with any keys, cards
or other devices necessary for Sublandlord to gain access to the Subleased
Premises twenty-four (24) hours a day, seven (7) days a week. Subtenant shall
keep, maintain and make available to Sublandlord upon Sublandlord's request all
security system data, including, but not limited to, entry and exit records for
the Subleased Premises, for a period of one (1) year from the date of any such
entrance and exit. Upon the termination of this Sublease, Subtenant shall remove
such security system, repair any damage to the Subleased Premises, the Common
Areas or the Building done by such removal, and restore the Subleased Premises
to their original condition, normal wear and tear and damage not caused solely
by Tenant excepted, unless such obligations to restore the Subleased Premises,
or any part thereof, to their original condition have been waived in writing by
Sublandlord.
21. ENVIRONMENTAL COMPLIANCE
(a) Definitions.
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances into any
environmental media and into or on any portion of the Building, the Common
Areas, or the Subleased Premises, or any part thereof, so as to require
remediation, clean up or investigation under any applicable Environmental
Laws.
(ii) "Environmental laws" as used herein means all federal, state, and
local laws, regulations, orders, permits, ordinances, and the like
concerning protection of human health and/or the environment.
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(iii) "Hazardous Substances" as used herein means any hazardous or
toxic substance or waste as those terms are defined by any applicable
federal or state law or regulation (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601 et.seq. ("CERCLA") and the Resource Conversation and Recovery
Act, 42 U.S.C. 6901 et. seq. ("RCRA") and petroleum products and oil.
(b) Compliance. Subtenant warrants that all its activities in the Subleased
Premises, the Building and the Common Areas during the Term of this Sublease
will be conducted in compliance with Environmental Laws.
(c) Registrations. Subtenant, at Subtenant's sole cost and expense, shall
obtain and at all times comply with the terms and conditions of all permits or
licenses or approvals under Environmental Laws necessary for Subtenant's
operation of its business in the Subleased Premises and shall comply with the
terms and conditions of all such permits, licenses, approvals, notifications,
and registrations and with any other applicable Environmental Laws. Subtenant
warrants that it has obtained or, at the appropriate time, will obtain, all such
permits, licenses or approvals and has made or, at the appropriate time, will
make all notifications and registrations required by any applicable
Environmental Laws necessary for Subtenant's operation of its business in the
Subleased Premises.
(d) Hazardous Substances. Subtenant shall not cause or permit any Hazardous
Substances to be brought upon, kept or used in or about the Subleased Premises,
the Building or the Common Areas, except for normal cleaning fluids and
chemicals and (ii) battery fluid properly contained within Subtenant's backup
battery system, and then only in compliance with all Environmental Laws and the
requirements of any insurance carrier insuring the Building, the Common Areas
and/or the Subleased Premises. Subtenant shall not cause or permit the release
of any Hazardous Substances into any environmental media such as air, water or
land, or into or on the Subleased Premises, the Building or the Common Areas. If
any such release for which Subtenant is responsible under this paragraph shall
occur during the Term, Subtenant shall, at its sole cost and expense, (i)
immediately take all necessary steps to contain, control and clean up such
release and any associated contamination, (ii) notify Sublandlord and DRI, and
(iii) take any and all action which may be required by Environmental laws,
governmental agencies, Sublandlord and DRI. Subtenant shall, under no
circumstances whatsoever, (iv) treat, store or dispose of any Hazardous Waste
(as all such terms are defined by RCRA, and the regulations promulgated
thereunder) within the Subleased Premises, the Building or the Common Areas, (v)
discharge Hazardous Substances into the storm system serving the Building, or
(vi) install any underground tank or underground piping on or under the
Building.
(e) Indemnity. Subtenant shall and hereby does indemnify, defend and hold
DRI and Sublandlord harmless from and against any and all expense, loss and
liability suffered by either of them and/or their respective employees, agents,
officers, partners, tenants, concessionaires, contractors, licensees, invitees,
guests, successors or assigns by reason of Subtenant's improper storage,
generation, handling, treatment, transportation, disposal, or arrangement for
transportation or disposal of any Hazardous Substances (whether accidental,
intentional, or
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negligent) or by reason of Subtenant's breach of any warranty or breach of any
of the covenants or provisions of this Paragraph 21. Such expenses, losses and
liability shall include, without limitation, (i) any and all expenses that are
incurred by DRI and/or Sublandlord in complying with any Environmental Laws as a
result of Subtenant's failure to comply with the terms of this Sublease; (ii)
any and all costs that DRI and/or Sublandlord may incur in studying or remedying
any contamination at or arising from the Subleased Premises, the Building or the
Common Areas as a result of or in connection with Subtenant's breach of any
warranty or breach of any of the covenants or provisions of this Paragraph 21;
(iii) any and all costs that DRI and/or Sublandlord may incur in studying,
removing, disposing or otherwise addressing any Hazardous Substances that
Subtenant improperly stored, generated, handled, treated, transported or
disposed of or failed to remove from the Subleased Premises, the Building or the
Common Areas; (iv) any and all fines, penalties or other sanctions assessed upon
DRI and/or Sublandlord by reason of Subtenant's failure to comply with
Environmental laws; and (v) any and all legal and professional fees and costs
incurred by DRI and/or Sublandlord in connection with the foregoing. The
indemnity contained herein shall survive the termination or expiration of this
Sublease.
22. ACCESS
(a) Subtenant shall have access to the Subleased Premises and the Common
Areas twenty-four (24) hours a day, seven (7) days a week and shall have access
to the cafeteria located in the Building during such hours as the cafeteria may
be open for business. Any of Subtenant's employees, agents, contractors,
licensees, or invitees or Subtenant's Telecommunications Customers desiring
unescorted access to the Subleased Premises, the Common Areas and the cafeteria
shall be subject to all such security checks that Sublandlord deems necessary,
in its sole and absolute discretion. If Sublandlord determines, in its sole and
absolute discretion, that any such employee, agent, contractor licensee, or
invitee of Subtenant or Subtenant's Telecommunications Customer has passed the
security checks, Sublandlord shall issue to such employee, agent, contractor,
licensee, or invitee of Subtenant or Subtenant's Telecommunications Customer a
picture identification card which shall be worn and openly displayed while in
the Building or the subleased Premises. If Sublandlord determines, in its sole
and absolute discretion, that any such employee, agent, contractor, licensee or
invitee of Subtenant or Subtenant's Telecommunications Customer fails the
security checks, then such employee, agent, contractor, licensee or invitee of
Subtenant or Subtenant's Telecommunications Customer shall not be granted
unescorted or escorted access to the Subleased Premises or the Building. All of
Subtenant's escorted visitors, guests and invitees, must check in with the
security desk in the lobby of the Building and obtain a visitor's pass prior to
gaining access to the building and the Premises. Subtenant shall have the right
to access and use the Building's loading dock during the Term of this Sublease.
Subtenant shall coordinate its use of the loading dock so that Subtenant's use
of the loading dock shall not interfere with any other occupant's use of the
loading dock.
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(b) Sublandlord shall have access to the Subleased Premises twenty-four
(24) hours a day, seven (7) days a week without giving Subtenant prior notice.
Notwithstanding the foregoing sentence, Sublandlord agrees to give Subtenant not
less than forty-eight (48) hours prior notice before performing any maintenance
within the Subleased Premises, except in cases of an emergency, which shall be
determined by Sublandlord in its sole and absolute discretion, in which case
Sublandlord shall not be required to notify Subtenant before performing any
maintenance in the Subleased Premises.
23. USE
Subtenant shall use the Subleased Premises solely for general office use
and the installation, operation, maintenance, replacement and repair of
telecommunications and switch equipment and facilities, including the
co-location of communications and switch equipment and facilities owned by third
parties in connection with Subtenant's operation of a telecommunications
business. Prior to installing any non-telecommunications equipment or facilities
of Subtenant or any third party in the Subleased Premises (the "Additional
Equipment and Facilities"), Subtenant shall provide Sublandlord with a list of
all such equipment and facilities for Sublandlord's written approval, such
approval to be in Sublandlord's sole and absolute discretion. Sublandlord shall
use reasonable efforts to approve or disapprove such equipment or facilities
within ten (10) business days after Sublandlord's receipt of such list of
equipment and facilities. Such equipment and facilities shall be deemed rejected
if Sublandlord does not approve or disapprove such equipment or facilities
within said 10-day period. Subtenant's and any third party's telecommunications
and switch equipment and facilities, and the Additional Equipment and Facilities
shall not interfere with Sublandlord's, DRI's or any Building occupants use of
the Building. Subtenant shall not sue or permit the Subleased Premises to be
used for any other purpose without prior written approval of Sublandlord in its
sole and absolute discretion.
24. PARKING
Subtenant shall have the exclusive use of four (4) designated, reserved
parking spaces in the parking area in the Building during the Term at the
prevailing rate for such parking space within the Building. Subtenant shall pay
to Sublandlord as Additional Rent each month during the Term all amounts due for
such parking spaces. All such spaces shall be used in accordance with the terms
of the Master Lease.
25. SUBLANDLORD'S COVENANT
Sublandlord covenants that it has the right to enter into this Sublease for
the Term and if Subtenant shall pay the rents and perform the covenants, terms
and conditions of this Sublease and if Subtenant is not in default hereunder,
Subtenant shall, during the Term hereof, peaceably and quietly have, hold and
enjoy the Subleased Premises, subject, however, to the terms, covenants and
conditions of the Master Lease and this Sublease and subject further to the
rights of any mortgagee of the Building and/or Sublandlord's interest in this
Sublease.
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26. NOTICES
Unless otherwise provided in this Sublease, all notices, demands, requests
or other communications required or desired to be given hereunder by either
party to the other shall be in writing and shall be deemed duly given (i) when
delivered, if delivered in person (with receipt therefor); (ii) two (2) postage
prepaid, return receipt requested; (iii) one (1) business day after sending, if
sent by a nationally recognized overnight courier service (e.g., Federal
Express, DHL, UPS); or (iv) when sent, if sent by facsimile, after receiving
confirmation of the other party's receipt of the facsimile. Notice to the
respective parties shall be addressed as follows:
To Sublandlord: Virginia Electric and Power Company
ATTN: Senior Real Estate Administrator
One James River Plaza, 6th Floor
P.O. Box 26666
Richmond, Virginia 23261
Facsimile Number: (804) 771-3113
With a copy to: Virginia Electric and Power Company
ATTN: Manager Corporate Security and
Administrative Services
One James River Plaza, 6th Floor
P.O. Box 26666
Richmond, Virginia 23261
Facsimile Number: (804) 771-4842
To Subtenant: Net2000 Communications Real Estate, Inc.
8180 Greensboro Drive, Suite 500
McLean, Virginia 22102
Attention: Regulatory & Law Director
Facsimile Number: (703) 749-1524
With copies to:
Net2000 Communications Real Estate, Inc.
2195 Fox Mill Road
Herndon, Virginia 20171
Attention: Facilities Manager
Facsimile Number: (703) 793-2856
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and:
Garrett C. Burke, Esquire
Young Goldman & Van Beek, P.C.
P.O. Box 1946
Alexandria, Virginia 22313-1946
Facsimile Number: (703) 548-4742
Overnight Delivery: Suite 416, 510 King Street
Alexandria, Virginia 22314
Each party may, by like written notice given at least fifteen (15) days in
advance of its being effective, designate alternative addresses and/or addresses
to which such notices shall be directed.
27. DAMAGE BY FIRE, ETC.
If the Subleased Premises shall be partially damaged by fire or other
casualty insured under Sublandlord's insurance policies, and if DRI or its
applicable lender(s) shall permit insurance proceeds paid as a result thereof to
be so used, then upon receipt of the insurance proceeds, Sublandlord is
obligated, except as otherwise provided herein, to promptly repair and restore
the same (exclusive of improvements made by Subtenant and exclusive of
Subtenant's trade fixtures, decorations, signs and contents) substantially to
the condition thereof immediately prior to such damage or destruction; limited,
however, to the extent of the insurance proceeds received by Sublandlord. If by
reason of such occurrence: (a) the Subleased Premises are rendered wholly
untenantable; (b) the Subleased Premises are damaged in whole or in part as a
result of a risk which is not covered by Sublandlord's insurance policies; (c)
DRI's lender does not permit a sufficient amount of the insurance proceeds to be
used for restoration purposes; or (d) the Building is damaged (whether or not
the Subleased Premises are damaged) to an extent of fifty percent (50%) or more
of the fair market value thereof, Sublandlord or DRI may elect either to repair
or cause to be repaired the damage as aforesaid, or Sublandlord may cancel this
Sublease by written notice of cancellation given to Subtenant within sixty-five
(65) days after the date of such occurrence, and thereupon this Sublease shall
terminate with no further liability to either party, except as set forth herein.
Subtenant shall vacate and surrender the Subleased Premises to Sublandlord
within ten (10) days after receipt of such notice of termination. In addition,
Subtenant may terminate this Sublease by written notice given to Sublandlord at
any time between the one hundred eighty-first (181st) and the two hundred
thirtieth (230th) days after the occurrence of any such casualty, if Sublandlord
has failed to restore the damaged portions of the Building (including the
Subleased Premises) within one hundred eighty (180) days of such casualty.
However, if Sublandlord is prevented by causes beyond its reasonable control
(including, without limitation, those encompassed in the meaning of the term
force majeure ("Delays"), from completing the restoration within said one
hundred eighty (180)-day period, and if Sublandlord provides Subtenant with
written notice of such cause for delay, then Sublandlord shall have no
additional period beyond said one hundred eighty (180) days, equal to the Delays
in which to restore the damaged areas of the Building; and, Subtenant may
terminate
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this Sublease after said additional period beyond said one hundred eighty (180)
days, equal to the Delays in which to restore the damaged areas of the Building;
and, Subtenant may terminate this Sublease after said additional period required
for completion has expired with the Building not having been substantially
restored. In such case, Subtenant shall vacate and surrender the Subleased
Premises to Sublandlord within ten (10) days after the expiration of
Sublandlord's date certain for restoration to be completed as set forth in the
preceding sentence. Upon the termination date of this Sublease as aforesaid,
Subtenant's liability for the Annual Rent shall cease as of the effective date
of the termination of this Sublease, subject, however, to the provisions for
abatement of Annual Rent hereinafter set forth.
Unless this Sublease is terminated as aforesaid, this Sublease shall remain
in full force and effect, and Subtenant shall promptly repair, restore, or
replace Subtenant's improvements, trade fixtures, decorations, signs and
contents in the Subleased Premises, the Common Areas and the Building in a
manner and to at least a condition equal to that existing prior to their damage
or destruction.
If by reason of such fire or other casualty the Subleased Premises are
rendered wholly untenantable, the Annual Rent and other charges payable by
Subtenant shall be fully abated, or if only partially damaged, such Annual Rent
and other charges shall be abated proportionately as to that portion of the
Subleased Premises rendered untenantable, in either event (unless this Sublease
is terminated, as aforesaid) from the date of such casualty until receipt of
notice by Subtenant from Sublandlord that the subleased Premises have been
substantially repaired and restored, or until Subtenant's business operations
are restored in the entire Subleased Premises, whichever shall first occur.
Subtenant shall continue the operation of Subtenant's business in the Subleased
Premises or any part thereof not so damaged during any such period to the extent
reasonably practicable from the standpoint of prudent business management.
Except for the abatement of the Annual Rent hereinabove set forth, Subtenant
shall not be entitled to, and hereby waives, all claims against Sublandlord and
DRI for any compensation or damage for loss of use of the whole or any part of
the Subleased Premises and/or for any inconvenience or annoyance occasioned by
any such damage, destruction, repair or restoration.
28. EMINENT DOMAIN
If all of the Subleased Premises, or such part thereof as will make the
same unusable for the purposes contemplated by this Sublease, be taken under the
power of eminent domain (or a conveyance in lieu thereof), then this Sublease
shall terminate as of the date possession is taken by the condemnor, and Annual
Rent shall be adjusted between Sublandlord and Subtenant as of such date. If
only a portion of the Subleased Premises is taken and Subtenant can continue use
of the remainder, then this Sublease will not terminate, but Annual Rent shall
abate in a just and proportionate amount to the loss of use occasioned by the
taking. Subtenant shall have no right or claim to any part of any award made to
or received by Sublandlord or DRI for any taking and no right or claim for any
alleged value of the unexpired Term of this Sublease; provided, however, that
Subtenant shall not be prevented from making a claim against the condemning
governmental authority (but not against Sublandlord or DRI) for any moving
expenses or taking
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of Subtenant's personal property, or such other award as may be allowed by law
without reducing Sublandlord's award.
29. MISCELLANEOUS PROVISIONS
(a) Except as may be otherwise provided in this Sublease, in the event of
any action or proceeding brought by either Sublandlord or Subtenant against the
other under this Sublease, the prevailing party shall be entitled to recover
from the other party the reasonable fees and expenses of its attorneys and its
court costs, expert witness fees and other reasonable expenses incurred in such
action or proceeding, including those incurred by or through any appeal.
(b) This Sublease may be executed in several counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument. In case one or more of the provisions contained in this Sublease or
their application shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained in
this Sublease and any other applications of such provisions shall not in any way
be affected or impaired.
(c) Notwithstanding anything in this Sublease to the contrary, the rights
of Subtenant are subject to all matters of title and survey as to which
Sublandlord's rights under the Master Lease are subject.
(d) Sublandlord shall, at Sublandlord's cost, provide Subtenant with a
listing in the Building's directory if SL makes such a listing available to the
other tenants in the Building.
(e) This Sublease contains the entire understanding between the parties
with respect to the subject matter or this Sublease. The provisions of this
Sublease may not be waived or modified orally or in any other manner than by an
agreement in writing signed by both parties or their respective successors in
interest.
(f) Sublandlord may assign its rights under this Sublease without affecting
the obligations of Subtenant hereunder; upon any such assignment, Sublandlord
shall be relieved of all responsibility and shall be released from any liability
thereafter accruing under this Sublease so long as the same shall have been
accepted by the assignee directly or by operation of law. If any prepaid Annual
Rent has been paid by Subtenant, Sublandlord may transfer the Security Deposit
and/or prepaid Annual Rent to Sublandlord's successor, and upon such transfer,
Sublandlord shall be released from liability for return of the Security Deposit
or prepaid Annual Rent.
(g) This Sublease may not be recorded by either party; provided, however,
both parties agree, upon request of the other party, to execute a Memorandum
hereof for recording purposes, the preparation and recording costs of which
shall be borne by the requesting party.
(h) If Sublandlord or its employees, officers, directors or stockholders
are ordered to pay Subtenant a money judgment because of Sublandlord's default
under this Sublease, said
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money judgment may only be enforced against and satisfied solely out of
Sublandlord's interest in the Subleased Premises, including the rental income
and proceeds from the lease thereof or any part thereof. No other assets of
Sublandlord or said other parties exculpated by the preceding sentence shall be
liable for, or subject to, any such money judgment.
(i) The obligations, covenants, indemnifications, representations and
liabilities of Subtenant accruing under this Sublease prior to the expiration or
earlier termination of the Term of this Sublease shall survive such expiration
or earlier termination.
(j) In addition to the estoppel certificates described in Paragraph 13(a)
hereof, Subtenant shall execute and deliver to Sublandlord, or any proposed
purchaser of Sublandlord's interest under this Sublease, estoppel certificates
with regard to the status of this Sublease in such form and substance as may
from time to time be reasonably requested by Sublandlord. In the event that
Subtenant shall fail, for a period of seven (7) days after receipt of the
written request, to execute such certificate or to express in writing the manner
in which any such certificate tendered for execution is incorrect, the
certificate as tendered shall be conclusively deemed for all purposes to be
correct and may be relied upon by the anticipated recipient and any third
persons. To the extent not inconsistent with this Paragraph 29(j), the
provisions of Paragraph 13(a) shall also apply to the estoppel certificates
described in this Paragraph 29(j).
(k) The various rights, elections and remedies of Sublandlord contained in
this Sublease shall be cumulative and no one of them shall be construed as
exclusive of any of the others, or of any right, priority or remedy allowed or
provided for by law or in equity, including injunctive relief.
(l) The captions by which the paragraphs of this Sublease are identified
are for convenience only and shall have no effect upon the interpretation of
this Sublease. Wherever the context so requires, the singular number shall
include the plural, the plural shall refer to the singular and the neuter gender
shall include the masculine and feminine genders.
(m) Subject to the restrictions on assignment and subletting set forth in
Paragraph 6 hereof, the covenants, terms and conditions of this Sublease shall
inure to the benefit of and be binding upon Sublandlord and Subtenant and their
respective successors and assigns.
(n) This Sublease shall be governed and interpreted in accordance with the
laws of the Commonwealth of Virginia.
(o) With respect to any actions, consents, requests or requirements that
either party is required to satisfy, perform or give to the other party
hereunder, both parties agree that, except as expressly provided herein to the
contrary, they shall act in a commercially reasonable manner in satisfying,
performing or giving such actions, consents, requests or requirements, except as
otherwise noted herein.
(p) Subtenant agrees to comply with and adhere to the following additional
rules and regulation
27
<PAGE> 28
(1) Obstruction of Common Areas. Subtenant shall not, whether
temporarily, accidentally or otherwise, allow anything to remain in, place
or store anything in, or obstruct in any way, any sidewalk, court, hall,
passageway, entrance, or shipping area. Subtenant shall lend its full
cooperation to keep such areas free from all obstruction and in a clean and
sightly condition, and move all supplies, furniture and equipment as soon
as received directly to the Subleased Premises, and shall move all such
items and waste that are at any time being taken from the Subleased
Premises directly to the areas designated for disposal. All courts,
passageways, entrances, exists, elevators, escalators, stairways,
corridors, halls and roofs are not for the use of the general public and
Sublandlord shall in all cases retain the right to control and prevent
access thereto by all persons whose presence, in the judgment of
Sublandlord, shall be prejudicial to the safety, character, reputation and
interest of the Building and its tenants; provided, however, that nothing
herein contained shall be construed to prevent such access to persons with
whom Subtenant deals within the normal course of Subtenant's business so
long as such persons are not engaged in illegal activities.
(2) Restrooms. The restrooms, toilets, urinals, vanities and the other
apparatus shall not be used for any purpose other than that for which they
were constructed, and no foreign substance of any kind whatsoever shall be
thrown therein. The expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by Subtenant if its agents,
guests, licensees, employees or invitees or Subtenant's Telecommunications
Customers shall have caused it.
(3) Intoxication. Sublandlord reserves the right to exclude or expel
from the Building any person who, in the judgment of Sublandlord is
intoxicated, or under the influence of liquor or drugs, or who in any way
violates any of the rules and regulations set forth herein.
(4) Nuisances and Certain Other Prohibited Uses. Subtenant shall not
(a) use the Subleased Premises for housing, lodging, or sleeping purposes;
(b) place any musical or sound producing instrument or device inside or
outside the Subleased Premises which may be heard outside the Subleased
Premises; (c) operate any electrical device from which may emanate waves
that could interfere with or impair radio and/or television broadcasting,
reception, or transmission from or in the Building or elsewhere; (d) bring
or permit to be in the Building any bicycle, other vehicle, dog (except in
the company of a blind person), other animal or bird; (e) make or permit
any objectionable noise or odor to emanate from the Subleased Premises; (f)
disturb, harass, solicit or canvas any occupant of the Building; (g) do
anything in or about the Subleased Premises which could be a nuisance or
tend to injure the reputation of the Building; and (h) allow any firearms
in the Building or the Subleased Premises except as approved by Sublandlord
in writing.
28
<PAGE> 29
(5) Solicitation. Subtenant shall not canvas other tenants in the
Building to solicit business or contributions and shall not exhibit, sell
or offer to sell, use, rent or exchange any products or services in or from
the Subleased Premises unless ordinarily embraced within the subtenant's
permitted use as specified in Paragraph 23 of this Sublease.
(6) Energy Conservation. Subtenant shall not waste electricity, water,
heat or air conditioning and agrees to cooperate fully with Sublandlord to
insure the most effective operation of the Building's heating and air
conditioning.
(7) Parking. Parking is in designated parking areas only. There may be
no vehicles in "no parking" zones or at curbs. Handicapped spaces are for
handicapped persons and the Police Department will ticket unauthorized
(unidentified) cars in handicapped spaces. Sublandlord reserves the right
to remove vehicles that do not comply with this Sublease or these rules and
regulations and Subtenant shall indemnify and hold harmless Sublandlord
from its reasonable exercise of these rights with respect to the vehicles
of Subtenant and its employees, agents and invitees.
29
<PAGE> 30
IN WITNESS WHEREOF, and intending to be legally bound, one to the other,
the parties hereto have executed this Sublease as of the date first set forth
above.
SUBLANDLORD:
VIRGINIA ELECTRIC AND POWER
COMPANY, a Virginia public service corporation
By: /s/ James A. White
------------------------------------------
Name: James A. White
----------------------------------------
Its: SR. V.P. Human Resources
-----------------------------------------
SUBTENANT:
NET2000 COMMUNICATIONS REAL
ESTATE, INC., a Delaware corporation
By: /s/ Kathy Dickerson
------------------------------------------
Name: Kathy Dickerson
----------------------------------------
Its: Vice President HR & Administration
-----------------------------------------
30
<PAGE> 1
5/21/99 Final EXHIBIT 10.25
DULLES PARK TECHNOLOGY CENTER
Herndon, Virginia
STANDARD OFFICE
LEASE AGREEMENT
By and Between
KDC-Dulles Tech, LLC
as Landlord
and
NET 2000 Communications Real Estate, Inc.
as Tenant
and
NET 2000 COMMUNICATIONS, INC.
as Guarantor
<PAGE> 2
DULLES PARK TECHNOLOGY CENTER
Herndon, Virginia
Lease dated May 26, 1999
REFERENCE SHEET
A. Each reference in this lease to any of the following subjects shall
be construed to incorporate the data stated for that subject in this Reference
Sheet:
LANDLORD: KDC-Dulles Tech, LLC, a Delaware limited liability company
LANDLORD'S CONSTRUCTION REPRESENTATIVE: Cary M. Euwer, Jr.
TENANT: Net 2000 Communications Real Estate, Inc., a Delaware corporation
TENANT'S ORIGINAL ADDRESS: 2195 Fox Mill Road
Herndon, VA 20170
TENANT'S CONSTRUCTION REPRESENTATIVE: KELLY JOHNSON
TENANT SIGNAGE SUBMISSION DATE: May 18, 1999
TENANT BASE BUILDING MODIFICATION DELIVERY DATE: May 1, 1999
TENANT PLAN DELIVERY DATE: June 1, 1999
ENGINEERING PLAN DELIVERY DATE: May 15, 1999
RENT COMMENCEMENT DATE Variable; see Exhibit F
LEASED PREMISES: See Exhibit B
TERM: See Section 2.1
ANNUAL FIXED RENT: See Section 3.1
RENTABLE FLOOR AREA OF TENANT'S PREMISES: 126,276 s.f.
TOTAL RENTABLE OFFICE FLOOR AREA OF BUILDING: 182,527 s.f.
PERMITTED USES: See Section 5.1
<PAGE> 3
LEASE INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Reference Sheet ...........................................................i
ARTICLE I - LEASED PREMISES
1.1 Demise of Leased Premises.........................................1
1.2 Condition of Leased Premises......................................1
1.3 Landlord's and Tenant's Work......................................3
1.4 General Provisions applicable to Construction.....................4
1.5 Tenant Allowance .................................................4
1.6 Real Estate Tax in Leasehold Improvements.........................5
1.7 Landlord's Release ...............................................5
1.8 Option to Expand .................................................6
ARTICLE II - TERM
2.1 Term ............................................................8
2.2 Delay in Occupancy ...............................................8
2.3 Early Occupancy ..................................................8
2.4 Option to Renew Term..............................................9
ARTICLE III - RENT
3.1 Base Rent .......................................................10
3.2 Additional Rent .................................................11
3.3 Late Charges ....................................................11
3.4 Proportionate Share..............................................11
3.5 Real Property Taxes..............................................11
3.6 Insurance .......................................................13
3.7 Common Expenses .................................................13
3.8 Verification and Operating Statement.............................15
3.9 Interest on Past Due Amounts.....................................16
ARTICLE IV - COMMON AREAS
4.1 Common Areas ....................................................16
4.2 Use of Common Areas..............................................16
4.3 Vehicle Parking .................................................17
4.4 Common Area Maintenance..........................................17
</TABLE>
i
<PAGE> 4
<TABLE>
ARTICLE V - USE
<S> <C> <C>
5.1 Use ...............................................................17
5.2 ADA .............................................................18
5.3 Storage Space......................................................19
5.4 Roof Rights........................................................19
ARTICLE VI - LETTER OF CREDIT...............................................20
ARTICLE VII - OPERATIONS: UTILITIES: SERVICES
7.1 Operation..........................................................20
7.2 Hours of Operation.................................................20
7.3 Utilities and Services.............................................21
7.4 Interruption of Services...........................................22
7.5 Electricity; Excess Usage..........................................22
7.6 No Interference....................................................23
7.7 Telecommunications.................................................23
7.8 Security; Access...................................................24
7.9 Management.........................................................24
ARTICLE VIII - REPAIRS AND MAINTENANCE
8.1 Landlord's Obligations ............................................25
8.2 Tenant's Obligations ..............................................25
ARTICLE IX - ALTERATIONS: TENANT'S PROPERTY
9.1 Alterations by Tenant..............................................25
9.2 Contractors' Insurance Requirements................................26
9.3 Tenant's Property..................................................26
ARTICLE X - HAZARDOUS MATERIALS
10.1 Use of Hazardous Materials.........................................27
10.1(a) Tenant's Obligations and Liabilities............................27
10.1(b) Definition......................................................27
10.1(c) Inspection......................................................27
10.1(d) Default.........................................................28
10.2 Landlord's Warranty................................................28
</TABLE>
ii
<PAGE> 5
<TABLE>
ARTICLE XI - ASSIGNMENT AND SUBLETTING
<S> <C>
11.1 Prohibited Transfers......................................28
11.2 Option To Terminate.......................................29
11.3 Excess Receipts...........................................29
11.4 Processing Fee ...........................................29
11.5 Customer Equipment .......................................29
11.6 Permitted Transfers.......................................29
ARTICLE XII - CASUALTY OR CONDEMNATION
12.1 Partial Damage of Leased Premises ........................30
12.2 Total or Substantial Destruction .........................30
12.3 Temporary Reduction of Rent ..............................30
12.4 Condemnation .............................................30
ARTICLE XIII - INDEMNIFICATION AND INSURANCE
13.1 Indemnification by Tenant.................................31
13.2 Tenant's Insurance........................................31
13.3 Survival of Indemnities...................................32
13.4 Waiver of Subrogation.....................................32
13.5 Landlord's Indemnification................................32
13.6 Landlord's Insurance......................................32
ARTICLE XIV - RIGHT OF ENTRY
14.1 Landlord Access...........................................33
14.2 Limitations on Access.....................................33
ARTICLE XV - PROPERTY LEFT ON THE LEASED PREMISES......................33
ARTICLE XVI - SIGNS AND ADVERTISEMENTS.................................33
ARTICLE XVII - NOTICES.................................................34
ARTICLE XVIII - MECHANIC'S LIENS.......................................35
ARTICLE XIX - SUBORDINATION: ATTORNMENT
19.1 Subordination.............................................35
19.2 Attornment................................................35
19.3 Confirming Agreement......................................36
19.4 Mortgagee Protection......................................36
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE XX - COMPLIANCE WITH LAW AND RULES AND REGULATIONS
20.1 Compliance With Laws .....................................36
20.2 Rules and Regulations ....................................36
ARTICLE XXI - LANDLORD'S LIEN
21.1 Landlord's Lien ..........................................37
21.2 Landlord's Acknowledgement of Third Party Lien ...........37
ARTICLE XXII - ESTOPPEL CERTIFICATE....................................38
ARTICLE XXIII - HOLDING OVER...........................................38
ARTICLE XXIV - TENANT'S STATUS
24.1 Power and Authority.........................................39
24.2 Authorization...............................................39
ARTICLE XXV - DEFAULTS AND REMEDIES
25.1 Default by Tenant.........................................39
25.2 Landlord Remedies.........................................40
25.3 Landlord's Costs; Attorneys' fees.........................41
25.4 Remedies Cumulative.......................................41
25.5 Non-Waiver................................................41
ARTICLE XXVI - MISCELLANEOUS
26.1 No Partnership............................................41
26.2 No Representations by Landlord............................41
26.3 Waiver of Jury Trial......................................41
26.4 Severability Provisions...................................41
26.5 Interior Construction.....................................42
26.6 Relocation of Leased Premises.............................42
26.7 Benefits and Burdens......................................42
26.8 Landlord's Liability......................................42
26.9 Brokerage.................................................42
26.10 Recording.................................................43
26.11 Governmental Surcharge....................................43
26.12 Surrender of Premises.....................................43
26.13 Interpretation............................................43
26.14 Special Provisions........................................43
26.15 Entire Agreement..........................................43
</TABLE>
iv
<PAGE> 7
<TABLE>
<S> <C> <C>
26.16 Force Majeure.............................................43
26.17 Choice of Law.............................................44
26.18 Submission of Lease.......................................44
26.19 Time of Essence...........................................44
26.20 Financial Statements......................................44
EXHIBITS:
Exhibit A - Legal Description
Exhibit B - Floor: Plans
Exhibit C - Base Building Definition
Exhibit D - Tenant Plan Requirements
Exhibit E - Pricing and Completing Tenant's Work
Exhibit F - Rent Commencement Dates
Exhibit G - Certification Affirming Lease Commencement Date
Exhibit H - Letter of Credit Requirements
Exhibit I - Landlord's Cleaning Services
Exhibit J - Rules & Regulations
Exhibit K - Estoppel Certificate
Exhibit L - Location of Conduit
Exhibit M - Generator Location
Exhibit N - Roof Location of Tenant Mechanical Equipment
</TABLE>
v
<PAGE> 8
OFFICE LEASE
THIS LEASE, is made and entered into on this 26 day of May, 1999,
between KDC-DULLES TECH, LLC, a Delaware limited liability company,
("Landlord"), NET 2000 COMMUNICATIONS REAL ESTATE, INC., a Delaware corporation
("Tenant") and NET 2000 COMMUNICATIONS, INC. a Delaware corporation
("Guarantor").
ARTICLE I - LEASED PREMISES
1.1 DEMISE OF LEASED PREMISES. Landlord, in consideration of the
rents and of the terms and conditions hereinafter contained, does hereby lease
to Tenant, and Tenant, does hereby rent from Landlord the space containing
126,276 +/- rentable square feet ("Leased Premises" or "Premises"). The Leased
Premises is located in the building known as Dulles Park Technology Center
("Building"), which is situated at Herndon, Virginia. The Building is located on
the land described on Exhibit "A" ("Property") and the floor plans of the Leased
Premises are attached as Exhibit "B" and incorporated by reference. The square
footage of the Leased Premises is as follows:
First Floor - 32,058 square feet
Part of Third Floor - 19,001 square feet
Fourth Floor - 37,613 square feet
Fifth Floor - 37,604 square feet
The Leased Premises were computed using the BOMA method, using a building
average common area factor of 7.01% for a full-floor and a multi-tenant floor
building average common area factor of 10.39%, subject to any Base Building
modifications by Tenant. Landlord will measure the Premises following
installation of exterior glass and interior core walls. Landlord will certify
the measurements to Tenant. The measurements will not exceed the amounts
described above. If Tenant disputes the measurements, Tenant must object within
ten (10) days following receipt of Landlord's certificate. If the dispute cannot
be resolved within fifteen (15) days, the parties shall mutually select an
architect to measure the Premises and his determination shall be binding on both
Landlord and Tenant.
1.2 TENANT'S PLANS.
l.2(a) - Landlord agrees to cooperate to the fullest extent
possible with Tenant's architect and engineers. Tenant, has stipulated that as
of the Lease execution it has no changes to the Base Building that are time
sensitive items or relates to the delivery of the Building except those changes
identified in paragraphs 21, 22 and 23 of Exhibit D. Tenant agrees to complete
and deliver to Landlord no later than the Engineering Plan Delivery Date all
drawings and information pertinent to Tenant's special systems and conditions,
such as additional structural loads, slab penetrations and depressions,
increased transformer loads, increased chiller capacity, additional shafts,
chases, exhausts, and bus ducts as well as any long lead items, including, but
not limited to, generators and HVAC equipment. Further, Tenant agrees to
complete and deliver to Landlord no later than the Tenant Plan Delivery Date a
detailed floor plan layout together with
<PAGE> 9
working drawings and written instructions (herein called "Tenant's Plans")
prepared in accordance with and containing at least the information detailed in
Exhibit D and reflecting the partitions and improvements desired by Tenant in
the Premises; Tenant's Plans shall be adequate to apply for and subsequently
receive Tenant's building permit. It is Tenant's responsibility, and Tenant so
agrees, diligently to pursue the building permits for Tenant's Work.
1.2(b) - Within five (5) business days of the receipt of
Tenant's Plans, Landlord shall furnish to Tenant in writing either Landlord's
approval or Landlord's detailed objections to Tenant's Plans. Landlord and
Tenant shall work diligently to resolve any of Landlord's objections. Within
fifteen (15) business days of the receipt of Tenant's Plans (revised if
necessary to address Landlord's objections), Landlord shall furnish to Tenant in
writing a time schedule for the completion of the work shown on Tenant's Plans
and a statement of all costs of construction work and material necessary to
complete the Premises in accordance with Tenant's Plans. Landlord agrees to
price the work required to complete Tenant's Plans in accordance with the
procedure set out in Exhibit E. The extent by which such costs exceed the Tenant
Allowance (as described in Section 1.5), such excess cost are herein referred to
as "Tenant Plan Excess Costs." Tenant shall notify Landlord in writing, within
five (5) business days of receipt by Tenant of Tenant Plan Excess Costs, of
either its approval thereof and its authorization to Landlord to proceed with
construction in accordance with Tenant's Plans or any changes in Tenant's Plans.
In the event of the latter modification, Landlord shall, within five (5)
business days of receipt of said changes in Tenant's Plans quote to Tenant all
changes in Tenant Plan Excess Costs resulting from said plan, modifications.
Tenant shall, on or before the 30th day following the original receipt by Tenant
of Tenant Plan Excess Costs, give authorization to Landlord to proceed with the
construction in accordance with Tenant's Plans as modified. Tenant shall
reimburse Landlord, as Additional Rent, for Tenant Plan Excess Costs as follows:
During the construction work, Landlord may, on or about the first day of each
month, deliver to Tenant a statement showing that proportion of Tenant Plan
Excess Costs allocable to the previous month's work. Tenant shall pay to
Landlord as Additional Rent the amount specified in each such statement within
thirty (30) days after receipt of such statement. Whenever under the terms of
this Lease Landlord is to provide cost figures to Tenant for Tenant's Work,
Tenant may obtain quotations for such work provided Tenant does so in a timely
manner and does not delay Landlord; in such event, Tenant may direct Landlord to
utilize Tenant's selected suppliers or subcontractors provided that the use of
such suppliers or subcontractors does not (i) delay Landlord's ability to
complete Tenant's Work and (ii) does not have a material affect on the quality
of Tenant's Work. In the event Tenant elects to purchase any equipment which is
included in Tenant's work, then the following shall apply: (x) Landlord will be
entitled to charge Tenant for overhead and profit on the cost of the equipment;
the applicable overhead and profit percentage will be 5/5 unless the special
provisions of Exhibit D apply; and (y) if the purchase by Tenant delays
Landlord's substantial completion of the Premises, the penalty provisions of
Section 1.2 (d) shall apply.
1.2(c) - All of the work required to complete the work
described in Tenant's Plans, Exhibit D and any Tenant change orders are
collectively referred to as "Tenant's Work."
2
<PAGE> 10
1.2(d) - Time is of the essence in connection with the
completion, approval and delivery to Landlord of the drawings and information
referred to in Section 1.2(a) and Tenant's Plans, and the authorization to
Landlord to proceed with construction of Tenant's Work; Landlord is to commence
Tenant's Work upon receipt of all requisite building permits; Tenant agrees to
deliver such building permits no later than seven (7) weeks after May 21 (i.e.,
July 9, 1999); if Tenant provides building permits on a staggered basis,
Landlord agrees to act reasonably and will attempt to commence Tenant's Work as
soon as practical. Should Tenant fail to cooperate in the completion and
delivery of the drawings and information referred to in Section 1.2 (a) or the
Tenant's Plans, or should Tenant require additional changes to drawings and
plans after such items have been approved by Landlord or should Tenant fail to
authorize Landlord to proceed, as scheduled, Tenant shall pay to Landlord, as
additional rent and for the purpose of reimbursing Landlord for additional
expenses which will be incurred by Landlord because of the inability to proceed
with the work as scheduled, one day's rent for the Premises for each day that
delivery of the drawings and information referred to in the first sentence of
this Section or the Tenant's Plans is delayed beyond the Engineering Plan Date
or the Tenant Plan Delivery Date, as the case may be, or that authorization to
proceed is delayed beyond the date above provided therefor. Such additional rent
shall be paid by Tenant to Landlord within thirty (30) days after receipt by
Tenant of Landlord's invoice therefor. However, such penalties will be reduced
to the extent Tenant can prove that the delays by Tenant did not have a negative
impact on Landlord's ability to complete both the Base Building and Tenant's
Work in accordance with the requirements of this Lease. In addition, Tenant
shall be liable to Landlord if delays caused by Tenant adversely affect
Landlord's ability to complete work for other tenants in the Building. Landlord
agrees to advise Tenant promptly when Landlord believes that an act or failure
to act by Tenant will result in Tenant liability under this Section 1.2(d).
1.2(e) - Subject to the above, Landlord agrees to complete the
Tenant's Work in accordance with Exhibit E and Landlord's Work in accordance
with Exhibit C.
1.3 LANDLORD'S AND TENANT'S WORK.
1.3(a) - Landlord is responsible to complete, within the time
requirements as herein set forth, (i) the Base Building in accordance with
Exhibit C ("Landlord's Work") and (ii) all of Tenant's Work.
1.3(b) - Landlord agrees to use due diligence substantially to
complete both Landlord's Work and Tenant's Work in accordance with the time
frames set forth below. Landlord shall not be required to install any
improvements which are not in conformity with the plans and specifications for
the Building or which are not approved by Landlord and Landlord's architect
(which approval shall not be unreasonably withheld) or which do not meet all
applicable codes and requirements. In case of delays due to governmental
regulations, unusual scarcity of or inability to obtain labor or materials,
labor difficulties, casualty or other causes reasonably beyond Landlord's
control, the Rent Commencement Dates, as applicable, shall be extended for the
period of such delays. The Premises shall be deemed substantially completed on
the latest of (a) the date estimated for substantial completion in a notice
delivered to Tenant at least thirty (30) days before such date, or (b) the date
on which Landlord certifies in writing to
3
<PAGE> 11
Tenant that Landlord's Work and Tenant's Work, together with the common
facilities for access and service to the Premises, is Substantially Completed
(as defined below) except for items of work and adjustment of equipment and
fixtures which can be completed after occupancy has been taken without causing
substantial interference with Tenant's use of the Premises (i.e., so-called
"punch-list" items). Landlord shall complete, as soon as conditions practically
permit, all punch-list items. Landlord shall permit Tenant access for installing
furnishings in portions of the Premises when it can be done without material
interference with remaining work. Substantial Completion shall occur when (i)
the Premises have received its certificate of occupancy as it relates to Base
Building construction and (ii) Tenant's Work is substantially completed in
accordance with the provisions of this Lease (including the Exhibits), except
for minor punchlist items so that Tenant can obtain a Nonresidential Use Permit
(NONRUP) for the applicable part of the Premises; however, the Premises will be
deemed Substantially Complete to the extent there are unfinished items of
Landlord's Work that would prevent the obtaining of a NONRUP but such items
cannot be completed because their completion is interdependent with the
installation of Tenant's furniture systems, fixtures and equipment.
1.3(c) - Except in the event of (i) Landlord's breach or (ii)
in case of delays caused by governmental regulations, unusual scarcity of or
inability to obtain labor or materials, labor difficulties, casualty or other
causes reasonably beyond Tenant's control, Tenant agrees that no delay by it, or
anyone employed by it, in performing work to prepare the Premises for occupancy
shall delay commencement of the Term or the obligation to pay rent, regardless
of the reason for such delay or whether or not it is within the control of
Tenant or any such employee.
1.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION. All
construction work required or permitted by this Lease shall be done in a good
and workmanlike manner and in compliance with all applicable laws and all lawful
ordinances, regulations and orders of governmental authority and insurers of the
Building. Each party may inspect the work of the other at reasonable times and
shall promptly give notice of observed defects. Each party authorizes the other
to rely in connection with design and construction upon approval and other
actions on the party's behalf by any Construction Representative of the party
named in the Reference Sheet or any person hereafter designated in substitution
or addition by notice to the party relying. The work required of Landlord
pursuant to this Article I shall be deemed approved by Tenant when Tenant
commences occupancy of the Premises for the Permitted Uses, except for items
which are then uncompleted or do not conform to the drawings and specifications
referred to in Section 1.2 and as to which, in either case, Tenant shall have
given notice to Landlord within thirty (30) days after Rent Commencement Date;
this notice requirement shall not apply to undisclosed latent defects.
1.5 TENANT ALLOWANCE. The Tenant Allowance shall be calculated and
applied as follows:
1.5(a) - The allowance for the Switch Area (constituting
one-half of the First Floor) shall be $30.00 per square foot of net rentable
area.
4
<PAGE> 12
1.5(b) - The allowance for the Office Space (as defined
hereinafter) in the Demised Premises shall be $25:00 per square foot of net
rentable area.
1.5(c) - To the extent Tenant designates part of one or more
floors (up to a maximum allocation of 1,800 square feet per full floor) for use
as Storage Space (as defined hereinafter), there is no Tenant Allowance for such
Storage Space. At this time, Tenant does not intend to designate any Storage
Space; such space will be built out as office Space.
1.5(d) - The Tenant Allowances described in (a), (b) and (c)
above may be utilized for design, permits, architect and engineering fees, and
completion of Tenant's Work including equipment and infrastructure serving the
Switch Area.
1.5(e) - Up to $5.00 per rental square foot of the Tenant
Allowance may be utilized by Tenant for any of its costs associated with
locating to the Building including but not limited to cabling costs, costs for
furniture or other equipment to be installed in the premises, cost of building
signage, printing costs, or moving costs; or Tenant may, at its option, use any
of such portion of the allowance to offset rent due under the Lease.
1.5(f) - Provided all of the Tenant's Allowance described in
(a), (b) and (c) above is used for completing Tenant's Work (hard and soft
costs), Landlord, upon Tenant's request, shall fund up to an additional $5.00
per rentable square foot to offset additional costs of Tenant related to its
relocating to the Building whether such costs are hard or soft construction
costs, equipment or other costs. Said additional funding shall be amortized over
the Term commencing on January 1, 2000 (ending December 31, 2006) at an interest
rate of 10%, shall be fully secured by Letter of Credit, and shall be paid by
Tenant monthly as additional rent. There shall be no escalations on the
amortization payments. If Tenant exercises its rights under this Section 1.5,
Landlord and Tenant agree to amend and restate this Lease to reflect this
economic change.
1.6 REAL ESTATE TAXES ON LEASEHOLD IMPROVEMENTS. If, under
Virginia or Fairfax County law or regulations, the Tax Assessor is required to
include leasehold (real property) improvements in determining the assessed value
of the Building, then to the extent that Tenant makes extraordinary leasehold
improvements (excluding Tenant's original installation and Tenant's subsequent
alterations, additions, substitutions and improvements consistent with its
original Tenant work) which are significantly in excess of the original scope of
Tenant's Work, whether done prior to or after the commencement of the Term of
this Lease, Tenant shall pay the real estate taxes attributable to :the value of
such extraordinary leasehold improvements throughout the Term of this Lease
within thirty (30) days after being billed therefor by Landlord.
1.7 RELIANCE.
1.7(a) - Throughout the Term of the Lease, including, but not
limited to any period of construction or renovation at the Premises, the
Landlord may rely on any statements and certificates delivered to it by the
Tenant's Construction Representative (which Tenant reserves the right to change
by notice in writing) and the Landlord shall be relieved of all liability with
respect to its action or failure to act in accordance with such statements and
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certificates, except only for its gross negligence and willful misconduct. In
addition, throughout the Term the Landlord shall be protected and shall incur no
liability in acting or proceeding in good faith upon any resolution, notice,
telegram, request, consent, waiver, certificate, statement, affidavit, voucher,
bond, requisition or other paper or document which it shall in good faith
believe to be genuine and to have been passed or signed by the proper person or
to have been prepared and furnished pursuant to any of the provisions of this
Lease, and the Landlord shall be under no duty to make any investigation or
inquiry as to any statements contained or matters referred to in any such
instrument, but may accept and rely upon the same as conclusive evidence of the
truth and accuracy of such statements.
1.7(b) - Throughout the Term of the Lease, including, but not
limited to any period of construction or renovation at the Premises, the Tenant
may rely on any statements and certificates delivered to it by the Landlord's
Construction Representative (which Landlord reserves the right to change by
notice in writing) and the Tenant shall be relieved of all liability with
respect to its action or failure to act in accordance with such statements and
certificates, except only for its gross negligence and willful misconduct. In
addition, throughout the Term the Tenant shall be protected and shall incur no
liability in acting or proceeding in good faith upon any resolution, notice,
telegram, request, consent, waiver, certificate, statement, affidavit, voucher,
bond, requisition or other paper or document which it shall in good faith
believe to be genuine and to have been passed or signed by the proper person or
to have been prepared and furnished pursuant to any of the provisions of this
Lease, and the Tenant shall be under no duty to make any investigation or
inquiry as to any statements contained or matters referred to in any such
instrument, but may accept and rely upon the same as conclusive evidence of the
truth and accuracy of such statements.
1.8 OPTION TO EXPAND.
Tenant shall have the option (the "Option") to lease any or
all of the remaining space located in the Building (the "Expansion Space") on
the following terms and conditions; this Option shall not apply to the entire
second floor which is being leased to GSA:
1.8(a) - Commencing as of the date hereof and continuing
through the initial leasing of the remaining premises in the Building ("Initial
Lease Up Period"), Tenant may (i) in the event there is a bona fide third party
offer, elect to exercise the option within five (5) business days of Tenant's
receipt of Landlord's notification of a bona fide third party offer for all or
any portion of the Expansion Space and the terms of such offer by giving
Landlord written notice of Tenant's election to lease all or any portion of the
Expansion Space upon the same terms and conditions of the bona fide third party
offer; and (ii) in a situation other than as described in (i) above, and
provided that such space is not then subject to an executed lease or a fully
executed letter of intent that results in a lease, notify Landlord of its intent
to exercise its Option and lease all or any portion of the Expansion Space at
prevailing market rates as determined in accordance with the procedure set forth
in Section 2.4(b). Tenant's ability to exercise its option during the Initial
Lease Up Period shall be conditioned on the following:
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(1) no Event of Default shall have occurred and be
continuing hereunder at the time Tenant exercises its option and/or at the time
Landlord delivers the Expansion Space to Tenant;
(2) Tenant shall continue to occupy (except for
transfers under Article XI) no less than 75% of the Leased Premises at the time
Tenant exercises its option subsequent to the Rent Commencement Dates;
(3) The option shall be for no less than one-half of
any remaining floor in the Building unless such lesser area remains on a floor
that has otherwise been leased or Landlord otherwise is marketing the space for
less than a one-half floor increment.
18(b) - Subsequent to the Initial Lease Up Period, Landlord
shall, when it becomes so aware, promptly notify Tenant of the availability of
any space within the Building that is or is to become available for lease, and
Tenant shall have ten (10) business days after receipt of its notice from
Landlord to notify Landlord of its desire to lease said space at then prevailing
market rate as determined in accordance with Section 2.4 (b) (including then
market lease concessions, allowances and brokerage commissions). Thereafter, and
at any time prior to Landlord entering a lease or an executed letter of intent
on any space that results in a lease, Tenant may notify Landlord of its intent
to exercise its option and lease said space at then prevailing market rates
(including any tenant improvement allowance and other concessions offered to
other tenants) as determined in accordance with Section 2.4(b), provided that
the lease term for such additional space shall be for no less than five (5)
years. Notwithstanding anything herein to the contrary, unless Landlord enters
into a lease with one tenant to lease the entire second (2nd) floor and the
entire balance of the third (3rd) floor, Landlord shall only lease the balance
of the third (3rd) floor for a five (5) year lease term, and Tenant shall have
an option to lease such third (3rd) floor space that will be superior to any
renewal right the tenant of such third (3rd) floor space might have. The
exercise of any rights under this Section 1.8(b) shall be conditioned upon
compliance with the requirements of Section 1.8(a)(1) and (2).
1.8(c) - It is a condition precedent to the exercise of
Tenant's rights under this Section 1.8 that at the time of such exercise, there
exists no material adverse change in Tenant's and/or Guarantor's financial
condition from that set forth in the Net2000 financial statements for the two
months ending February 28, 1999; Landlord shall make such determination on a
commercially reasonable basis.
1.8(d) - If Tenant fails to satisfy any of the foregoing
conditions, Landlord may, at its election, by written notice either waive such
condition or declare Tenant's exercise of its Option to be null and void and of
no further force or effect. Tenant shall accept the Expansion Space "as is" and
"as built", except that Landlord shall have the obligation to correct any latent
defects to base building and base building systems, and all leasehold
improvements made by Tenant to the Expansion Space shall be installed in
accordance with the provisions of Article IX of the Lease and at Tenant's sole
cost and expense. Tenant shall not be obligated to commence paying Rent with
respect to the Expansion Space until the date that is the earlier of (i) thirty
(30) days after the Expansion Space has been delivered to Tenant vacant, broom
clean with all prior
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tenant's personal property removed, free and clear of all leases and tenancies,
ready for Tenant's leasehold improvement work, or (ii) the date that
construction of leasehold improvements to the Expansion Space has been
substantially completed, subject to punchlist items. Landlord agrees promptly to
notify Tenant when Landlord is notified that Expansion Space will become
available.
1.8(e) - Tenant shall execute and deliver to Landlord within
fifteen (15) business days after receipt thereof from Landlord an amendment to
the Lease prepared by Landlord, in reasonable form, which, effective as of the
date that Rent commences for Expansion (i) adds the Expansion Space to the
Leased Premises, (ii) increases the rentable area of the Leased Premises by the
rentable area of the Expansion Space and increases Tenant's Proportionate Share
accordingly, and (iii) makes such other modifications of affected portions of
this Lease consistent with the foregoing.
ARTICLE II - TERM
2.1 TERM. This term of this Lease shall commence on the applicable
dates described in Exhibit F (the "Rent Commencement Date" or "Rent Commencement
Dates"). The term shall expire on December 31, 2006 for the entire Leased
Premises other than one-half of the first floor Premises adjacent to the
generator area (the "Switch Space") and the term of this Lease for the Switch
Space shall expire on that date which is the last day of the year prior to the
tenth (10th) anniversary of the Rent Commencement Date for the Switch Space
(collectively, the "Term"), unless sooner terminated pursuant to any provision
hereof. Landlord and Tenant shall execute Certificates confirming the Rent
Commencement Dates in the form attached hereto as Exhibit G.
2.2 DELAY IN OCCUPANCY. Except as otherwise provided herein, if
for any reason Landlord cannot deliver possession of the Leased Premises to
Tenant in accordance with the provisions of this Lease (including Exhibits),
Landlord shall not be subject to any liability (except for rent credits pursuant
to Exhibit E), nor shall such failure affect the validity of this Lease or the
obligations of Tenant hereunder, except the Rent Commencement Dates, as
applicable, shall be delayed until possession of the Leased Premises is
delivered to Tenant and the Term shall be extended for a period equal to the
delay in the delivery of the Leased Premises, plus the number of days necessary
to end the Term on the last day of a month. In the event of any delay hereunder,
Landlord and Tenant shall execute and deliver an amendment hereto setting forth
the revised Rent Commencement Dates (and expiration date for the Switch Space).
2.3 EARLY OCCUPANCY. Tenant shall have the right to occupy the
Leased Premises at least two (2) weeks prior to Substantial Completion, and any
such occupancy shall be upon all of the terms and conditions contained herein
(except for the obligation to pay Rent) but shall not advance the expiration
dates for the Leased Premises as set forth herein. Further, such occupancy shall
be for the sole purpose of installing and testing telecommunications equipment,
computer systems and networks and other equipment; provided that such access by
Tenant shall not materially interfere with Landlord's Work, the cost to complete
its work, or adversely affect its schedule. Tenant agrees to coordinate the
installation of such equipment with Landlord.
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2.4 OPTION TO RENEW TERM.
2.4(a) Provided no Event of Default shall have occurred
hereunder and is continuing, either on the date Tenant gives Landlord the
renewal notice required herein or at the end of the initial Term of this Lease,
Landlord hereby grants to Tenant two (2) consecutive options to renew this Lease
for five (5) years each. Such option to renew must be exercised by giving
written notice to Landlord at least nine (9) months but no more than twelve (12)
months prior to the termination of either the initial Term of this Lease or any
renewal term thereof. Subject to the terms set forth herein, once a notice to
exercise is given it is irrevocable by Tenant. If Tenant elects to exercise such
renewal option, then such renewal term shall be on the same terms and conditions
as contained in this Lease, except that Base Rental shall be at 95% of the then
prevailing market rental rates ("Market Rent") applicable to tenants of
comparable financial status, for properties of comparable age, use and Dulles
Toll Road frontage, signage, location and transactions of comparable size,
duration and location and factoring in all then market lease concessions,
allowances, and brokerage commissions. If Landlord and Tenant cannot agree on
renewal terms, Tenant can, upon written notice to Landlord, within five (5)
business days after receipt of Landlord's written statement of the proposed
Market Rent, (i) withdraw its option to renew or (ii) elect to utilize the
three-broker method outlined in Section 2.4(b). Upon being apprised in writing
of the renewal terms resulting from the three broker method, Tenant must
exercise its renewal option within five (5) business days; provided however, if
(x) at the time such determination of renewal terms is provided to Tenant at
least nine (9) months remain on the then applicable term of this Lease, and (y)
Tenant agrees to reimburse Landlord for all costs related to the three-broker
method, then Tenant may, within five (5) business days, withdraw its option to
renew. Except for the Switch Space, Tenant's renewal rights may be for less than
the entire Leased Premises, provided that Tenant renews the Lease for the
equivalent of at least two (2) full floors of the Building. In the event Tenant
exercises its option to renew, all other terms of this Lease shall remain the
same. As used throughout this Lease, any reference to the "lease term", "term",
or "term of this Lease" shall also include any and all renewal terms.
2.4(b) If Tenant elects to use the three-broker method, then
the Market Rent will be determined by a board of three (3) licensed real estate
brokers. Landlord and Tenant shall each appoint one (1) broker within ten (10)
days after either party elects the three broker method. The two so appointed
shall select a third within fifteen (15) days after they both have been
appointed. Each broker on said board shall be licensed in the Commonwealth of
Virginia as a real estate broker, specializing in the field of commercial
leasing in Fairfax County having no less than ten (10) years experience in such
field, and recognized as ethical and reputable within his or her field. Each
broker, within fifteen (15) days after the third broker is selected, shall
submit his or her determination of Market Rent. Market Rent shall be the mean of
the two closest rental rate determinations. Landlord and Tenant shall each pay
the fee of the broker selected by it and they shall share the payment of the fee
of the third broker.
2.4(c) It is a condition precedent to the exercise of Tenant's
rights under this Section 2.4 that at the time of such exercise, there exists no
material adverse change in Tenant's and/or Guarantor's financial condition from
that set forth in the Net2000 financial statements for
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the two months ending February 28, 1999; Landlord shall make such determination
on a commercially reasonable basis.
ARTICLE III - RENT
3.1 BASE RENT
3.1(a) - Tenant shall pay rent to Landlord starting with each
respective Rent Commencement Date of the Lease as set forth on Exhibit F for the
use and occupancy of the Leased Premises (exclusive of the Switch Space) at an
annual rate of Two Million Five Hundred Thirty Five Thousand Six Hundred
Eighty-two Dollars ($2,535,682) ("Office Base Rent"), payable in equal monthly
installments of Two Hundred Eleven Thousand Three Hundred Seven Dollars
($211,307) each, in advance, on the first day of each month during the first
five (5) years of the Term hereof. Commencing as of the first day of the first
month of the sixth (6th) anniversary of the Lease and continuing on the first
day of each month thereafter, the Office Base Rent shall increase to an annual
rent of Two Million Nine Hundred Seventy-six Thousand Six Hundred Seventy-one
Dollars ($2,976,671) and shall be payable in monthly installments of Two Hundred
Forty-eight Thousand Fifty-six Dollars ($248,056) each, in advance. Base rent
for the Switch Space ("Switch Space Base Rent"; the Office Base Rent and the
Switch Space Base Rent are hereinafter collectively referred to as the "Base
Rent") shall be payable at an annual rate of Three Hundred Seventy-five Thousand
Eighty-two ($375,082), payable in equal monthly installments of Thirty-one
Thousand Two Hundred Fifty-seven ($31,257) each, in advance, on the first day of
each month during the first five (5) years of the Term hereof. Commencing as of
the first day of the first month of the sixth (6th) anniversary of the Lease and
continuing on the first day of each month thereafter, the Switch Space Base Rent
shall increase to an annual rate of Four Hundred Forty-five Thousand, Six
Hundred Ten ($445,610) and shall be payable in monthly installments of
Thirty-seven Thousand One Hundred Thirty-four Dollars ($37,134) each, in
advance. The Base Rent is computed based upon 126,276 rentable square feet of
office space as shown on Exhibit B. Base Rent and all other sums, whether
designated additional rent or otherwise, payable to Landlord under this Lease
shall be payable in U.S. Dollars at the office of Koll Metropolitan LLC, 1751
Pinnacle Drive, Suite 500, McLean, Virginia 22102, or at such other place or
places as Landlord may in writing direct. All rent payable under this Lease
shall be paid by Tenant without notice or demand, both of which are expressly
waived by Tenant. Base Rent due under this Lease shall be paid by Tenant without
demand, offset or deduction.
3.1(b) - The Base Rent is calculated on the following basis:
Switch Space:
Lease Years 1-5: $23.40 per rentable square foot, net of electric
Lease Years 6-10: $27.80 per rentable square foot, net of electric
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ALL OTHER OFFICE SPACE:
Lease Years 1-5: $23.00 per rentable square foot, net of electric
Lease Years 6-10: $27.00 per rentable square foot, net of electric
The above rents are applied to the square footages
described in Section 1.1.
The Base Rent will be increased as necessary to
reflect Tenant's use of increased Tenant Allowances as described in Section
1.5(f).
The Base Rent will be decreased to the extent Tenant
elects to utilize Storage Space. The Base Rent payable with respect to Storage
Space shall be calculated at Twelve Dollars ($12.00) per square foot.
3.2 ADDITIONAL RENT. Tenant shall pay to Landlord additional rent
as provided in this Article III. All charges due and payable by Tenant other
than Base Rent are herein called "Additional Rent". The term "Rent" shall mean
Base Rent and Additional Rent.
3.3 LATE CHARGES. Tenant's failure to pay Rent promptly may cause
Landlord to incur unanticipated costs. The amount of such costs are difficult to
ascertain, and therefore on any. Rent payment not made within fifteen (15) days
after it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of the overdue amount. The parties agree that such late charge represents
a fair and reasonable estimate of the costs Landlord will incur by reason of
such late payment.
3.4 PROPORTIONATE SHARE. Tenant's "Proportionate Share" as used in
this Lease shall be obtained by multiplying the expense in question by a
fraction, the numerator of which shall be the rentable square footage area of
the Leased Premises, and the denominator of which shall be the rentable square
footage area of the Building which for purposes of this Lease shall be
stipulated to be 182,527. For purposes of this Lease, subject to the expansion
option, Tenant's Proportionate Share is 69%.
If the average occupancy rate for the Building during any
calendar year is less than one hundred percent (100%), or if any tenant is
separately paying for electricity or janitorial services furnished to its
premises, then Common Expenses for such calendar year shall be deemed to include
all additional expenses, as reasonably estimated by Landlord, which would have
been incurred during such calendar year if such average occupancy rate had been
ninety-five percent (95%) with all warranties no longer applicable and if
Landlord paid for electricity and janitorial services furnished to such
premises.
3.5 REAL PROPERTY TAXES.
3.5(a) - As Additional Rent, commencing January 1, 2001,
Tenant shall pay monthly one-twelfth (1/12th) of its Proportionate Share
(calculated as provided in (b) below) of annual Real Property Taxes for any
calendar year, with the monthly Proportionate Share
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payments being paid in such amount as Landlord may reasonably estimate. If
Tenant has overpaid or underpaid the actual amount due, the excess shall be
credited against or added to Tenant's next Rent due. A true copy of the tax bill
rendered by Fairfax County and submitted by Landlord to Tenant shall be
conclusive evidence of the amount of Real Property Taxes, as well as the items
taxed.
3.5(b) - Tenant shall pay, as Additional Rental, Tenant's
Proportionate Share of the amount by which Real Property Taxes (as defined in
Section 3.5(c)) payable during each calendar year falling entirely or partly
within the Lease Term exceed a base amount (the "Real Property Taxes Base
Amount") equal to the Real Property Taxes, paid or payable (after final action
with respect to any appeals thereof) with respect to the year 2000 grossed up,
if necessary, to reflect a fully assessed building. Tenant shall make estimated
monthly payments to Landlord on account of the amount by which Real Property
Taxes that are expected to be paid during each calendar year would exceed the
Real Property Taxes Base Amount. At the beginning of the Lease Term and at the
beginning of each calendar year thereafter, Landlord may submit a statement
setting forth Landlord's reasonable estimates of such excess and Tenant's
Proportionate Share thereof. Tenant shall pay to Landlord on the first day of
each month following receipt of such statement, until Tenant's receipt of the
succeeding annual statement, an amount equal to one-twelfth (1/12th) of such
share.
3.5(c) - Tenant shall have the right, if Tenant disputes the
amount or validity of any Real Property Taxes, to contest and defend the same,
and in good faith diligently conduct any necessary proceedings to prevent and
avoid the same; provided, however, that Landlord elected not to contest such
Real Property Taxes within a reasonable period of time subsequent to Tenant's
written request to Landlord in regards thereto and Tenant prosecutes such
contest to a final conclusion as speedily as is reasonably possible. Tenant
shall be entitled to keep any rebate made on account of any Real Property Taxes
imposed on the Building or land upon which the Building is located equal to
Tenant's Proportionate Share thereof. Landlord agrees to render Tenant all
reasonable assistance, at no expense to Landlord, in contesting the validity or
amount of any Real Property Taxes on the Building or land on which the Building
is located for which Tenant is obligated to pay its Proportionate Share,
including joining in the execution of any reasonable documents, or the signing
of any reasonable protests or pleadings, which Tenant may file.
3.5(d) - "Real Property Taxes" shall mean: (i) any fee,
license fee, license tax, business license fee, commercial rental tax, levy,
charge, assessment, government charge or tax imposed by any taxing authority
against the Building or land upon which the Building is located; (ii) any tax on
the Landlord's right to receive, or the receipt of, rent or income from the
Building or against Landlord's business of leasing the Building; (iii) any tax,
or charge, or assessment, or any assessment for repayment of bonds for fire
protection, streets, sidewalks, road maintenance, refuse or other services
provided to the Building for any governmental agency; (iv) any charge or fee
replacing any tax previously included within the definition of real property
tax; and (v) any costs incurred by Landlord in contesting such Real Property
Taxes, whether successful or not. Real Property Taxes does not, however, include
Landlord's federal or state income, franchise,
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inheritance or estate taxes. Tenant shall pay when due all taxes charged against
trade fixtures, furnishings, equipment or any other personal property belonging
to Tenant.
3.6 INSURANCE. Landlord shall maintain commercial general
liability insurance, "all-risk of loss" property insurance, rent loss insurance,
Workers' Compensation insurance on the Building in such amounts and under such
coverages as is comparable to other first class mid-rise office buildings in the
Reston/Herndon area. As Additional Rent, Tenant shall pay monthly one-twelfth
(1/12th) of its Proportionate Share of all premiums paid for such insurance for
any calendar year, with the monthly Proportionate Share payments being paid in
such amount as Landlord may reasonably estimate. If the amount paid by Tenant
toward insurance premiums exceeds or is less than the actual amount due, the
excess shall be credited against or the amount underpaid shall be added to
Tenant's next succeeding payment due under this Section. Copies of insurance
invoices from Landlord's insurers and submitted by Landlord to Tenant shall be
conclusive evidence of the amount of the premiums as well as the items insured.
3.7 COMMON EXPENSES.
3.7(a) - As Additional Rent, commencing January 1, 2001,
Tenant shall pay monthly one-twelfth (1/12th) of its Proportionate Share
(calculated as provided in (b) below) of Common Expenses (as hereinafter
defined) for any calendar year in such amount as Landlord may reasonably
estimate. After each calendar year, Landlord shall deliver to Tenant a statement
setting forth, in reasonable detail, the actual Common Expenses paid or incurred
by Landlord during the preceding calendar year and Tenant's Proportionate Share
thereof. If the amount paid by Tenant for Common Expenses exceeds or is less
than Tenant's Proportionate Share as shown by the statement, the excess shall be
credited against or the amount unpaid shall be added to Tenant's next payment
due under this Section.
3.7(b) - Tenant shall pay, as Additional Rental, Tenant's
Proportionate Share of the amount by which Common Expenses (as defined in
Section 3.7(c)) during each calendar year falling entirely or partly within the
Lease Term exceed a base amount (the "Common Expenses Base Amount") equal to the
Common Expenses incurred during 2000. Tenant shall make estimated monthly
payments to Landlord on account of the amount by which Common Expenses that are
expected to be incurred during each calendar year would exceed the Common
Expenses Base Amount. At the beginning of the Term and at the beginning of each
calendar year thereafter, Landlord may submit a statement setting forth
Landlord's reasonable estimates of such excess and Tenant's Proportionate Share
thereof. Tenant shall pay to Landlord on the first day of each month following
receipt of such statement, until Tenant's receipt of the succeeding annual
statement, an amount equal to one-twelfth (1/12th) of such share.
3.7(c) - In this Lease, "Common Expenses" shall mean all costs
incurred by Landlord in repairing, maintaining and operating the Building and
the Common Areas (as hereinafter defined) (other than (i) expenses recoverable
under Sections 3.5 or 3.6 above and (ii) expenses incurred by Landlord in
satisfying its obligations under Section 8.1 below); all such costs shall be
incurred by Landlord at the then fair market value of such costs. Common
Expenses shall include, but are not limited to, the following: gardening and
landscaping;
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electrical, gas, water and sewer service and maintenance and repair of the
facilities providing the same, to the extent not separately metered to tenants
of the Building; maintenance and repair of signs; premiums for liability,
property damage, fire and other types of casualty insurance on the Common Areas
and worker's compensation insurance; charges and assessments by the owners'
association, if any, for the Property; all personal property taxes and
assessments levied on or attributable to the Common Areas and all improvements
thereon; all personal property taxes levied on or attributable to personal
property used in connection with the Common Areas, the Building or the Property;
straight-line depreciation on personal property owned by Landlord and consumed
or used in the operation or maintenance of the Common Areas; rental or lease
payments paid by Landlord for rented or leased personal property used in the
operation or maintenance of the Common Areas or the Building; fees for required
licenses and permits; repairing, resurfacing, repaving, maintaining, painting,
lighting, cleaning, refuse removal, security and similar items; capital
improvements that are performed to (1) reduce operating expenses (as opposed to
replacements necessitated by wear and tear) but only in an amount equal to the
annual savings in operating expenses actually realized, or (2) comply with
governmental regulations enacted and enforceable after the date hereof; and a
reasonable management fee not to exceed 3.5% of gross rents.
3.7(d) - Notwithstanding anything herein to the contrary,
"Common Expenses" shall not include the following: (1) payment of principal or
interest due under any mortgage or deed of trust; (2) depreciation or
amortization of costs required to be capitalized in accordance with generally
accepted accounting principals (other than those described herein); (3) the cost
of roof replacement or capital improvements costs (other than those described
herein), whether principal or interest; (4) compensation paid to officers of
Landlord or officers of the management agent or any one else above the level of
asset manager; (5) the cost of tools, equipment and material used in, and all
other costs associated with, the initial construction of the Building and the
Project; (6) costs directly resulting from the gross negligence or willful
misconduct of Landlord, its employees, agents, contractors or employees; (7)
costs for which Landlord may be reimbursed by any insurance required to be
carried hereunder or actually carried by Landlord; (8) costs for any structural
maintenance, replacement or redesign (except for routine caulking or other
routine maintenance type items); (9) leasing commissions, legal fees and other
expenses incurred by Landlord or agents in connection with negotiations or
disputes with tenants or prospective tenants (other than with Tenant's
sublessees or assignees) for the Building or Complex; (10) costs or expenses
associated with the enforcement of any leases (other than with Tenant's
sublessees or assignees) by Landlord; (11) costs or fees relating to the defense
of Landlord's title or interest in the real estate containing the Building, or
any part thereof; (12) costs incurred by Landlord in connection with the initial
construction of the Building and related facilities; (13) expenses for the
correction of defects in Landlord's initial construction of the Building; (14)
any costs or expenses relating to Landlord's obligations under any workletter to
construct tenant improvements; (15) allowances, concessions, permits, licenses,
inspections, and other costs and expenses incurred in completing, fixturing,
renovating or otherwise improving, decorating or redecorating space for tenants
(including Tenant), prospective tenants or other occupants or prospective
occupants of the Building, or vacant leasable space in the Building, or
constructing or finishing demising walls and public corridors with respect to
any such space whether such work or alteration is performed for the initial
occupancy by such tenant or
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occupant or thereafter; (16) any cash or other consideration paid by Landlord on
account of, with respect to or in lieu of the tenant work or alterations; (17)
Landlord's costs of any services sold or provided to tenants for which Landlord
is entitled to be reimbursed by such tenants under the lease with such tenants;
(18) expenses in connection with services or other benefits of a type which are
not made available to Tenant but which are provided to another tenant or
occupant; (19) costs incurred due to violation by Landlord or any tenant of the
terms and conditions of any lease; (20) any expense for Landlord's advertising
and promotional program for the Building or the Complex; (21) renovation of the
Building made necessary by the exercise of eminent domain; (22) any cost
incurred to Landlord or an affiliate of Landlord for the provision of any goods
or services, to the extent such cost exceeds the cost then prevailing in
transactions between unrelated parties; (23) ground rent; (24) legal fees
(except for contesting tax assessments and legal matters associated with
governmental authorities relating directly to the real property after
certificate of occupancy and/or for personnel matters relating to employees of
the Building), or other professional or consulting fees (except such other
professional or consulting fees that are directly related to the maintenance,
operation or management of the Building); (25) any compensation paid to clerks,
attendants or other persons in commercial concessions operated for profit by
Landlord or in the parking garage of the Building; (26) increased insurance
premiums caused by Landlord's or any tenant's hazardous acts; (27) moving
expense costs of tenants of the Building; (28) costs arising from the presence
of hazardous materials or substances in or about or below the Building or the
Land including without limitation, hazardous substances in the groundwater or
soil unless caused by Tenant, it's agents or vendors; (29) costs incurred for
any items to the extent of Landlord's recovery under a manufacturer's,
materialmen's, vendor's or contractor's warranty; (30) wages, salaries or other
compensation or benefits for off-site employees applicable to the time spent
working at other buildings, other than the Building manager (provided that with
respect to each employee that services the Building and other buildings, a pro
rate portion of such employee's salary shall be included in Common Expenses, as
applicable); (31) costs of acquisition of sculpture, paintings, or other objects
of art; (32) the rent or expenses in lieu of rent for any on-site leasing office
of Landlord in the Building, or of any other space (except the management
office, storage and shop serving the Building) in the Building set aside for
storage or other facilities for the benefit of Landlord; (33) any other expenses
for which Landlord actually received direct reimbursement from insurance,
condemnation awards, warranties, other tenants or any other source; (34)
reserves for repairs, maintenance, and replacements; (35) Landlord's general
overhead expenses; (36) accounting fees other than those attributable to
reviewing and preparing operating statements for the Building; (37) costs
incurred to achieve compliance with any governmental laws, ordinances, rules,
regulations or orders except for those enacted and enforceable after Lease
Execution, and (38) any costs due to correction of any " Year 2000" problems
associated with any system servicing the Building.
3.8 VERIFICATION OF OPERATING STATEMENT. Upon request by Tenant,
and at Tenant's cost and expense, Landlord shall furnish Tenant such information
as may be necessary for Tenant to verify Common Expenses and shall cooperate
with Tenant in verifying the operating statement. No decreases in Common
Expenses shall reduce Tenant's rent below the Annual Base Rent set forth in
Section 3.1 of this Lease.
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If Tenant does not agree with Landlord's operating statement,
then Tenant shall have the right, if written notice of the nature and extent of
such disagreement is given to Landlord not later than thirty (30) days following
receipt of such statement by Tenant, and the parties are unable to resolve such
disagreement by negotiation, to cause an audit to be made, not later than ninety
(90) days following receipt of Landlord's statement of Landlord's records
concerning Common Expenses and Real Property Taxes by an independent certified
public accountant designated by Landlord from a list of not less than three (3)
such accountants selected by Tenant, at the expense of Tenant unless such audit
discloses an error in excess of five percent (5%) in the computation of Common
Expenses and Real Property Taxes, in which event such audit shall be at the
expense of Landlord. In no event shall the independent certified public
accountant making the audit be compensated on a contingent-fee basis. The
results of such audit, shall be binding upon Landlord and Tenant. If no such
notice is received by Landlord within thirty (30) days following receipt of
Landlord's operating statement of Common Expenses and Real Property Taxes, then
such statement shall be conclusively deemed to have been approved and accepted
by Tenant, except for willful concealment or fraud. Pending resolution of any
dispute with respect to statements of Common Expenses and Real Property Taxes,
Tenant shall pay the sums shown as due on such operating statement, and if it
shall be finally determined that any portion of such sums was not properly due,
Landlord shall promptly refund the appropriate sum to Tenant.
3.9 INTEREST ON PAST DUE AMOUNTS. Any amount owed by Tenant to
Landlord which is not paid when due shall bear interest at the rate of twelve
percent (12%) per annum from the due date of such amount, in addition to any
late charges due under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
ARTICLE IV - COMMON AREAS
4.1 COMMON AREAS. In this Lease, "Common Areas" shall mean all
areas on the Property which are available for the common use of tenants of the
Property and which are not part of the Leased Premises or the premises of other
tenants. Upon prior written notice to Tenant, Landlord may from time to time
change the size, location, nature and use of any of the Common Areas. Tenant
acknowledges that such activities may result in occasional inconvenience and
such activities and changes shall be expressly permitted if they do not
materially and adversely affect Tenant's use of or access within and to the
Property or the Premises.
4.2 USE OF COMMON AREAS. Tenant shall have the nonexclusive right
(in common with all others to whom Landlord has granted or may grant such
rights) to use the Common Areas for the purposes intended, subject to such
reasonable rules and regulations as Landlord may establish from time to time.
Tenant shall abide by such rules and regulations and shall use its best effort
to cause others who use the, Common Areas with Tenant's expressed or implied
permission to abide by Landlord's rules and regulations. Tenant shall not, at
any time, interfere with the rights of Landlord, other tenants, or any other
person entitled to use the Common Areas. Notwithstanding this Section 4.2,
Tenant (a) has certain roof rights under Section 5.4, (b) has
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rights to locate a generator outside the building as shown on Exhibit M and (c)
has rights to locate mechanical equipment on the roof as shown on Exhibit N; in
connection with Tenant's rights under this sentence, Tenant shall be entitled to
run conduit or other connections between the Premises and the locations
identified herein, subject to Landlord's reasonable approval.
4.3 VEHICLE PARKING. During the initial Term of this Lease, Tenant
shall be entitled to the non-exclusive use of up to 4.0 parking spaces per 1,000
square feet of rentable Office Space and Switch Space area leased in the
Building without paying any additional rent. Inclusive in the ratio noted above,
the Landlord shall provide Tenant with twenty (20) reserved parking spaces in a
location to be mutually agreed upon by Landlord and Tenant, which shall be
marked by stencil and designated for Tenant's exclusive use. No more than ten
(10) additional spaces in the parking areas are to be reserved for the exclusive
use of other tenants in the Building; provided that, in the event additional
reserved spaces are allocated to other tenants in the Building, Tenant's number
of reserved parking spaces will be increased proportionately. Unless otherwise
agreed to in writing between Landlord and Tenant, all vehicle parking spaces on
the surface parking area are to be located immediately behind the Building.
Parking is to be limited to vehicles no larger than standard size automobiles or
pickup trucks or sport utility vehicles (each standard size as may be defined by
Fairfax County Code). Temporary parking of large delivery vehicles within an
area reasonably designated by Landlord on the Property shall be permitted by the
rules and regulations established by Landlord. Vehicles shall be parked only in
striped parking spaces and not in driveways, loading areas or other locations
not specifically designated for parking. Landlord shall have no obligation to
monitor or police said reserved spaces and shall not be liable to Tenant for
unauthorized use by a third party; provided that, if Tenant does not realize its
share of spaces provided by Landlord under the Lease due to overparking by other
tenants or visitors of such other tenants, Tenant may request Landlord, at
Landlord's cost, to allocate and mark all spaces and have property management
enforce by towing if other tenants do not observe said markings. Adequate
visitor parking shall be available for Building visitors and invitees in the
front parking lot of the Building; a proportionate share of visitor parking (not
to exceed 20 spaces) will be deducted from Tenant's allocated parking.
4.4 COMMON AREA MAINTENANCE. Landlord shall maintain the Common Areas
in first class order, condition and repair, consistent with that of comparable
first class mid-rise office buildings in the Reston/Herndon area. Landlord's
cost of such maintenance, repair and replacement shall be included as a Common
Expense which is subject to proportionate reimbursement as provided in Section
3.7 above.
ARTICLE V - USE
5.l USE.
5.1(a) - Tenant shall use the Leased Premises as follows: (i)
one-half of first floor for the installation, operation and maintenance of
telecommunications equipment (Switch Space and NOC); provided that such space
may be converted to office space at any time; (ii) up to a cumulative maximum on
each of floors 1, 3, 4 and 5, 1,800 square feet for storage ("Storage Space") as
more particularly described in Section 5.3 and (iii) the balance of the Premises
for any
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general office purposes (except for retail, industrial and/or manufacturing)
("Office Space"), each of which is to be consistent with the class, zoning and
character of the Building, and for no other purpose without the prior written
consent of Landlord. The Switch Space shall be located next to the generator
area on the first (1st) floor and will be used exclusively for constructing and
maintaining a telecommunications switch, including without limitation equipment,
racking shelves, and backup battery systems. Tenant will not use or occupy the
Leased Premises for any unlawful purpose, and will comply with all present and
future laws, ordinances, regulations, and orders of the United States of
America, the state in which the Leased Premises are located, and all other
governmental units or agencies having jurisdiction over the property and the
Leased Premises. Tenant agrees to operate its business in the Leased Premises
during the entire Term and to conduct its business in a reputable manner. Tenant
shall not cause, maintain or permit any outside storage on or about the Leased
Premises, shall not commit or suffer any waste upon the Leased Premises, or any
nuisance or other act or thing which may disturb the quiet enjoyment of any
other tenant in the Building. Unless Tenant pays the excess insurance cost, no
use shall be made or permitted to be made of the Leased Premises, nor acts done,
which will increase the existing rate of insurance upon the Building or cause
the cancellation of any insurance policy covering the Building, or any part
thereof. Tenant shall not sell, or permit to be kept, used, in or about the
Leased Premises, any article which may be prohibited by the standard form of
fire insurance policy. Tenant shall, at its sole cost and expense, comply with
any and all requirements, pertaining to the Leased Premises, of any insurance
organization or company, necessary for the maintenance or reasonable fire and
public liability insurance covering the Leased Premises, Building and
appurtenances. Tenant shall not place on any floor a load exceeding the floor
load per square foot which such floor was designed to carry unless such floor
has been reinforced as approved by Landlord and as provided in this Lease.
Landlord shall have the right to prescribe the weight, position and manner of
installation of safes and other heavy equipment and fixtures.
5.1(b) - Subject to Landlord's approval, Tenant reserves the
right to install or enter into a sublease for a delicatessen or food service in
a portion of the first floor of the Leased Premises provided that such
delicatessen or food service would be open to the public and would be subject to
Landlord's approval of all aspects of such delicatessen or food service,
including but not limited to, its location on the first floor, the type of food
to be served, and plans and specifications. In the event Tenant elects to
install and maintain a delicatessen or food service on the first floor of the
Leased Premises, such delicatessen or food service shall be installed, operated
and maintain in strict compliance with all applicable laws. Landlord will
consent to a sublease arrangement regarding this portion of the first floor
provided Tenant remains obligated in all respects on this Lease.
5.2 ADA. Tenant shall at its expense make any improvements or
alterations to the Leased Premises and Landlord shall at its expense make any
improvements or alterations to the Common Areas required to conform with the
Americans With Disabilities Act of 1990 ("ADA") and any other laws, ordinances,
orders or regulations of any governmental body or authority presently required
or hereinafter enacted. Tenant represents and warrants that the use and
occupancy of the Leased Premises as contemplated by this Lease comply or will
comply fully with all such laws, ordinances, and other governmental
requirements.
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5.3 STORAGE SPACE. Tenant shall have the right at any time prior
to Tenant Plan Delivery Date to convert up to 1,800 rentable square feet on each
full floor of the Leased Premises comprised of Office Space to one or more areas
of Storage Space. The Storage Space will include an access door and will be
ventilated at Landlord's sole cost. The Tenant Allowance described in Section
1.5, will not apply to any Storage Space; provided that Tenant may at its own
cost (which may include using the Tenant Allowance provided on the balance of
the Premises) to further improve such Storage Space to include air conditioning,
ceiling, lights and floor covering. Use of such Storage Space shall not be
limited to Storage Space and may be occupied; provided that such converted
Office Space is in compliance with all applicable codes for office space in a
first class mid-rise office building in the Reston/Herndon area.
5.4 ROOF RIGHTS.
5.4(a) - Subject to applicable governmental approvals and the
Rules and Regulations set forth in Exhibit J, copies of which Tenant shall
deliver to Landlord prior to the commencement of any installation or work
thereon, Tenant shall have the right to use portions of the roof of the Building
in proportion to the amount of the Building leased by Tenant, in a location and
area thereon as reasonably determined by Landlord, to house antennae, satellite
dishes or other equipment benefiting the Tenant's use thereof. Such roof rights
and access shall be rent-free but costs of installation, screening, removal and
coordination shall be at Tenant's sole cost and expense but upon prior written
notification to Landlord. In the event Tenant's rooftop installation relies upon
line-of-sight technology, Landlord shall not permit the post completion roof
installation of structures that at the time of installation will interfere with
the signals to and from the equipment. Landlord shall not allow the post
completion roof installation of equipment that will interfere with the then
existing radio frequency at which such equipment operates. Tenant shall have the
right to use or construct conduit or shafts from the roof to the Premises in
order to connect Tenant's roof equipment to Tenant's interior equipment and to
provide electrical power to the roof equipment. Landlord agrees not to require
relocation of Tenant's antennae except at Landlord's cost and provided that no
interruption of service occurs during such move; this sentence shall not apply
if the relocation or removal is required by applicable governmental authority.
5.4(b) - Landlord grants Tenant a non-exclusive license (1) to
use the roof for the purpose described, and (2) to make reasonable use of the
pathways, shafts, risers, raceways, conduits; available telephone closets,
interior telecommunications wiring and cabling, service areas and utility
connections and entries into and through the Building owned or under the control
of Landlord (the "Pathways") to connect the rooftop antennae to equipment within
the Premises, to the premises of other occupants of the Building (with such
other occupant's consent), or to the fiber optic backbone in the city street or
other existing location, and (3) to install interior equipment in close
proximity to the Building's inside wiring and cabling for the purpose of
connecting Tenant's equipment to such Main Distribution Frame for purposes of
serving occupants of the Building, and (4) to install, operate, maintain,
repair, relocate, upgrade and replace the rooftop antennae and associated cable,
wiring and equipment. Tenant's communications equipment and the manner of
installation thereof shall be subject to the
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approval of Landlord, which approval shall not be unreasonably withheld,
conditioned, or delayed.
5.4(c) - Landlord and Tenant agree that when other tenants
utilize the roof and when Tenant makes future changes in its use of the roof,
Tenant will cooperate in a reasonable manner with Landlord and other tenants in
an effort to maximize use of the roof by all tenants. Tenant will not alter its
existing roof equipment in a manner which adversely affects a then existing roof
use by another tenant; other tenants will be held to the same requirement when
they install or later alter their then existing roof equipment.
ARTICLE VI - LETTER OF CREDIT
As an additional inducement to enter into this Lease and as evidence of
Tenant's intention to comply with the terms and conditions of this Lease, Tenant
shall deliver to Landlord an irrevocable standby letter of credit drawn on
Tenant's regular commercial bank and running in favor of the Landlord in the
amount of $730,969.11 ("Letter of Credit") and in the form of Exhibit H
attached. Provided that (a) Tenant has timely paid the Rent for the first four
(4) years of the Term and (b) Tenant's and/or Guarantor's net worth at that time
is greater than as of February 28, 1999, the Letter of Credit shall be reduced
to an amount equal to one-month's Base Rent. Landlord shall hold the Letter of
Credit as security for the performance by Tenant of Tenant's covenants and
obligations under this Lease. Upon the occurrence of an Event of Default,
Landlord may, without prejudice to any other remedy, draw on the Letter of
Credit to the extent necessary to make good any arrearages or nonpayment of Base
Rent, Additional Rent or other charges provided for in this Lease, or to satisfy
any obligation of Tenant hereunder. Following any such presentment of the Letter
of Credit, Tenant shall deliver to Landlord on demand a new Letter of Credit in
order to restore the Letter of Credit to its original amount. It shall be an
Event of Default if Landlord receives notice from the issuing bank that the
Letter of Credit is not being renewed; however, it shall not be an Event of
Default if, after such notice, but before the fifteenth (15th) day preceding the
expiration date of the letter of credit, Tenant substitutes a letter of credit
in substantially similar form from a bank acceptable to Landlord or substitutes
a cash deposit.
ARTICLE VII - OPERATIONS; UTILITIES; SERVICES
7.1 OPERATION. Landlord shall operate the Building in accordance
with standards customarily followed in the operation of comparable first class
mid-rise office buildings in the Reston/Herndon, Virginia area.
7.2 HOURS OF OPERATION. The Building will be open from 8:00 a.m.
to 6:00 p.m., Monday through Friday, and from 8:00 a.m. to 12:00 p.m. on
Saturday. The Building will be closed on Sundays and on the following holidays:
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
the day after, Christmas Day. Tenant shall have access to the Leased Premises 24
hours per day every day of the week.
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7.3 UTILITIES AND SERVICES. Landlord shall provide Tenant with the
following utilities and services during hours of operation:
7.3(a) Central heat and air-conditioning, in season, at such
temperatures and in such amounts as may be required to reasonably heat or cool
the Leased Premises to the specifications set forth in Exhibit C unless limited
by legal requirements. Tenant may designate in writing to Landlord other hours
of usage in addition to those in section 7.2, and provided such additional usage
does not exceed 4,250 hours per year, Tenant shall pay only the direct utility
cost of said additional hours. In the event Tenant's designated hours of use
prohibits Landlord's ability to have service and maintenance performed during
hours where such service would normally be performed, then Tenant shall pay the
incremental cost increase of performing such service during non-standard times.
The central heating and air-conditioning system will be a VAV system consisting
of a central cooling tower and two (2) mechanical units per floor providing 116
tons of cooling capacity per floor. Tenant requires the Switch and NOC portion
of the Leased Premises to be provided with central heat and air-conditioning
seven (7) days a week on a twenty-four (24) hour basis. Such areas will be
serviced by standalone heating and air-conditioning systems which are to be
installed and paid for by Tenant as part of-Tenant's Work; utility services will
be separately metered for this area, with meter design and configuration to be
subject to Landlord's reasonable approval; Tenant shall pay the direct utility
costs of operating said systems and no hourly fees shall apply to such areas; in
the event Tenant's stand alone system defaults, Tenant may utilize Landlord
systems; however, if such back-up use occurs outside normal building system
operating periods, such extraordinary use may be credited first against Tenant's
4,250 hour credit but will be subject to Landlord's normal charges after the
annual credit has been fully utilized; such charges are described above and in
Section 7.5.
7.3(b) Hot and cold water to serve the Leased Premises as
required for lavatory and drinking purposes and such other uses as are permitted
pursuant to this Lease.
7.3(c) Janitorial services as set forth on Exhibit I attached
hereto. Such services shall be provided in an amount and nature consistent with
similar first class mid-rise office buildings in the Reston/Herndon markets.
Tenant shall have the right to provide its own cleaning service for the Switch
Space, provided that, such janitorial services shall be consistent with services
provided to similar switch spaces within the Reston/Herndon area.
7.3(d) Four (4) standard passenger elevators, one of which
will be used for freight and deliveries, when the Building is open, and at least
one passenger elevator when the Building is closed. All elevators will be geared
(350 fpm) and have at least 2,500 lb. capacity. Tenant shall have a right to use
the freight elevator 24 hours per day, 7 days per week during Tenant's initial
construction period, at no extra cost, subject to Tenant coordinating its use of
the freight elevator with building management. The freight elevator will have a
3,500 lb. capacity. The dimensional specifications of the freight elevator cab
are as follows:
Door width: 42"
Height: 9'4"
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Depth: 5'5"
Width: 6'8"
The loading area is grade level and will be on the south side of the
Building and accessible to the freight elevator. Tenant shall designate its own
area for loading on the west side of the building with access to the freight
elevators.
7.4 INTERRUPTION OF SERVICES.
7.4(a) - Landlord shall not be in default under this lease and
shall not be liable to Tenant for failure to provide services pursuant to this
Article if failure to provide the services is caused by factors outside of
Landlord's control or is caused by Tenant's fault. If the cause of such services
interruption is within Landlord's control, as both parties shall reasonably
agree, then the following shall apply: (i) if such interruption continues for
more than five (5) consecutive days and renders any portion of the Leased
Premises unusable for the normal conduct of Tenant's business, then all Rent
allocable to the affected area shall be abated retroactively to the first (1st)
business day of such interruption and such abatement shall continue until full
use of such affected portion of the Leased Premises is restored to Tenant; (ii)
in the event that the interruption exceeds sixty (60) days, Tenant shall have
the right to cancel this Lease as to the portion so interrupted; however, if the
interruption causes the non-functioning of the equipment in the Switch Area,
then if such interruption exceeds thirty (30) days, Tenant may terminate as to
the Switch Area.
7.4(c) - Landlord shall promptly notify Tenant in writing of
any anticipated interruption of utilities or services due to, among other
things, repairs, maintenance or the like. To the extent that Landlord has
control over the timing of the interruption, Landlord will coordinate a mutually
agreeable time with Tenant. Landlord will use its best efforts to minimize the
amount of time of any interruption of services. If an emergency event or
circumstance occurs that threatens to materially interfere with Tenant's ability
to operate its Switch Equipment in a proper manner and pursuant to the Lease the
Landlord is required to take action to correct the situation (a "Required
Action") and Landlord has knowingly failed to provide or commence the Required
Action within the time period required by the Lease (or a reasonable period of
time, if no period of time is specified in the Lease) after the receipt of
notice, Tenant may proceed to take the Required Action pursuant to the terms of
the Lease. If any Required Action is taken by Tenant pursuant to the terms of
this section, then Landlord shall reimburse Tenant for its reasonable and
documented costs and-expenses in taking the Required Action within thirty days
after receipt by Landlord of an invoice from Tenant.
7.5 ELECTRICITY; EXCESS USAGE. Tenant shall, at its own cost and
expense, separately meter the Leased Premises and all the costs associated
therewith, including, among other things, the cost and expense of installing and
maintaining meters, engineering for such meters, panels, wiring and other items
required to accommodate excess services to Tenant, shall be Tenant's
responsibility. Provided that Tenant's annual usage of areas other than the
Switch Space and the NOC does not exceed 4,250 hours per year, Tenant will pay
for the direct utility cost of its central heating and air-conditioning usage
and its operating equipment. Any usage under 4,250
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hours during any year during the Term shall be credited forward to subsequent
years. For any usage beyond 4,250 in any lease year (plus any unused credit from
a prior year), Tenant agrees to pay, as additional rent, an hourly fee
reasonably determined by Landlord to compensate it for excessive equipment wear
and tear. An energy management system will be provided with an automatic
temperature control system utilizing a direct digital control system with a
central computer control to facilitate Tenant's operating hour flexibility and
costs.
Landlord shall allow Tenant to locate additional dedicated
emergency generator(s) adjacent to the building generator area on the west side
of the building and to provide Tenant with necessary access to the electrical
rooms. The site provides the option of utilizing diesel or natural gas. All
costs including engineering services to accommodate such generator placement and
installation will be paid for by Tenant.
7.6 NO INTERFERENCE. Without Landlord's prior review and written
consent, which consent shall not be unreasonably withheld, Tenant shall not
install or operate any electrical, internet, satellite, microwave, or other
systems that will or may necessitate any changes, replacements or additions to,
or changes in the use of, the water system, heating system, plumbing system,
air-conditioning system or electrical system of the Leased Premises or the
Building. Any changes, replacements or additions to those systems made necessary
by Tenant's installation or operation of any such utility systems shall be made
at Tenant's expense. Further and except as may otherwise be set forth herein, no
such electrical, internet, satellite, microwave, or other systems will interfere
with any other tenant in the Building or with any other buildings on the
Property.
7.7 TELECOMMUNICATIONS.
7.7(a) - Fiber optics feeds are available to service the
project by Bell Atlantic and MFS. Landlord shall install, at Tenant's cost,
among other things, four (4) 4" conduits to the Building with one (1) entry
point. In addition, Landlord will accommodate Tenant's need for dual access to
the Building with separate entry points with six (6) 4" conduits running to each
entry point as described in the Landlord's work agreement. Such conduit
installation is set forth in Exhibit L. Landlord shall allow Tenant access to
Tenant's conduit for maintenance and repair as long as such access does not
unreasonably disrupt the Base Building, other Tenant space or the Property;
Landlord shall allow Tenant similar access to Base Building conduit upon
reasonable notice.
7.7(b) - Tenant shall have the right to receive
telecommunication services from the vendor(s) of Tenant's choosing and Landlord
shall cooperate in accommodating such service and shall provide reasonable
access, unless an emergency exists, for such services. In the event any easement
rights controlled by Landlord are needed for any such services necessary for the
conduct of Tenant's business, Landlord will review such needs and use reasonable
consent to provide same without fees or charges to Tenant or the vendor, except
for the reimbursement of Landlord's actual costs. Any reasonable expenses
incurred by Landlord in securing and documenting such easements shall be
reimbursed by Tenant upon demand. Landlord, upon prior notice, shall provide
Tenant with free and unencumbered access to Tenant to all Building risers,
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conduits, shafts, etc. as needed by Tenant and approved by Landlord to connect
such service to the Leased Premises; provided that Tenant restores any portion
of the Building used for such purposes to its original condition and does not
interfere with any other tenants' use and enjoyment of the Building. Tenant
shall pay for the installation of any new entry points, penetrations for its
use.
7.8 SECURITY; ACCESS.
7.8(a) The Building will be equipped with a perimeter card
reader system installed and maintained by Kastle Systems or comparable vendor.
Tenant, at Tenant's cost, may install card readers at other entry points of the
Premises throughout the Building, subject to the reasonable approval of
Landlord. The elevators will be equipped with a "lock off" device and card
readers so that Tenant may override the "lock off" device with security cards
for after hours access. Cards will be issued to Tenant based on a not to exceed
ratio of four cards per 1,000 square feet of occupiable area leased.
7.8(b) Landlord shall also provide suite entry keys at the
same ratio as security cards. In the event Tenant requires more keys or cards
than the 4 per 1,000 square foot ratio, the cost of such additional keys or
cards to Tenant shall be at Landlord's actual direct cost of same.
7.8(c) Landlord hereby agrees to install and maintain a
reasonable access system for the Building. Tenant shall have the right to
install and maintain at its own cost and upon Landlord's approval an access
system of tenant's choice to protect Tenant's premises. Tenant hereby
acknowledges and agrees that neither the installation of an access system in the
Building, nor the continuance of any existing access system, shall in any way be
deemed to be a warranty by Landlord as to the sufficiency or adequacy of any or
all such systems as a security device, nor as an agreement by, or obligation of,
Landlord to protect, indemnify and/or hold harmless Tenant or any of Tenant's
partners, agents, officers, employees, licensees or invitees from any harm of
any type to ensure their safety.
7.9 MANAGEMENT. The Building will be managed by Koll Metropolitan,
LLC or such other manager as Landlord may designate. There will be an on-site
building staff which will include at a minimum a full-time chief engineer and an
engineer's assistant. The property management fee will be equal to three and
one-half percent (3-1/2%) of gross rents received annually and shall be included
as an Operating Expense. The property management will be of a level of service
commensurate with that found in similar first class mid-rise office buildings in
the Reston/Herndon area. In the event that the property management service does
not meet such standard, Tenant shall notify Landlord and the property management
company shall have thirty (30) days to cure such deficiency. If such deficient
service is not cured within such period, Tenant may require that Landlord
replace the property manager with a new property management company.
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ARTICLE VIII - REPAIRS AND MAINTENANCE
8.1 LANDLORD'S OBLIGATIONS. Landlord shall keep and maintain in good
repair and working order consistent with similar first class mid-rise office
buildings in the Reston/Herndon, Virginia area and make all repairs to and
perform necessary maintenance upon the structural components and elements, and
electrical, plumbing and mechanical systems, of the Building and all parts and
appurtenances, which are required in the normal maintenance and operation of the
Building, including, but not limited to, the exterior walls, load bearing
elements, foundation, pipes, conduits, roof, parking and other common areas, and
the mechanical, life/safety, electrical, central heating and air-conditioning,
and plumbing systems that are a part of the Base Building. The cost and expense
of any unusual maintenance or repair to the Building resulting from the acts or
omissions of Tenant or Tenant's agents, employees, contractors, invitees,
licenses or assignees, shall be reimbursed by Tenant to Landlord upon demand as
Additional Rent. Landlord shall not be responsible for ADA compliance with
respect to Tenant Work performed. Landlord shall not be obligated to make any
repairs not theretofore known by Landlord to be necessary until notified in
writing by Tenant, and Landlord shall then have a reasonable period of time to
make such repairs. Landlord shall not be liable for any damage or loss
occasioned by Landlord's failure to repair the Leased Premises unless it shall
have failed to make such repair within a reasonable time following its having
knowledge of the need for a repair or receipt of written notice from Tenant of
the need for such repair. If an emergency event or circumstance occurs that
threatens to materially interfere with Tenant's ability to operate its Equipment
for its intended use, the Landlord is required to take action to correct the
situation (a "Required Action") and Landlord has knowingly failed to provide or
commence the Required Action within the time period required by the Lease (or a
reasonable period of time, if no period of time is specified in the Lease) after
the receipt of notice, Tenant may proceed to take the Required Action pursuant
to the terms of the Lease. If any Required Action is taken by Tenant pursuant to
the terms of this section, then Landlord shall reimburse Tenant for its
reasonable and documented costs and expenses in taking the Required Action
within thirty (30) days after receipt by Landlord of an invoice from Tenant.
8.2 TENANT'S OBLIGATIONS. Tenant, at its sole cost and expense, shall
keep and maintain in good repair and working order and make all repairs to and
perform necessary maintenance within and upon the Leased Premises, including the
Tenant's improvements, and all parts and appurtenances thereof, which are
required in the normal maintenance and operation of the Leased Premises.
If Tenant fails to maintain and repair the Leased Premises,
Landlord may, on ten (10) days prior written notice (except that no notice shall
be required in case of emergency) enter the Leased Premises and perform such
repair and maintenance on behalf of Tenant. In such case, Tenant shall reimburse
Landlord for all reasonable costs so incurred immediately upon demand.
ARTICLE IX - ALTERATIONS; TENANT'S PROPERTY
9.1 ALTERATIONS BY TENANT. The term "Alterations" includes all
additions, replacements or improvements made after the completion of Tenant's
Work. Tenant shall make
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no Alterations without the express written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and amount
satisfactory to Tenant. All Alterations to the Leased Premises made by Tenant
will be accomplished in a good and workmanlike manner, in conformity with all
applicable laws and regulations, by a contractor reasonably approved by
Landlord, and except for trade fixtures shall become the property of the
Landlord at the expiration of the Term of this Lease. Landlord reserves the
right to require Tenant to remove any atypical Alterations made to the Leased
Premises by Tenant, and to repair and restore the Leased Premises to a condition
that existed prior to the Alterations; provided that Landlord and Tenant shall
be entitled to mutually revise the list of which Alterations are to remain
subsequent to the Lease Termination. Tenant shall give Landlord at least five
(5) days' prior written notice of the commencement of any work on the Leased
Premises. Landlord may elect to record and post notices of non-responsibility on
the Leased Premises.
Notwithstanding anything herein to the contrary, Tenant shall
have the right from time to time without Landlord's consent, but with notice and
provision of plans to Landlord, to perform Alterations that do not exceed
$75,000, and, regardless of cost, to: i) paint and install wall coverings, (ii)
install and remove office furniture, (iii) relocate existing electrical outlets,
(iv) install and remove workstations, (v) install and remove Tenant's equipment
and perform cable pulls in connection therewith and (vi) install and remove
carpeting and other floor coverings; provided that such alterations,
improvements or additions must not affect the base building structural,
mechanical, or electrical systems, in which case Tenant must receive Landlord
consent as provided above. For all Alterations Tenant must obtain all required
permits with copies sent to Landlord. Tenant's Alteration work must be
reasonably coordinated with the Landlord to avoid inconvenience and noise to
other tenants.
Whenever Alterations affect the Base Building, Landlord
consent and oversight is required; in such event, Tenant agrees to reimburse
Landlord for any reasonable out-of-pocket costs incurred by Landlord in
reviewing and overseeing such Alterations.
9.2 CONTRACTORS' INSURANCE REQUIREMENTS. In the event Landlord gives
its approval to Tenant pursuant to Section 9.1, Tenant shall require any third
party vendor or contractor performing work on the Leased Premises to carry and
maintain at no expense to Landlord: (a) Commercial General Liability Insurance
with a combined single limit of $3,000,000 bodily injury and property damage per
occurrence; (b) Auto Liability insurance with a combined single limit of
$1,000,000; and (c) Workers' Compensation insurance in accordance with
applicable state law and Employer's Liability insurance with limits of not less
than $100,000/$100,000/$500,000. Tenant shall obtain a Certificate of Insurance
prior to commencement of work and Landlord and Tenant are to be additional
insureds as respects the liability coverages.
9.3 TENANT'S PROPERTY. Provided no Event of Default shall have occurred
and is continuing hereunder, Tenant, at its expense. and at any time and from
time to time, may install in and remove from the Leased Premises its trade
fixtures, equipment, removable walls and wall systems, furniture and
furnishings, provided such installation or removal is accomplished
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without damage to the Leased Premises or the Building and the installation does
not materially interfere with the other tenants and their guests use of the
Building. On or prior to the expiration of the Lease Term or earlier termination
thereof, Tenant shall remove all of Tenant's property from the Leased Premises
and repair any damage to the Leased Premises caused by such removal.
ARTICLE X - HAZARDOUS MATERIALS
10.1 USE OF HAZARDOUS MATERIALS
10.1(a) - TENANT'S OBLIGATIONS AND LIABILITIES: Tenant shall
not cause or permit any Hazardous Material to be brought upon, kept or used in
or about the Leased Premises in violation of applicable law by Tenant, its
agents, employees, contractors, or invitees. If Tenant breaches this obligation,
the Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, judgments, damages, penalties, fines, costs or liabilities (including,
without limitation, diminution in value of the Leased Premises, damages for the
loss of restriction on use of rentable or usable space or of any amenity of the
Leased Premises, damages arising from any adverse impact on marketing of space,
and sum paid in settlement of claims, reasonable attorneys' fees, consultant
fees and expert fees) which arise during or after the lease Term as a result of
such contamination. This indemnification of Landlord by Tenant, includes,
without limitation, costs incurred in connection with any investigations of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under the Leased
Premises resulting from Tenant's breach of this Article. Without limiting the
foregoing, if the presence of Hazardous Material on the Leased Premises caused
by Tenant results in any contamination of the Leased Premises, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
Leased Premises to the conditions existing prior to the introduction of any such
Hazardous Material in the Leased Premises, provided that Landlord's approval of
such actions shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material adverse
long-term or short-term effect on the Leased Premises. The foregoing indemnity
shall survive the expiration or earlier termination of this Lease.
10.1(b) DEFINITION - As used herein, the term "Hazardous
Material" means any hazardous or toxic substance, material or waste, including,
but not limited to those substances, materials and wastes listed in the United
States Department of Transportation Hazardous Materials Table (49 CFR 172.101)
or by the Environmental Protection Agency as hazardous substances (40 CFR Part
261) and amendments thereto, or such substances, materials and wastes that are
or become regulated under any applicable local, state or federal law.
10.1(c) INSPECTION - Landlord and its property manager or
agents shall have the right, but not the duty, to inspect the Leased Premises at
any time to determine whether Tenant is complying with the terms of this
Article. If Tenant is not in compliance with this Article, Landlord shall have
the right to immediately enter upon the Leased Premises to remedy any
contamination caused by Tenant's failure to comply, notwithstanding any other
provisions of this
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Lease. Landlord shall use its best efforts to minimize interference with
Tenant's business but shall not be liable for interference caused thereby.
10.1(d) DEFAULT - An Event of Default under this Paragraph
shall be a material default enabling Landlord to exercise any of the remedies
set forth in this Lease.
10.2 LANDLORD'S WARRANTY: Landlord warrants that the Building
(other than the Leased Premises and other leased premises herein) shall be free
of any Hazardous Material other than that which is used in the ordinary course
of business and in accordance with applicable laws and shall endeavor to cause
other tenants within the Building to comply with all laws, rules and regulations
pertaining to Hazardous Materials. Landlord agrees that it will not cause any
Hazardous Materials to be brought upon, kept or used in or about the Building or
on the Property. If Landlord breaches this obligation, Landlord agrees to
indemnify Tenant and hold Tenant harmless in the same manner that Tenant
indemnifies and holds Landlord harmless pursuant to Section 10.1(a).
ARTICLE XI - ASSIGNMENT AND SUBLETTING
11.1 PROHIBITED TRANSFERS. Except as permitted herein, Tenant shall not
assign, transfer or encumber this Lease or any part hereof and shall not sublet,
grant licenses or concessions, nor allow any other occupant to come in, with or
under Tenant, nor shall Tenant permit this Lease or the leasehold estate hereby
created to become vested in or owned by any other person, firm or corporation by
operation of law or otherwise without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed and
shall be given or denied within ten (10) business days after Tenant's written
notification to Landlord; provided Landlord has received all information
reasonably necessary on the prospective subtenant or assignee. within a
sufficient period of time to give its consent or denial. Any such assignment or
subletting shall only be approved under such conditions as Landlord may, in its
reasonable discretion, determine. Acceptance of rent by Landlord from anyone
other than Tenant shall not be construed as a waiver by Landlord of the actions
prohibited by this Section, nor as a release of Tenant from any obligation or
liability under this Lease. In the event Landlord consents to an assignment or
sublet by Tenant, Tenant, and any guarantor of Tenant, shall not be relieved
from its obligations under this Lease.
If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of the partner or partners owning a
majority of the partnership interest as of the date of this Lease, or the
dissolution of the partnership, shall be deemed an assignment prohibited by this
Article unless Landlord's consent is obtained.
If Tenant consists of more than one person, a purported assignment,
voluntary, involuntary, or by operation of law, from a majority of such persons
to the others shall be deemed an assignment prohibited by this Article unless
Landlord's consent is obtained.
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11.2 OPTION TO TERMINATE. In the event a sublease is for more than 50%
of the Leased Premises or has a duration for the remainder of the Term, in lieu
of giving any consent to such a sublet, Landlord may, at Landlord's option,
elect to terminate this Lease as to that portion of the Leased Premises that is
the subject of the proposed subletting. The effective date of any such
termination shall be the proposed effective date of any proposed subletting.
11.3 EXCESS RECEIPTS. One-half of any proceeds in excess of Base Rent
and Tenant's pro rata share of Additional Rent which is received by Tenant
pursuant to an assignment or subletting consented to by Landlord, less
reasonable brokerage commissions actually paid by Tenant, and less other
reasonable costs incurred by Tenant in connection with making the space
available for lease, shall be remitted to Landlord as Additional Rent within ten
(10) days of receipt by Tenant. Such reasonable costs shall include, but not be
limited to, the costs of leasehold improvements (hard and soft costs), legal
fees, brokerage commissions, advertising costs, free rent and other concessions.
In addition, all amortized costs of leasehold improvements not funded by
Landlord, equipment or other personal property paid for by Tenant shall be
factored in and may, at Tenant's option, be allocated to the space in which such
items serve or are located as opposed to being spread across the entire Leased
Premises. For purposes of this paragraph, all money or value in whatever form
received by Tenant from or on account of any party as consideration for an
assignment. or subletting shall be deemed to be proceeds received by Tenant
pursuant to an assignment or subletting. In the event of multiple assignments or
subleases, all profits to Tenant shall be calculated in the aggregate.
11.4 PROCESSING FEE. In the event Tenant requests Landlord to consent
to a proposed assignment, subletting, or encumbrance, Tenant shall pay to
Landlord, whether or not such consent is ultimately given, Landlord's reasonable
administrative fee in connection with such request, which fee shall be
determined by Landlord in its sole discretion, and which shall not be less than
Three Hundred Dollars ($300.00) nor more than Five Hundred Dollars ($500.00) for
each request for consent, plus Landlord's reasonable attorneys' fees and costs
incurred in connection with each such request. Tenant shall pay the
administrative fee at the same time that it provides notice to the Landlord of
Tenant's proposed assignment, subletting or encumbrance.
11.5 CUSTOMERS EQUIPMENT. Tenant shall have the right locate customer
equipment on the Leased Premises provided that such equipment is consistent with
all other terms and conditions of the Lease and such location shall not
constitute a subletting or assignment of the Leased Premises.
11.6 PERMITTED TRANSFERS. Notwithstanding anything herein to the
contrary and provided the provisions of Article XXVII remain in full force and
effect, Tenant shall have the right to sublease or assign all or a portion of
the Leased Premises to (i) any parent company, subsidiary, affiliate or related
corporate entity, (ii) a company with which Tenant has a teaming or other
business relationship (so long as Tenant continues to occupy at least 75% of the
Leased Premises and maintains a compatible use thereof with such company), or
(iii) an entity that is the result of a merger or acquisition (collectively,
"Permitted Transfers") without Landlord's prior written consent but with notice
to Landlord provided as soon as practicable after the effective date of the
subleasing or assignment. Landlord shall not be entitled to (i) any profits
received by
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Tenant for any Permitted Transfers, or (ii) recapture any portion of the Leased
Premises that are assigned or sublet in accordance with the Permitted Transfers.
ARTICLE XII - CASUALTY OR CONDEMNATION
12.1 PARTIAL DAMAGE OF LEASED PREMISES. Tenant shall notify Landlord in
writing immediately upon the occurrence of any damage to the Leased Premises.
(a) If the damage can be completely repaired within one hundred eighty (180)
days from the date of such damage, and the cost of such repairs do not exceed
fifty percent (50%) of the value of the Leased Premises (as reasonably
determined by Landlord), Landlord shall repair the damage as soon as reasonably
possible. (b) If Landlord determines that (a) does not apply, Landlord shall so
notify Tenant and (i) Tenant may, within fifteen (15) days after such notice,
elect to terminate the Lease as of the date the damage occurred; (ii) if Tenant
does not elect to terminate under (i), then within fifteen (15) days thereafter,
Landlord shall notify Tenant either that Landlord elects to terminate the Lease
as of the date of the damage or that Landlord will repair the damage as soon as
reasonably possible. If the damage to the Leased Premises occurs during the last
six (6) months of the Term, and if such damage or destruction is not the result
of the act or omission of Tenant, Landlord or Tenant may elect to terminate this
Lease. Notwithstanding the above, if the damage described in this Section 12.1
does not materially affect the Switch Area (being 1/2 of the first floor) then
if Landlord elects to terminate the Lease, Landlord cannot terminate with
respect to the Switch Area (unless Tenant elects to terminate the Switch Area
effective as of the termination date for the balance of the Premises).
12.2 TOTAL OR SUBSTANTIAL DESTRUCTION. If the Leased Premises are
totally or substantially destroyed by any cause whatsoever, or if the Building
is substantially destroyed (even though the Leased Premises is not totally or
substantially destroyed), this Lease shall terminate as of the date the
destruction occurred. However, if the Leased Premises can be rebuilt within one
(1) year after the date of destruction, Landlord may elect to rebuild the Leased
Premises at Landlords own expense, in which case, this Lease shall remain in
full force and effect. Landlord shall notify Tenant of such election within
thirty (30) days after the occurrence of the total or substantial destruction.
12.3 TEMPORARY REDUCTION OF RENT. If the Leased Premises is repaired
pursuant to the provisions of this Article, Rent payable during the period of
such damage, repair and/or restoration shall be reduced according to the degree,
if any, to which Tenant's use of the Leased Premises is impaired. Tenant shall
not be entitled to any other compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or restoration of or to
the Leased Premises.
12.4 CONDEMNATION. If all or any portion of the Leased Premises is
taken through eminent domain or sold under threat of such taking (all of which
are called "Condemnation"), this Lease shall terminate as to the part taken or
sold on the date the condemning authority takes title or possession, whichever
occurs first. All income, rent, awards or interest derived from any such taking
or condemnation shall belong to and be the property of Landlord, and Tenant
hereby assigns Tenant's interest, if any, in such award to Landlord, except to
the extent that an award
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may be made to Tenant under applicable law and such award will not reduce
Landlord's award. If 20% or more of the Switch Area is subject to Condemnation,
Tenant may elect to terminate this Lease as to the entire Switch Area.
ARTICLE XIII - INDEMNIFICATION AND INSURANCE
13.1 INDEMNIFICATION BY TENANT. Except in the event of Landlord's
gross negligence or willful misconduct, Landlord shall not in any event be
responsible for loss of property from or for damage to person or property
occurring in or about the Leased Premises, however caused, including but not
limited to any damage from steam, gas, electricity, water, plumbing, rain, snow,
leakage, breakage or overflow, whether originating in the Leased Premises,
premises of other tenants, or any part of the Building whatsoever.
Notwithstanding Landlord's exculpation from liability for such adverse Building
conditions and occurrences, Landlord shall promptly respond to notification of
emergency situations wherein such conditions or occurrences threaten to cause
interruption or damage to Tenant's telecommunications equipment, including, if
necessary, entering into the premises of other tenants to cause the cessation of
such adverse conditions or occurrences.
Except in the event of Landlord's gross negligence or willful
misconduct, Tenant agrees to indemnify and hold harmless the Landlord from and
against all claims of whatever nature arising from any accident, injury or
damage to person or property during the Term of this Lease in or about the
Leased Premises or arising from any accident, injury or damage to personal
property occurring outside the Leased Premises but within the Building or any
other property of which the Leased Premises is a part, where such accident,
injury or damage results or is claimed to have resulted from an act, omission or
negligence on the part of Tenant, or on the part of any of its licensees,
agents, invitees, servants or employees. This indemnity agreement shall include
indemnity against all costs, claims, expenses, penalties, liens and liabilities
including reasonable attorneys' fees incurred in or in connection with any such
claims or proceedings brought thereon and the defense thereof.
13.2 TENANT'S INSURANCE. Tenant will maintain Commercial General
Liability insurance with respect to the Leased Premises naming Landlord as
additional insured, with a combined single limit of $3,000,000 bodily injury and
property damage per occurrence and $2,000,000 aggregate limit applicable to this
location, and auto liability insurance with a combined single limit of
$1,000,000. This insurance coverage shall extend to any liability of Tenant
arising out of the indemnities provided for in this Lease. Landlord shall be
named as an additional insured and the insurance shall be primary to any
insurance maintained by Landlord. Tenant shall deliver to Landlord a Certificate
of Insurance at least seven (7) days prior to the commencement of the Term of
this Lease and a renewal certificate at least seven (7) days prior to the
expiration of the Certificate it renews. Said Certificate must provide thirty
(30) days prior notice to Landlord in the event of material change or
cancellation. Tenant also agrees to maintain broad form Commercial Property
insurance coverage under ISO form CP1030 or like coverage under a non-ISO form
covering all Tenant's personal property, improvements and betterments to their
full replacement value and Worker's Compensation insurance in accordance with
applicable state law and Employer's Liability insurance with limits of not less
than
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$100,000/$100,000/$500,000. Tenant agrees that if its use and occupancy of the
Leased Premises cause the property insurer to raise premiums as a result of such
use or occupancy, then Tenant will directly reimburse the Landlord for the cost
of such increased premium. Tenant agrees to comply with all reasonable
recommendations from any insurer of the property that result as a direct result
of the Tenant's use of the Leased Premises.
13.3 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease.
13.4 WAIVER OF SUBROGATION. Notwithstanding anything contained in this
Lease to the contrary, if either party suffers a loss of or damage to property
in the Leased Premises or related to this Lease, which is covered by valid and
collectible insurance policies (or would be covered by policies which are
required hereunder or which would be required but for any specific provisions
for self-insurance or for a deductible), that party waives any claim therefor
which it may have against the other party or its employees, regardless of
whether negligence or fault of the latter party or its employees may have caused
the loss or damage. Each party will have its appropriate insurance policies
properly endorsed, if necessary, to prevent any invalidation of insurance
coverage required hereunder due to these mutual waivers.
13.5 LANDLORD'S INDEMNIFICATION. Landlord agrees to indemnify and hold
harmless the Tenant from and against all claims of whatever nature arising from
any accident, injury or damage to person or property during the Term of this
Lease in or about the common areas of the Building or arising from any accident,
injury or damage to personal property occurring within the common areas, where
such accident, injury or damage results or is claimed to have resulted from an
intentional act or omission or gross negligence on the part of Landlord, or on
the part of any of its licensees, agents, invitees, servants or employees
(exclusive of any other tenants and their agents, invitees, servants or
employees). This indemnity agreement shall include indemnity against all costs,
claims, expenses, penalties, liens and liabilities including reasonable
attorneys' fees incurred in or in connection with any such claims or proceedings
brought thereon and the defense thereof.
13.6 LANDLORD'S INSURANCE. Landlord shall, at all times during the Term
hereof, at its sole cost and expense (subject to reimbursement in accordance
with this Lease) procure and maintain in force commercially reasonable and
customary amounts (in light of typical amounts carried by comparable Buildings)
of insurance of the type commonly referred to as an "all risk of physical loss"
policy including flood or earthquake insurance, if applicable, and commercial
general liability insurance insuring the Building against all risks and all
other hazards as are customarily insured against, in Landlord's reasonable
judgment, by others similarly situated and operating like properties in the
Reston/Herndon, Virginia area. Landlord shall procure and maintain in force
(subject to reimbursement in accordance this Lease) a commercially reasonable
amount (or an amount as required by any underlying mortgage) of rental loss
insurance during the Term of this Lease. Upon a request by Tenant to Landlord
not more often than once each calendar year, Landlord shall deliver to Tenant
certificates evidencing the existence and amounts of insurance required to be
carried by Landlord pursuant to this section.
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ARTICLE XIV - RIGHT OF ENTRY
14.1 LANDLORD ACCESS. The Landlord reserves the right to use the
Building and every part thereof, and Tenant shall permit access to the Leased
Premises to Landlord, Landlord's property manager or Landlord's agents or
attorneys at all reasonable times (except as otherwise provided herein) for
inspection and cleaning and from time to time to repair as provided in Article
VIII, maintain, alter, improve and remodel, and to add additional offices to the
Building and each part thereof; the Tenant shall not be entitled to any
compensation, damages or abatement or reduction in Base Rent on account of any
such repairs, maintenance, alterations, improvements or remodeling or adding of
additional stories. The Landlord reserves the right at any time and from time to
time to enter, and be upon the Leased Premises for the purpose of examining
same. The Landlord shall have the right, at reasonable hours, and upon notice to
Tenant, to enter upon the Leased Premises or exhibit the same to prospective
tenants, lenders or insurers. For emergency purposes, and subject to reasonable
mutual consent, Tenant will provide Landlord with security access or bypass of
its security system.
14.2 LIMITATIONS ON ACCESS. Notwithstanding the provisions of Section
14.1, Landlord's access shall be limited as follows: (a) Landlord will notify
Tenant prior to the time of access except in case of emergency; (b) except in
the case of emergency, Landlord's access to the Switch Area shall be upon
reasonable notice and Landlord shall be accompanied by a representative of
Tenant; (c) unless otherwise agreed between Landlord and Tenant, Landlord's
access to the Premises to show the Premises to prospective tenants shall be
limited to the last nine (9) months of the lease term; and (d) Landlord will
provide reasonable notice to Tenant prior to entering the Premises to perform
any repairs, alterations, etc. required under the terms of this Lease and
Landlord agrees to use reasonable efforts to minimize any disruption to Tenant's
use or access to the Premises during such use. In addition, Landlord agrees to
use reasonable efforts to complete such work in a diligent and expeditious
manner.
ARTICLE XV - PROPERTY LEFT ON THE LEASED PREMISES
Upon the expiration of this Lease or if the Leased Premises should be
vacated at any time, or abandoned by the Tenant, or this Lease should terminate
for any cause, and at the time of such termination, vacation, or abandonment,
the Tenant or Tenant's agents, or any other person should leave any property of
any kind or character on or in the Leased Premises, the property shall be deemed
abandoned. Landlord, Landlord's property manager or Landlord's agents or
attorneys, shall have the right and authority without notice to Tenant, Tenant's
agents, or anyone else, to remove and destroy, or to sell or authorize disposal
of such property, or any part thereof, without being in any way liable to the
Tenant for the abandoned property. The abandoned property shall belong to the
Landlord as compensation for the removal and disposition of said property.
ARTICLE XVI - SIGNS AND ADVERTISEMENTS
No exterior signs, advertisements, posters on windows, decorations or
other fixtures shall be erected by Tenant without the prior written consent of
Landlord.
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Landlord shall provide Tenant with space on the Building directory in
the main lobby of the Building in direct proportion to the amount of space of
the Leased Premises. Landlord shall provide building standard suite entry
signage. In addition, Landlord shall grant Tenant the senior right to signage on
the Building to the maximum amount allowable by zoning ordinance. The precise
location, size and style of sign shall be subject to appropriate local codes and
permits, and to Landlord's written consent and approval (which shall not be
unreasonably withheld, conditioned or delayed), provided that Tenant shall be
allowed to place signage on the Building that is visible from the Dulles Access
Road. Such Tenant designated signage shall be set forth in documents prepared by
Tenant's architect and submitted to Landlord no later than the Tenant Signage
Submission Date. After determination of Tenant's signage configuration on the
Building, the Landlord may offer any remaining signage to other tenants. All
costs of installation, engineering therefor and removal shall be at Tenant's
sole expense. In the event Tenant should fail to renew the Lease in accordance
with Section 2.4 for the entire Leased Premises, such signage shall be reduced
proportionately. Also, if at any time the Premises are reduced to only the
Switch Area, Tenant's signage rights shall terminate.
ARTICLE XVII - NOTICES
Any notice, demand, request, consent, approval or communication under
this Lease shall be in writing and shall be deemed to have been duly given and
received at the time and on the date when personally delivered, or one (1) day
after being delivered to a nationally recognized commercial carrier service for
next-day delivery or three (3) days after deposit in the United States mail,
certified or registered mail with a return receipt requested, with all postage
prepaid, addressed to Landlord or Tenant (as the case may be) as follows:
If to Landlord: Koll Metropolitan, LLC
1751 Pinnacle Drive
Suite 550
McLean, Virginia 22102
Attn: Cary M. Euwer, Jr.
If to Tenant Net 2000 Communications Real Estate, Inc.
and/or Guarantor: 2180 Fox Mill Road
Herndon, Virginia 22071
Attn: Manager of Corporate Real Estate
Administration
With a copy to: NET 2000 Communications Real Estate, Inc.
2180 Fox Mill Road
Herndon, Virginia 22071
Attn: Legal Department
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With a copy to: The Irving Group
3877 Fairfax Ridge Road
Suite 100 North
Fairfax, Virginia 22030
Attn: Paul G. Darr
ARTICLE XVIII - MECHANIC'S LIENS
Tenant and any vendor, contractor or subcontractor performing work on
behalf of Tenant shall keep the Building, the Leased Premises, and the
improvements at all times during the Term of this Lease, free of mechanic's and
materialmen's liens and other liens of like nature. Tenant at all times shall
fully protect and indemnify Landlord against all such liens or claims and
against all reasonable attorneys' fees and other costs and expenses growing out
of or incurred by reason or on account of any such liens or claims. Should
Tenant, within fifteen (15) days after notice from Landlord, fail fully to
discharge any such lien or claim or, in the alternative, obtain a bond
sufficient to cover any such lien that may have been filed, Landlord, in its
sole discretion, may pay the same or any part thereof, and Landlord shall be the
sole judge of the validity of said lien or claim. All amounts so paid by the
Landlord, together with interest thereon at the rate of 10% from the time of
payment by Landlord until repayment by Tenant, shall be paid by Tenant upon
demand, and if not so paid, shall continue to bear interest at the aforesaid
rate, payable monthly as Additional Rent.
ARTICLE XIX - SUBORDINATION; ATTORNMENT
19.1 SUBORDINATION. Landlord may, from time to time, grant first lien
deeds of trust, security deeds, mortgages or other first lien security interests
covering its estate in the Building (each a "Mortgage"). Tenant agrees that this
Lease shall be subject and subordinate to each Mortgage, including any
modifications, extensions or renewals thereof and advances thereunder from time
to time in effect. The foregoing provisions shall be self operative, and no
further instrument of subordination shall be required to make this Lease subject
and subordinate to any Mortgage. Tenant shall, upon request, from time to time
execute and deliver to Landlord or the holder of any Mortgage any instrument
requested by Landlord or the holder of such Mortgage to evidence the
subordination of this Lease to any such Mortgage.
19.2 ATTORNMENT. Tenant agrees to recognize and attorn to any party
succeeding to the interest of Landlord as a result of the enforcement of any
Mortgage (including the transferee as the result of a foreclosure or deed in
lieu of foreclosure), and to be bound to such party under all the terms,
covenants, and conditions of this Lease, for the balance of the Term of this
Lease, including any extended term, with the same force and effect as if such
party were the original Landlord under this Lease. Landlord agrees to provide
Tenant with a commercially reasonable non-disturbance agreement in form
acceptable to Lincoln National Life and Tenant and from any other future lender
or ground lessor of the Building.
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19.3 CONFIRMING AGREEMENT. Upon the request of Landlord, Tenant agrees
to execute a subordination and attornment agreement incorporating the provisions
set forth above and otherwise in form reasonably acceptable to Landlord.
19.4 MORTGAGEE PROTECTION. Tenant agrees to give any mortgagees and/or
trust deed holders, by registered mail, a copy of any notice of default served
upon Landlord, provided that prior to such notice Tenant has been notified, in
writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of
the address of such mortgagees and/or trust deed holders. Tenant further agrees
that if Landlord shall have failed to cure such default within the time provided
for in this Lease, then the mortgagees and/or trust deed holders shall have an
additional thirty (30) days within which to cure such default or, if such
default cannot be cured within that time, then such additional time as may be
reasonably necessary, if within such thirty (30) days any mortgagee and/or trust
deed holder has commenced and is diligently pursuing the remedies necessary to
cure such default (including, but not limited to, commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
ARTICLE XX - COMPLIANCE WITH LAW
AND RULES AND REGULATIONS
20.1 COMPLIANCE WITH LAWS.
20.1(a) - Tenant, at Tenant's expense, shall comply with all
laws, rules, orders, ordinances, directions, regulations and requirements of
federal, state, county and municipal authorities pertaining to Tenant's use of
the Leased Premises and with the recording covenants, conditions and
restrictions, regardless of when they became effective, including, without
limitation, all applicable federal, state and local laws, regulations or
ordinance pertaining to air and water quality Hazardous Materials (as
hereinafter defined), waste disposal, air emissions and other environmental
matters, all zoning and other land use matters, and utility availability, and
with any direction of any public officer or officers, pursuant to law, which
shall impose any duty upon Landlord or Tenant with respect to the use or
occupation of the Leased Premises.
20.1(b) - Landlord, at Landlord's expense, shall comply with
all laws, rules, orders, ordinances, directions, regulations and requirements of
Federal, state, county and municipal authorities pertaining to Landlord's use
and operation of the Building and the Property and in accordance with all
covenants, conditions and restrictions affecting the Building.
20.2 RULES AND REGULATIONS. The rules and regulations attached as
Exhibit J ("Rules and Regulations") are Landlord's Rules and Regulations for the
Building. Tenant shall faithfully observe and comply with such Rules and
Regulations and such reasonable changes therein (whether by modification,
elimination, addition or waiver) as Landlord may hereafter make and communicate
in writing to Tenant, which shall be necessary or desirable for the reputation,
safety, care or appearance of the Building or the preservation of good order
therein or the operation or maintenance of the Building or the equipment thereof
for the comfort of tenants or others in the Building. In the event of a conflict
between the provisions of this Lease and the
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Rules and Regulations, the provisions of this Lease shall control. In the event
another tenant of the Building or any of such tenant's agents continuously
violates the Rules and Regulations which materially interferes with Tenant's use
of or access to the Leased Premises, Landlord shall, upon receipt written notice
from Tenant of such violation, use its best efforts to enforce such Rules and
Regulations against such tenant.
ARTICLE XXI - LANDLORD'S LIEN
21.1 LANDLORD'S LIEN. Subject to Section 21.2, Tenant hereby grants
to Landlord, to secure payment by Tenant of all Base Rent, Additional Rent, and
all other payments to be made by Tenant under this Lease and the performance by
Tenant of all its other duties and obligations under this Lease, a first
priority lien and security interest in all equipment, trade fixtures, goods and
other tangible personal property now or hereafter owned by Tenant and located on
the Leased Premises, and all substitutions, replacements, additions and
accessions thereto and proceeds thereof. No such property shall be removed from
the Leased Premises until all Base Rent, Additional Rent and other amounts
payable under this Lease have been paid and until Tenant has fully and
completely performed all of the other duties and obligations of Tenant under
this Lease. Upon the occurrence of any Event of Default hereunder, Landlord
shall have, in addition to all other rights and remedies provided for herein or
allowed by law or in equity, all rights and remedies of a secured party under
the Uniform Commercial Code, including the right to sell any or all of the
property described above at one or more public or private sales upon providing
the notice required by the Uniform Commercial Code. Tenant agrees that ten (10)
days' prior notice of any such sale will constitute commercially reasonable
notice. Tenant shall, at the request of Landlord, execute and deliver such
additional documents as may be reasonably required, including Uniform Commercial
Code financing statements, to perfect the lien and security interest granted by
Tenant to Landlord herein. Any statutory lien for rent is not waived, the
express contractual lien and security interest herein granted being
supplementary thereto.
21.2 LANDLORD'S ACKNOWLEDGMENT OF THIRD PARTY- LIEN. Landlord
recognizes that Tenant shall be installing telephone switching equipment, and
furniture, fixtures and equipment (collectively the "Equipment"). Landlord
further recognizes that Tenant may, from time to time, finance and refinance
said Equipment. Accordingly, Landlord hereby (i) consents to the installation of
the Equipment; (ii) disclaims any interest in the Equipment; (iii) waives, in
favor of both Tenant and any party providing financing to Tenant for any
purpose, any lien, interest, and or right of Landlord in and to the Equipment,
whether statutory or possessory, whether arising by statute or at common law,
including but not limited to any "landlord's lien," and any right of execution,
attachment, levy or to distraint for rent. Landlord agrees that none of the
Equipment shall be deemed to be fixtures. Landlord agrees that it shall, at any
time and within a reasonable period of time after Tenant's request, execute,
acknowledge, and deliver to Tenant a statement in writing, in a form reasonably
acceptable to Tenant and Tenant's lender, confirming the waiver as provided
herein. Tenant agrees to reimburse Landlord for its reasonable attorneys' fees
incurred in reviewing and providing such written statement, in an amount not to
exceed Five Hundred Dollars ($500.00). Landlord further agrees that upon receipt
of proper documentation demonstrating a lender or equipment lessor's right to
remove the Equipment,
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Landlord shall allow the removal in a workmanlike manner without any
interference, damage or destruction to the premises or any other equipment
therein.
ARTICLE XXII - ESTOPPEL CERTIFICATE
Tenant shall from time to time, upon not less than ten (10) days prior
written notice by Landlord, execute, acknowledge and deliver to Landlord a
statement in substantially the form attached hereto as Exhibit D, prepared by
Landlord, its counsel, or Landlord's lender or such lender's counsel, in
executable form and with all information known to Landlord filled in:
22(a) - Certifying that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the Lease is in full
force and effect as modified and stating the modifications).
22(b) - Stating the dates to which the Base Rent, Additional
Rent, and other charges hereunder have been paid by Tenant.
22(c) - Stating, to the best knowledge of Tenant, that
Landlord is not in default in the performance of any covenant, agreement or
condition contained in this Lease, and if Landlord is in default, specifying any
such default of which Tenant may have knowledge.
22(d) - Stating the address to which notices to Tenant should
be sent pursuant to Article XVII of this Lease.
Any such statement delivered pursuant hereto may be relied
upon by any owner of the Building and/or the Leased Premises, any prospective
purchaser of the Building and/or Leased Premises, any mortgagees or prospective
mortgagee of the Building and/or Leased Premises, any prospective assignee of
any such mortgagee, or any purchaser of Landlord, actual or prospective, of the
underlying land upon which the Building and Leased Premises are located.
ARTICLE XXIII - HOLDING OVER
If Tenant retains possession of the Leased Premises or any part thereof
after the termination of this Lease by lapse of time or otherwise without any
modification of this Lease or other written agreement between the parties,
Tenant shall be a month-to-month tenant (a) at one hundred ten percent (110%) of
the Base Rental Rate in effect at the termination date if such holdover is with
Landlord's consent and (b) at two hundred percent (200%) of the Base Rental Rate
in effect on the termination date if such holdover is without Landlord's
consent; in addition, under this paragraph (b), Tenant shall pay to Landlord all
direct and consequential damages sustained by Tenant's retention of possession,
including but not limited to lost rentals, leasing fees, advertising costs,
marketing costs, Tenant finish expense and relocation costs. There shall be no
renewal of this Lease by operation of law.
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ARTICLE XXIV - MUTUAL STATUS
Tenant and Landlord represent and warrant to each other that with
respect to itself:
24.1 POWER AND AUTHORITY. Each has the right, power and authority
to execute and deliver this Lease and to perform the provisions hereof, and is,
to the extent required, qualified to transact business and in good standing
under the laws of the Commonwealth of Virginia.
24.2 AUTHORIZATION. The execution of the Lease by each of them, or
by the persons or other entities executing them on behalf of each of them,
respectively, and the performance of their respective obligations under the
Lease in accordance with the provisions hereof have been, to the extent
required, duly authorized by all necessary legal action.
ARTICLE XXV - DEFAULTS AND REMEDIES
25.1 DEFAULT BY TENANT. There shall be an "Event of Default" under
this Lease if:
25.1(a) - Tenant shall fail to pay when due any Base Rent,
Additional Rent, or other payment to be made by Tenant under this Lease within
five (5) days after written notice from Landlord that the same is overdue.
25.1(b) - Tenant violates or breaches, or fails to fully and
completely observe, keep, satisfy, perform and comply with, any agreement, term,
covenant, condition, requirement, restriction or provision of this Lease within
thirty (30) days after written notice from Landlord that such Event of Default
exists or such additional time as may be reasonably necessary to complete a
cure, provided Tenant is diligently pursuing such cure.
25.1(c) - Tenant fails to take possession of or cease to do
business in or abandon any substantial portion of the Leased Premises (provided,
however, that Tenant shall not be deemed to have "abandoned" the Premises so
long as Tenant performs all of its obligations hereunder, including without
limitation paying Rent and maintaining the Premises.).
25.1(d) - Tenant becomes insolvent, or makes an assignment for
the benefit of creditors; or any action is brought by Tenant seeking its
dissolution or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of its property.
25.1(e) - Tenant commences a voluntary proceeding under the
Federal Bankruptcy Code, or any reorganization or arrangement proceeding is
instituted by Tenant for the settlement, readjustment, composition or extension
of any of its debts upon any terms; or any action or petition is otherwise
brought by Tenant seeking similar relief or alleging that it is insolvent or
unable to pay its debts as they mature; or if any action is brought against
Tenant seeking its dissolution or liquidations of any of its assets, or seeking
the appointment of a trustee, interim trustee, receiver or other custodian for
any of its property, and any such action is
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consented to or acquiesced in by Tenant or is not dismissed within 3 months
after the date upon which it was instituted.
25.2 LANDLORD REMEDIES. On the occurrence of any Event of Default
by Tenant, Landlord may, at any time thereafter, with or without notice or
demand, and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:
25.2(a) - Terminate Tenant's right to Possession of the Leased
Premises, in which case Tenant shall immediately surrender possession of the
Leased Premises to Landlord. In such event, Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason of the Event of
Default, including (i) the worth at the time of the court award of the unpaid
Base Rent, Additional Rent and other charges which had been earned at the time
of the termination; (ii) the worth at the time of the court award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which would
have been earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; (iii) the worth at the time of the court award of the amount by which
the unpaid Base Rent, Additional Rent and other charges which would have been
paid for the balance of the Term after the time of award exceeds the amount of
such rental loss that Tenant proves could have been reasonably avoided; and (iv)
such other amounts as are necessary to compensate Landlord for the detriment
caused by Tenant's failure to perform its obligations under the Lease,
including, but not limited to, the cost of recovering possession of the Leased
Premises, expenses of reletting, including necessary renovation or alteration of
the Leased Premises, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As used
above, the "worth at the time of the court award" is computed by allowing
interest on unpaid amounts at the rate of twelve (12%) per annum, or such lesser
amount as may then be the maximum lawful rate;
25.2(b) - Maintain Tenant's right to possession, in which case
this Lease shall continue in effect whether or not Tenant shall have abandoned
the Leased Premises. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
the Base Rent and Additional Rent as it becomes due hereunder.
25.2(c) - Elect to terminate the Lease. No such termination of
this Lease shall affect Landlord's rights to collect Base Rent, Additional Rent
or other amounts due for the period prior to termination. In the event of any
termination, in addition to any other remedies set forth above, Landlord shall
have the right to recover from Tenant upon such termination an amount equal to
the excess of the Base Rent, Additional Rent and other amounts to be paid by
Tenant during the remaining Term of this Lease over the then reasonable rental
value of the Leased Premises for the remaining Term of this Lease, discounted to
present value using a reasonable discount rate.
25.2 (d) - Pursue any other remedy now or hereafter available
to Landlord under the laws or judicial decisions of the state in which the
Leased Premises is located. Landlord's exercise of any right or remedy shall not
prevent it from exercising any other right or remedy.
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No action taken by or on behalf of Landlord under this section shall be
construed to be an acceptance of a surrender of this Lease.
25.3 LANDLORD'S COSTS: ATTORNEYS' FEES. Tenant shall pay all costs
and expenses incurred by Landlord as a result of any breach or Event of Default
by Tenant under this Lease, including court costs and reasonable attorneys' fees
paid by Landlord.
25.4 REMEDIES CUMULATIVE. The foregoing remedies are cumulative of,
and in addition to, and not restrictive or in lieu of, the other remedies
provided for herein or allowed by law or in equity, and may be exercised
separately or concurrently, or in any combination, and pursuit of any one or
more of such remedies shall not constitute an election of remedies which shall
exclude any other remedy available to Landlord.
25.5 NON-WAIVER. Landlord's forbearance in pursuing or exercising
one or more of its remedies shall not be deemed or construed to constitute a
waiver of any Event of Default or any remedy, and no waiver by Landlord of any
right or remedy on one occasion shall be construed as a waiver of that right or
remedy on any subsequent occasion or as a waiver of any right or remedy then or
thereafter existing. No failure of Landlord to pursue or exercise any of its
rights or remedies or to insist upon strict compliance by the Tenant with any
term or provision of this Lease, and no custom or practice at variance with the
terms of this Lease, shall constitute a waiver by Landlord of the right to
demand strict compliance with the terms and provisions of this Lease.
ARTICLE XXVI - MISCELLANEOUS
26.1 NO PARTNERSHIP. Nothing contained in this Lease shall be
deemed or construed to create a partnership or joint venture of or between
Landlord and Tenant, or to create any other relationship between the parties
hereto other than that of Landlord and Tenant.
26.2 NO REPRESENTATIONS BY LANDLORD. Neither Landlord, Landlord's
property manager, or any agent or employee of Landlord has made any
representations or promises with respect to the Leased Premises or Building
except as set forth in this Lease, and no rights, privileges, easements or
licenses are acquired by Tenant except as herein expressly set forth.
26.3 WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on or in respect to any matter whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant hereunder, Tenant's use of occupancy of the Leased Premises,
and/or any claim of injury or damage.
26.4 SEVERABILITY OF PROVISIONS. If any clause or provision of this
Lease shall be determined to be illegal, invalid or unenforceable under the
present or future laws effective during the Term hereof, then and in that event
it is the intention of the parties that the remainder of this Lease shall not be
affected by the invalid clause and shall be enforceable to the fullest extent of
the law, and it is also the intention of the parties to this Lease that in place
of any such
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clause or provision that is illegal, invalid, or unenforceable there be added as
a part of his Lease a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
26.5 INTERIOR CONSTRUCTION. Unless the Leased Premises are leased
"as is", the construction of the Tenant's space, including any Tenant finish or
improvements shall be completed pursuant to Exhibits C and D.
26.6 RELOCATION OF LEASED PREMISES. Landlord shall not have the
right to relocate Tenant at any time.
26.7 BENEFITS AND BURDENS. The provisions of this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and each of
their respective representatives, permitted successors and permitted assigns.
Landlord shall have the right, at any time and from time to time, to freely and
fully assign all or any part of its interest under this Lease for any purpose
whatsoever. Neither Landlord nor any owner of any interest in Landlord whether
disclosed or undisclosed, shall be under any personal liability with respect to
any of the provisions of this Lease. If Landlord is in breach or default with
Tenant's obligations under or in connection with this Lease or otherwise, Tenant
shall look solely to the equity of Landlord in the Leased Premises for the
satisfaction of Tenant's remedies.
26.8 LANDLORD'S LIABILITY. The Obligations of the Landlord under
this Lease do not constitute personal obligations of Landlord or of the
individual members, partners, joint venturers, directors, officers, shareholders
or beneficial owners of the Landlord, and Tenant shall look solely to the
Building and to no other assets of the Landlord for satisfaction of any
liability in respect to this Lease. Tenant will not seek recourse against
Landlord or such individual entities or such other assets for such satisfaction.
As used in this Lease, the term "Landlord" means only the current owner or
owners of the fee title to the Leased Premises or the leasehold estate under a
ground lease of the Leased Premises at the time in question. Any Landlord who
transfers its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee, by actual
transfer or appropriate credits, all funds previously paid by Tenant if such
funds have not yet been applied under the terms of this Lease.
26.9 BROKERAGE. This Lease has been negotiated through the agency
of Insignia/ESG and The Irving Group. Tenant warrants and represents to Landlord
that The Irving Group solely represented Tenant's interests in this Lease and
that no other brokers were involved with the leasing of the Leased Premises or
the negotiation of this Lease or is entitled to any commission in connection
herewith. Tenant agrees to indemnify and hold Landlord harmless against any
other claims (including court costs and reasonable attorneys' fees) for
commissions by any other brokers. Landlord shall pay all commissions or
compensation to Insignia/ESG and The Irving Group pursuant to a separate
agreement.
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26.10 RECORDING. Either Landlord or Tenant may record this Lease at
the sole expense of the party requiring such recording. Either party shall, upon
request of the other party, execute, acknowledge and deliver a short-form
memorandum of this Lease for recording purposes.
26.11 GOVERNMENTAL SURCHARGE. Tenant agrees to pay as Additional
Rent upon demand, its pro rata share of any parking charges, regulatory fees,
utility surcharges, or any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations, or interpretations
thereof, promulgated by any federal, state, municipal or local government
authority in connection with the use or occupancy of the Leased Premises or the
parking facilities serving the Leased Premises. Tenant's pro rata share is to be
based upon the square footage set forth in Section 3.4 of this Lease.
26.12 SURRENDER OF PREMISES. Upon termination of this Lease, by
expiration of Term, or otherwise, Tenant shall redeliver to Landlord the Leased
Premises broom clean and in good order and condition, ordinary wear and tear and
damage by casualty excepted. Tenant shall remain liable for non-consensual
holdover rent until the Leased Premises shall be returned in such order to
Landlord.
26.13 INTERPRETATION. The captions of the Sections and Articles of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the contents of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Leased Premises with Tenant's expressed
or implied permission.
26.14 SPECIAL PROVISIONS. [INTENTIONALLY OMITTED]
26.15 ENTIRE AGREEMENT. It is understood that there .are no oral
agreements between the parties hereto affecting this Lease, and this Lease
supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understanding, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none hereof shall be used to interpret or construe this Lease. All amendments to
this Lease shall be in writing and signed by all parties. All waivers must be in
writing and signed by the waiving party. Landlord's failure to enforce any
provision of this Lease or its acceptance of Rent shall not be a waiver and
shall not prevent Landlord from enforcing that provision or any other provision
of this Lease in the future. No statement on a payment check from Tenant or in a
letter accompanying a payment check shall be binding on Landlord. Landlord may,
with or without notice to Tenant, negotiate such check without being bound to
the conditions of such statement.
26.16 FORCE MAJEURE. Whenever a period of time is herein prescribed
for action to be taken by Landlord or Tenant, the party taking the action shall
not be liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to strikes, riots, acts
of God, shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control
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of such party; provided, however, in no event shall the foregoing apply to the
financial obligations of either Landlord or Tenant to the other under this
Lease, including Tenant's obligation to pay Basic Rent, Additional Rent or any
other amount payable to Landlord hereunder.
26.17 CHOICE OF LAW. The laws of the Commonwealth of Virginia shall
govern the validity, performance and enforcement of this Lease.
26.18 SUBMISSION OF LEASE. The submission of this Lease to Tenant
for examination does not constitute an offer to lease or a reservation of space.
No agreement between Landlord and Tenant relating to the leasing of the Leased
Premises shall become effective or binding until executed by both parties and
received by Tenant.
26.19 TIME OF ESSENCE. Time of the essence with respect to each of
Tenant's obligations hereunder.
26.20 FINANCIAL STATEMENTS. Tenant acknowledges that it has provided
Landlord with its financial statement(s) as a primary inducement to Landlord's
agreement to lease the Leased Premises to Tenant, and that Landlord has relied
on the accuracy of said financial statement(s) in entering into this Lease.
Tenant represents and warrants that the information contained in said financial
statement(s) is true, complete and correct in all material aspects, and agrees
that the foregoing representations shall be a precondition to this Lease. Tenant
and Guarantor further acknowledge that they have provided to Landlord financial
statements for the two months ending February 28, 1999.
At the request of Landlord, Tenant shall, (a) not later than ninety (90) days
following the close of each fiscal year of Tenant during the Term of this Lease,
or (b) at such other times when Landlord intends to sell the Building and thus
Tenant's and/or Guarantor's financial condition is relevant, furnish to Landlord
a balance sheet of Tenant and/or Guarantor as of the end of such fiscal year (or
most recent reporting period, if (b) is applicable) and a statement of income
and expense for the year then ended (or most recent reporting period, if (b) is
applicable), together with a certificate of the chief financial officer, owner
or partner of Tenant (and/or of Guarantor, if so required by Landlord) to the
effect that the financial statements have been prepared in conformity with
generally accepted accounting principles consistently applied and which fairly
present the financial condition and results of operations of Tenant and/or
Guarantor as of and for the periods covered. If Tenant or Guarantor is or
becomes a publicly-held company, Tenant shall not be required to disclose
financial information to Landlord other than at the time and in the form and
content as is made available by Tenant or Guarantor to the public pursuant to
applicable securities laws and regulations. In the event any transfer occurs (as
permitted by Article XI), the transferee shall, within ten (10) days of such
transfer, and at applicable times thereafter, provide financial statements in
the form required by this paragraph.
44
<PAGE> 52
ARTICLE XXVII - GUARANTY
The Guarantor on behalf of itself and its successors and assigns,
hereby unconditionally guarantees to Landlord, its successors and assigns, the
full performance and observance of all the covenants, terms, conditions and
agreements required to be performed and observed by the Tenant, its successors
and assigns, under the Lease. Guarantor expressly agrees that (a) the validity
of this guaranty and the obligations of the Guarantor hereunder shall in no way
be terminated, affected or impaired by reason of the assertion by Landlord
against the Tenant of any of the rights or remedies reserved to Landlord
pursuant to the provisions of the Lease, all of which may be pursued or carried
out without notice to Guarantor, (b) this Guaranty shall remain and continue in
full force and effect as to any amendment, modification, renewal or extension of
the Lease made by the Tenant, to all of which the undersigned hereby consent in
advance, (c) no assignment, sublease or transfer of the Lease shall operate to
extinguish or diminish the liability of the undersigned under this Guaranty
unless otherwise agreed to by Landlord or any successor landlord, and (d) this
Guaranty is direct, immediate and primary and is one of payment and performance,
and not just collection, and the obligations of Guarantor hereunder shall not be
affected by any bankruptcy, arrangement, reorganization or similar proceedings
for release of debtors under federal or state law affecting the tenant, or its
successors and assigns.
[SIGNATURES ON NEXT PAGE]
45
<PAGE> 53
IN WITNESS WHEREOF, these presents have been executed as of the day and
year first above written.
LANDLORD:
KDC-Dulles Tech, LLC Member
By: KOLL METROPOLITAN, LLC, Sole
By: /s/ Martin Krupoff
------------------------------------
Name: Martin Krupoff
-------------------------------
Title: Authorized Representative
------------------------------
By: /s/ Cary M. Euwer, Jr.
------------------------------------
Name: Cary M. Euwer, Jr.
-------------------------------
Title: Authorized Representative
------------------------------
DATE: 5/26/99
---------------------------------------
TENANT:
Net 2000 Communications Real Estate, Inc.
By: /s/ Donald E. Clarke
-----------------------------------------
Name: Donald E. Clarke
---------------------------------------
Title: CFO
--------------------------------------
DATE: 5/17/99
---------------------------------------
GUARANTOR:
NET 2000 COMMUNICATIONS, INC.
By: /s/ Donald E. Clarke
-----------------------------------------
Name: Donald E. Clarke
---------------------------------------
Title: CFO
--------------------------------------
DATE: 5/17/99
---------------------------------------
46
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF NET2000 COMMUNICATIONS, INC.
Net2000 Communications Holdings, Inc., a Delaware corporation
Net2000 Investments, Inc., a Delaware corporation
Net2000 Communications Group, Inc., a Delaware corporation
Net2000 Communications Capital Equipment, Inc., a Delaware corporation
Net2000 Communications Services, Inc., a Delaware corporation
Net2000 Communications Real Estate, Inc. , a Delaware corporation
Net2000 Communications of Virginia, L.L.C., a Virginia limited liability company
<PAGE> 1
Exhibit 23. 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated November 19, 1999, in the Registration Statement (Form
S-1 No. 333-______) and related Prospectus of Net2000 Communications, Inc.
dated December 2.
/s/ Ernst & Young LLP
McLean, Virginia
December 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NET2000
COMMUNICATIONS, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED SEPTEMBER
30, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,007,081
<SECURITIES> 0
<RECEIVABLES> 7,136,601
<ALLOWANCES> (1,660,000)
<INVENTORY> 0
<CURRENT-ASSETS> 21,222,350
<PP&E> 52,580,898
<DEPRECIATION> (2,957,437)
<TOTAL-ASSETS> 74,101,758
<CURRENT-LIABILITIES> 17,467,086
<BONDS> 0
0
75,180,969
<COMMON> 80,923
<OTHER-SE> (53,376,445)
<TOTAL-LIABILITY-AND-EQUITY> 74,101,758
<SALES> 18,669,796
<TOTAL-REVENUES> 18,669,796
<CGS> 0
<TOTAL-COSTS> 15,497,597
<OTHER-EXPENSES> 28,204,165
<LOSS-PROVISION> 440,488
<INTEREST-EXPENSE> 1,051,812
<INCOME-PRETAX> (22,033,388)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,033,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,033,388)
<EPS-BASIC> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
