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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2000
REGISTRATION NO. 333-96223
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BROADBANDNOW, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7370 75-2851160
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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1440 CORPORATE DRIVE
IRVING, TEXAS 75038
(972) 650-6900
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
JAMES R. PRICE, CHAIRMAN
MATTHEW HUTCHINS, SR., PRESIDENT & CEO
BROADBANDNOW, INC.
1440 CORPORATE DRIVE
IRVING, TEXAS 75038
(972) 650-6900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
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<S> <C>
MARK ZVONKOVIC, ESQ. L. STEVEN LESHIN, ESQ.
KING & SPALDING JENKENS & GILCHRIST, P.C.
1185 AVENUE OF THE AMERICAS 1445 ROSS AVENUE
NEW YORK, NEW YORK 10036 DALLAS, TEXAS 75202
(212) 556-2100 (214) 855-4500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $0.001 par value.............................. $115,000,000 $30,360
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
(2) Previously paid with initial filing.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS 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 IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 21, 2000
PROSPECTUS
SHARES
BroadbandNOW, INC. [LOGO]
(FORMERLY I(3)S, INC.)
COMMON STOCK
---------------------------
This is an initial public offering of shares of common stock of
BroadbandNOW, Inc. We are selling all of the shares of common stock
offered under this prospectus.
We expect the initial public offering price to be between $ and $
per share. Currently, no public market exists for our shares. Application has
been made for quotation of the common stock on the Nasdaq National Market under
the symbol "BBNW."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
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<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
---------------------------
The underwriters may also purchase up to an additional shares at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus to cover over allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York on ,
2000.
---------------------------
BEAR, STEARNS & CO. INC.
CHASE H&Q
JEFFERIES & COMPANY, INC.
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 16
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Unaudited Pro Forma Consolidated Financial Information...... 19
Selected Historical Consolidated Financial Data............. 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 31
Management.................................................. 49
Principal Stockholders...................................... 59
Certain Relationships and Related Party Transactions........ 62
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 71
Underwriting................................................ 73
Experts..................................................... 76
Legal Matters............................................... 76
Where You Can Find More Information......................... 76
Glossary of Terms........................................... 77
Index to Consolidated Financial Statements.................. F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE,
AND THE UNDERWRITERS, HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY,
SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THAT DATE.
We have included definitions of technical terms important to your
understanding of our business under "Glossary of Terms" on page 77.
(ii)
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including our consolidated
financial statements and related notes, and consider the information set forth
under "Risk Factors" before making an investment decision. Unless we indicate
otherwise, the information set forth in this prospectus includes reference to
our subsidiary prior to our reincorporation in Delaware and assumes a two for
one stock split and the conversion of all of our preferred stock, Class B common
stock and Class C common stock into common stock to be effected on March 31,
2000.
OUR COMPANY
We provide high-speed, high-bandwidth Internet access and customized
broadband content and applications under the BroadbandNOW(TM) tradename. We
provide these data services to our subscribers via our private, national
Internet protocol network which we manage on an end-to-end basis to ensure peak
performance. By utilizing multiple broadband access technologies, including
cable modem, xDSL, Ethernet and wireless, we connect subscribers directly to our
network. Our mission is to provide our subscribers with the "always on, always
fast, always fun(TM)" experience of BroadbandNOW(TM) at data transmission speeds
substantially faster than typical dial-up connections.
We have established and are pursuing strategic relationships with service
partners to gain access more rapidly to potential subscribers and deliver our
services. Our service partners currently include:
- utility companies, such as Northern States Power through its
communications subsidiary, Seren Innovations;
- property managers and owners and real estate investment trusts, or REITs,
such as Archstone Communities, AvalonBay Communities, Camden Property and
Forest City Residential; and
- private cable operators, or PCOs, such as Direct Digital Communications,
Global Interactive and GTE Media Ventures.
We also intend to pursue service partner relationships with other emerging data
communications providers such as multiple system cable operators. As part of our
service partner agreements, which currently average seven years in duration, we
share both in the funding of capital and operating expenditures and in the
revenue generated. As of December 31, 1999, we had executed master service
agreements with our service partners that cover approximately 600,000 potential
passings and obtained approximately 2,300 broadband subscribers for our
BroadbandNOW(TM) service from the approximately 39,000 passings constructed at
that time.
Our product offering is based upon the premise that sustainable,
high-performance, broadband Internet access requires a high-capacity, scalable,
national network architecture and server platform to alleviate public Internet
bottlenecks and enable true end-to-end network management capabilities. As such,
we have designed and deployed our own private, national Internet protocol
network that currently has 25 points-of-presence, or POPs, serving 26 markets.
Our network is managed on an end-to-end basis, 24 hours a day, seven days a week
from our network operations center in Dallas, Texas. Our network is scalable to
OC-48 and we expect to have 47 POPs, serving 48 markets, covering 18,000 route
miles by the end of 2000. Through strategic affiliations with Adaptive
Broadband, Lucent Technologies and Nortel Networks, we have developed certain
customized network solutions that ensure consistent quality and interoperability
between our private, national network infrastructure and the multiple broadband
access technologies we use for "last mile" access, which is the local portion of
our network that connects subscribers' premises to our POP. Lucent Technologies
and Nortel Networks are investors in our company with a combined equity
investment of $30 million.
A key part of our strategy is to provide our subscribers with content
enhanced for broadband connectivity. Access to this enhanced content is
initiated through our integrated BroadbandNOW(TM) launch
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screen where we present internally developed, as well as aggregated, broadband
content. Through our directPEER(TM) program we aggregate sources of broadband
content by connecting the servers of other providers and aggregators of
broadband content directly to our private network and subscribers. To date we
have established a directPEER(TM) partnership with Yahoo! and are pursuing
agreements with other broadband content providers. In addition to our
directPEER(TM) program, we also work closely with a number of quality software
vendors, such as Microsoft, and broadband content providers, such as Liberty
Media, to develop the key components of our product offering that enable us to
more rapidly deliver broadband access, applications and content to our
subscribers. Liberty Media and Microsoft are investors in our company with a
combined equity investment of $40 million.
People are increasingly using the Internet for work, personal
communications, commerce and leisure. The growth in the number of subscribers,
the increase in Internet usage, the growth in e-commerce business and the
development of bandwidth-intensive applications are imposing burdens on the
current Internet infrastructure, resulting in primarily slower transmission
speeds and reduced network availability. The increasing demand by subscribers
for reasonably priced high-speed service that can handle bandwidth-intensive
applications is projected to cause the market for broadband Internet service to
grow rapidly.
Our Strategy. We intend to become a leading provider of high-speed,
high-bandwidth Internet access and broadband content and applications. To
achieve this objective, we intend to:
- Establish strategic relationships with service partners nationwide;
- Provide high quality services and a full range of high-speed data
solutions for our service partners;
- Utilize and leverage multiple broadband access technologies for "last
mile" access;
- Continue the deployment of our private, nationwide Internet protocol
network;
- Link directPEER(TM) content partners directly to our private, nationwide
Internet protocol network;
- Develop, aggregate and deliver additional broadband content and
applications;
- Invest in our BroadbandNOW(TM) brand; and
- Leverage our key supplier relationships to create customized technology.
------------------------------
Our principal executive offices are located at 1440 Corporate Drive,
Irving, Texas 75038, and our telephone number is (972) 650-6900. Our websites
are located at http://www.broadbandnow.net and http://www.bbnow.com. Information
contained on our websites is not a part of this prospectus. On January 6, 2000,
the Company formed a Delaware holding company, BroadbandNOW, Inc., from the
existing capital structure of its former company, I 3S, Inc. All company
operations will continue to be conducted in the Texas corporation, which has
been renamed BroadbandNOW Texas, Inc. and which is a wholly-owned subsidiary of
BroadbandNOW, Inc.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary historical consolidated
financial and other data as of and for each of the three years ended December
31, 1997, 1998 and 1999; and consolidated balance sheet data as of December 31,
1999, pro forma for the private placement of our Series A redeemable convertible
preferred stock subsequent to December 31, 1999, and as adjusted for the
consummation of this offering.
The following summary consolidated financial data has been derived from our
audited consolidated financial statements and the notes to those statements
included in this prospectus beginning on page F-1. You should read this
information together with the information under "Selected Historical
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." You should not assume that the
summary consolidated financial data is indicative of our future performance.
Our revenue streams were largely derived from our systems integration
business through December 31, 1998. Beginning in late 1998, we strategically
de-emphasized our systems integration business and began to focus on our
Internet subscriber services. Therefore, results for these periods are not
directly comparable and are not indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1998 1999
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(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Internet subscriber services.............................. $ -- $ 17 $ 444
All other revenues........................................ 3,801 1,338 464
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Total revenues.............................................. 3,801 1,355 908
Operating expenses.......................................... 4,615 5,073 16,797
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Operating loss.............................................. (814) (3,718) (15,889)
Net loss attributable to common stockholders................ (883) (3,775) (17,492)
Basic and diluted net loss per share........................ $(0.06) $ (0.20) $ (0.75)
====== ======== ========
Shares used to compute basic and diluted net loss per share
(in thousands)............................................ 14,695 19,164 23,437
====== ======== ========
OTHER DATA(1):
Passings.................................................... -- 127,000 613,000
Passings constructed........................................ -- 2,762 39,127
Subscribers................................................. -- 84 2,313
Penetration................................................. -- 3.0% 5.9%
</TABLE>
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<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 52,802 $ 76,388
Working capital........................................... 45,764 69,350
Total assets.............................................. 76,735 100,321
Long-term debt and capital leases......................... 14,159 14,159
Redeemable convertible preferred stock.................... 66,915 90,501
Stockholders' equity (deficit)............................ (12,431) (12,431)
</TABLE>
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- ---------------
(1) "Passings" include all of the doors for potential subscribers which, through
our existing agreements with our service partners, we have the right to be
granted access to and/or the right to construct facilities to provide our
services. We do not include passings attributable to service partners who do
not have the financial strength to construct the necessary infrastructure to
allow us to provide high-speed data services. "Passings constructed"
identifies the number of doors for potential subscribers where we have built
out the infrastructure necessary to provide high-speed data services within
24 hours of receiving a request to do so. "Subscribers" is the number of
customers that have subscribed to our service. "Penetration" is equal to the
number of subscribers divided by the passings constructed.
(2) The "pro forma" column reflects the issuance of 1,265,723 shares of Series A
redeemable convertible preferred stock issued after December 31, 1999, in
exchange for approximately $23.6 million in cash net of expenses.
(3) The "pro forma as adjusted" column reflects our capitalization as of
December 31, 1999, with adjustments to give effect to the stock split to be
effected on March 31, 2000 and the conversion of all shares of outstanding
preferred stock, including those issued after December 31, 1999, into
9,693,690 shares of common stock upon the closing of this offering, and the
receipt of the estimated proceeds from the sale of our common stock offered
hereby (after deducting the estimated offering expenses and underwriting
discounts and commissions).
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RISK FACTORS
Investing in our common stock involves risks. You should carefully consider
the following risks together with the other information contained in this
prospectus before deciding to buy our common stock. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also could harm our business, financial condition and operating results.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE AND FORECAST OUR
BUSINESS.
We have only a limited operating history in providing high-speed data
services over the Internet. Prior to 1999, most of our operations and our
revenues related to our systems integration operations, which we have
strategically de-emphasized. We have historically incurred net losses. As a
result, forecasting operating results for our Internet services is difficult and
our historical results are not indicative of our future results. The profit
potential of our business model is unproven. We have difficulty predicting
whether the pricing models for our Internet services will prove to be viable,
whether demand for our Internet services will materialize at the prices we
charge, or whether current or future pricing levels will be sustainable. If such
pricing levels are not achieved or sustained, or if our services do not achieve
or sustain broad market acceptance, our business will be significantly harmed.
OUR QUARTERLY PERFORMANCE MAY BE DIFFICULT TO FORECAST AND OUR ACTUAL
PERFORMANCE MAY FLUCTUATE.
Our quarterly revenues and operating results are difficult to forecast even
in the short term. A significant portion of our expenses is fixed in advance
based in large part on future revenue forecasts. If revenue is below
expectations in any given quarter, the adverse impact of the shortfall on our
operating results may be magnified by our inability to adjust spending to
compensate for the shortfall.
In addition, our actual operating results may fluctuate significantly due
to a variety of factors, many of which are outside our control. Factors that may
affect our operating results include:
- the speed with which third parties are able to deliver local and national
telecommunications circuits;
- the condition of the "last mile" infrastructure and our ability and that
of our service partners to upgrade or maintain that infrastructure and
the timing thereof;
- our effectiveness and that of our service partners in marketing our
service;
- the rate at which customers subscribe to our Internet services and the
prices subscribers pay for these services;
- changes in the revenue splits between us and our service partners; and
- the overall market demand for e-commerce and broadband content and
applications in general.
WE HAVE INCURRED SIGNIFICANT NET LOSSES, EXPERIENCED NEGATIVE CASH FLOWS AND
ACCUMULATED A SIGNIFICANT DEFICIT.
We have incurred net losses in each fiscal year since our formation. As of
December 31, 1999, we had an accumulated deficit of $22.7 million. In addition,
we currently intend to increase our capital expenditures and operating expenses
in order to expand our network to support additional expected subscribers in
existing and future markets and to market and provide services to a growing
number of potential subscribers. As a result, we expect to incur additional
substantial operating and net losses and there is no assurance that we will ever
achieve favorable operating results or profitability. See "Business -- Our
Business Strategy."
OUR FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS COULD HARM OUR BUSINESS.
Our future performance depends, in part, upon the ability of senior
management, which, among other things, must manage growth effectively. We have
rapidly and significantly expanded our operations. We
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anticipate that further significant expansion will be required to grow our
subscriber base if we are to be successful in implementing our business
strategy. We may not be able to implement management information and control
systems in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. During 1998, we increased the number of employees from 31 to 46, and
as of March 15, 2000, we had further increased our total number of employees to
128. To manage the expected growth of our operations and personnel, we will be
required to:
- train, motivate and manage our sales and marketing, engineering,
technical and customer support employees;
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures; and
- install new management information systems.
If we are unable to manage growth effectively, our business will suffer.
WE RELY HEAVILY ON OUR SERVICE PARTNERS TO PROVIDE OUR SERVICES, AND OUR FAILURE
TO MAINTAIN THESE RELATIONSHIPS COULD HARM OUR BUSINESS.
We obtain access to subscribers through agreements with utility companies,
REITs and PCOs. Key service partners currently include Archstone Communities,
AvalonBay Communities, Cable Plus, Camden Properties, Direct Digital
Communications, Forest City Residential, Global Interactive, GTE Media Ventures,
Northern States Power, through its communications subsidiary Seren Innovations,
and OpTel. We rely upon our service partners in many areas, including, but not
limited to: marketing to potential subscribers; obtaining access to on-property
plant and equipment; and subscriber billing and collection. In addition,
transmission of the BroadbandNOW(TM) service over coaxial cable is dependent on
the availability of high-speed, two-way coaxial cable infrastructure. In some
cases, our service partners are required to pay for and complete the upgrade and
maintenance of the cable infrastructure so that we will be able to provide
consistently high performance and reliable service.
There are many risks related to our service partner arrangements, including
some that we may not have foreseen. For example, certain service partners have
reduced and/or delayed marketing efforts to potential subscribers due to
financial duress; delayed and, in some cases, limited our access to properties
for installation and maintenance; and delayed providing subscriber billing
information and remitting payment of our revenue share to us. These delays
adversely impact the speed at which we install new properties and market to and
commence service for new subscribers, each of which could have a material
adverse effect on our financial results. Certain of our service partners have
limited experience with these upgrades, and these investments may place a
significant strain on their financial, managerial, operating and other
resources, especially since most of our PCO service partners are highly
leveraged or under financial duress. In addition, under certain circumstances
our service partner agreements may be terminated, with liquidated damages
payable in some cases. It is difficult to assess the likelihood of future
occurrences of these and other related risks, including the lack of success of
the overall arrangement to meet both our objectives and those of our service
partners. If we fail to maintain these relationships or if our service partners
do not perform to our expectations, our ability to continue to provide our
service to existing subscribers, deploy our service to new subscribers and
generate revenues will be materially harmed.
WE MAY BE ADVERSELY IMPACTED BY THE FINANCIAL DIFFICULTIES OF OUR PCO SERVICE
PARTNERS.
Several of our PCO service partners are highly leveraged or under financial
duress. OpTel, for example, recently filed for protection under the U.S.
Bankruptcy Code. As part of its reorganization, OpTel has the option to accept
or reject our contract in its entirety at any point in time prior to
confirmation of its plan of reorganization, which currently has not been filed.
If OpTel rejects our contract, we would be permitted to terminate the contract
and approach the property owners directly. OpTel subscribers accounted for 31%
of 1999 Internet subscriber services revenues. In addition to potential delays
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in systems and infrastructure upgrades and maintenance as noted above, the
financial difficulties of our PCO service partners could adversely affect our
ability to construct additional passings under the current contracts and to
collect revenues from our subscribers. The failure of our service partners to
provide the necessary infrastructure to deploy our service or the rejection of
our contracts by our service partners may materially adversely affect our
business, operating results or financial condition.
WE FACE SIGNIFICANT COMPETITION FROM COMPETITORS THAT MAY LIMIT OUR ABILITY TO
GAIN ADDITIONAL MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE.
The markets for consumer and business Internet services and online content
are extremely competitive. We expect that competition will intensify in the
future. Many of our competitors and potential competitors, consisting of local
exchange carriers, long-distance carriers, Internet access and service providers
and Internet content and applications providers have substantially greater
financial, technical and marketing resources, larger subscriber bases, longer
operating histories, greater name recognition and more established relationships
with our customers and potential customers, advertisers and content and
applications providers than we. These competitors, such as AT&T, SBC
Communications, Excite@Home and others have announced plans to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and devote
substantially more resources to developing Internet services or online content
and applications than we. Additionally, America Online, the dominant dial-up
Internet service provider, has recently entered into an agreement to acquire
Time Warner. Time Warner owns a large cable infrastructure and substantial
entertainment and media content assets. The merged company will have the
capacity to market broadband services with Time Warner's content under AOL's
brand name, creating increasing competition from a dominant Internet service
provider. Also, there are other companies that compete with us for strategic
relationships with potential service partners. Furthermore, many of our
competitors are offering, or may soon offer, technologies that will attempt to
compete with some or all of our high-speed data service offerings. We may not
compete successfully against current or future competitors and the competitive
pressures we face may materially adversely affect our business, operating
results or financial condition. See "Business -- Competition."
WE DEPEND ON THIRD PARTIES FOR FIBER OPTIC TRANSPORT AND CO-LOCATION FACILITIES.
AN INABILITY TO CONTINUE TO OBTAIN ADEQUATE ACCESS TO TRANSMISSION FACILITIES OR
CO-LOCATION SPACE ON ACCEPTABLE TERMS COULD NEGATIVELY IMPACT OUR BUSINESS.
We depend on the availability of fiber optic transmission facilities from
third parties to connect our equipment within and between metropolitan areas and
for co-location facilities. These third party fiber optic carriers and providers
of co-location facilities include long distance carriers, incumbent carriers and
other competitive carriers. Many of these entities are, or may become, our
competitors. This approach includes a number of risks. For instance, we may be
unable to obtain and renew supply agreements at acceptable rates, terms and
conditions, including timeliness. We have in the past experienced supply
problems with certain of our fiber optic transport and co-location facilities'
suppliers, and they may not be able to meet our needs on a timely basis in the
future. Moreover, the fiber optic transport providers whose networks we lease
may be unable to obtain or maintain permits and rights-of-way necessary to
develop and operate existing and future networks. An inability to obtain
adequate and timely access to co-location space or transmission facilities on
acceptable terms and conditions could have a material and adverse effect on our
business, prospects, operating results and financial condition.
WE DEPEND ON THE DEVELOPMENT AND ACCEPTANCE OF HIGH-QUALITY, HIGH-SPEED
BROADBAND INTERNET CONTENT AND APPLICATIONS. THE LACK OF SUCH DEVELOPMENT OR
ACCEPTANCE COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION.
A key component of our strategy is to provide a more compelling interactive
experience to Internet users than the experience currently available from
dial-up Internet service providers and other online service providers. We
believe that, in addition to providing high-speed, high-performance Internet
access, we must also promote the development of and aggregation of high-quality
multimedia Internet content and
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applications. Our success in providing and aggregating such content and
applications, and our success in charging a premium for our service, is
dependent on the ability of content and applications providers to create and
support high-quality, high-speed multimedia Internet content and applications
and our ability to aggregate content and applications offerings in a manner that
subscribers find useful and compelling. Our ability to accomplish this will
depend on our ability and that of our competitors to develop a subscriber base
sufficiently large to justify investments in the development of such content and
applications by others. There is no assurance that we will be successful in
these endeavors. In addition, the market for high-quality multimedia Internet
content and applications is at an early stage of development and is rapidly
evolving, and there is significant competition among Internet service providers
and online service providers for aggregating such content and applications. If
the market fails to develop as expected or competition increases, or our content
and applications offerings do not achieve or sustain market acceptance, our
business, operating results and financial condition will be materially adversely
affected. See "Business -- Our Business Strategy" and "Business -- Our
Products."
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF THE INTERNET AND ON OUR ABILITY TO
SUCCESSFULLY ANTICIPATE THE FREQUENTLY CHANGING PREFERENCES OF OUR USERS. IF
SUCH GROWTH DOES NOT CONTINUE OR WE DO NOT RESPOND EFFECTIVELY TO SUCH CHANGES,
OUR REVENUES AND FINANCIAL CONDITION COULD BE HARMED.
Our business is unlikely to be successful if the use of the Internet and
specifically high-speed, broadband Internet applications, such as ours, does not
continue to increase. Similarly, our business may be adversely impacted if
concerns about privacy and security slow the expected growth in e-commerce. Even
if the popularity of the Internet and related high-speed, broadband Internet
applications does increase and e-commerce grows as expected, the success of our
service depends on our ability to anticipate and maintain content that appeals
to the frequently changing preferences of our subscribers. Any failure on our
part to successfully anticipate, identify or react to changes in styles, trends
or preferences of our subscribers would lead to reduced interest in and use of
the BroadbandNOW(TM) service and could materially and adversely affect our
business, operating results and financial condition.
WE CANNOT PREDICT THE ACCEPTANCE AND MAINTENANCE OF THE BROADBANDNOW(TM) BRAND.
OUR FAILURE TO DEVELOP AND MAINTAIN RECOGNITION OF OUR BRAND COULD PREVENT US
FROM ACHIEVING A PROFITABLE LEVEL OF REVENUES.
The development of the BroadbandNOW(TM) brand is important to our future
success. We believe that we must establish and maintain the BroadbandNOW(TM)
brand across our entire subscriber base to attract and expand that base. The
BroadbandNOW(TM) brand could be eroded by misjudgments in service offerings or a
failure to develop and maintain content that appeals to the evolving preferences
of our audience. The inability to establish or maintain the BroadbandNOW(TM)
brand successfully, or the incurrence of excessive expense in an attempt to
promote and maintain our brand, could materially and adversely affect our
business, operating results and financial condition and our ability to attract
subscribers. See "Business -- Our Business Strategy."
OUR SUCCESS DEPENDS ON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND FEATURES
BECAUSE WE ARE SUBJECT TO TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS,
WHICH MAY RENDER OUR SERVICES NONCOMPETITIVE OR OBSOLETE.
The markets for consumer and business Internet access services and online
content are characterized by rapid technological developments, frequent new
product and service introductions and evolving industry standards. The emerging
nature of these products and services and their rapid evolution will require
that we continually improve the performance, features and reliability of our
network, Internet content and consumer and business services, particularly in
response to offerings of new products or services by our competitors. In
addition, our new enhancements must meet the requirements of our current and
prospective users and must achieve significant market acceptance. We could also
incur substantial costs if we need to modify our service or infrastructure to
adapt to these changes. There can be no assurance that we will successfully
respond quickly, cost effectively and sufficiently to these developments.
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WE MAY REQUIRE ADDITIONAL CAPITAL TO COMPLETE OUR NETWORK BUILD-OUT AND TO FUND
OUR INFRASTRUCTURE, PRODUCT DEVELOPMENT AND OTHER NEEDS, AND AN INABILITY TO
OBTAIN SUCH CAPITAL COULD PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN.
As our business is still at an early stage, we must continue to make
significant investments in the development of our network infrastructure and
hire new personnel rapidly in anticipation of potential growth in our business.
We believe that the net proceeds from this offering, together with existing
cash, cash equivalents and capital lease financing, will be sufficient to fund
our aggregate capital expenditures and working capital requirements, including
operating losses, for the next 18 months. However, we may need to raise
additional funds if our estimates of working capital, capital expenditure or
lease financing requirements change or prove inaccurate, or if we are forced to
respond to unforeseen technological or marketing hurdles or to take advantage of
unanticipated opportunities. Over the longer term, it is likely that we will
require substantial additional funds to continue to fund our infrastructure
investment, product development, marketing, sales and customer support needs. We
may need to raise funds through public or private equity or debt financings.
If funds are raised through the issuance of equity securities, the
ownership percentage of our then-current stockholders will be diluted and the
holders of new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. If additional funds are
raised through a bank credit facility or the issuance of debt securities, the
holder of such indebtedness would have rights senior to the rights of the
holders of our common stock and the terms of this indebtedness could impose
restrictions on our ability to incur additional indebtedness and also on our
operations, which could impede the successful completion of our business plan.
There can be no assurance that any such funds will be available at the time or
times needed, or on terms acceptable to us. If adequate funds are not available,
or are not available on acceptable terms, we may not be able to continue our
network implementation, develop new products and services or otherwise respond
to competitive pressures. Such inability could have a material adverse effect on
our business, operating results and financial condition.
WE DEPEND ON THIRD PARTIES FOR KEY TECHNOLOGY AND SOFTWARE. IF WE ARE NOT ABLE
TO OBTAIN SUCH TECHNOLOGY AND SOFTWARE ON COMMERCIALLY ACCEPTABLE TERMS, OUR
FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.
We currently depend on a limited number of suppliers for certain key
technologies and software used to build and manage our network and offer our
services. In particular, we depend on:
- Adaptive Broadband for on-property wireless equipment;
- Hewlett-Packard for servers;
- Lucent Technologies for asynchronous transfer mode switches, access
concentrators and on-property equipment;
- Microsoft for server and browser software;
- Nortel Networks for on-property equipment and network POP equipment; and
- Vignette for profiling and content development software.
Although we believe that there are alternative suppliers for each of these
technologies, it could take a significant period of time to establish
relationships with alternative suppliers and substitute their technologies into
our network and products. In addition, we rely on software licensed from third
parties, including applications that are integrated with internally developed
software and used in our products. Most notably, we license content publishing
software, remote management software and Windows NT. These third-party
technology licenses may not continue to be available to us on commercially
reasonable terms, or at all, and we may not be able to obtain licenses for other
existing or future technologies that we desire to integrate into our products.
The loss of any of our relationships with these suppliers could materially
adversely affect our business, operating results and financial condition.
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IF WE CANNOT MAINTAIN THE SCALABILITY AND SPEED OF OUR NETWORK, POTENTIAL
CUSTOMERS WILL NOT SUBSCRIBE TO OUR SERVICES.
Due to the limited deployment of our services, the ability of our network
to connect and manage a substantial number of online subscribers at high
transmission speeds is unknown. We face uncertainties related to our network's
ability to be scaled to our expected subscriber levels while maintaining
superior performance. There is no assurance that our network will be able to
maintain such high-speed data transmission as the number of our subscribers
grows. Our failure to maintain high-speed data transmission would significantly
reduce consumer demand for our services and have a material adverse effect on
our business, operating results and financial condition.
SYSTEM FAILURES COULD CAUSE INTERRUPTIONS IN THE SERVICES WE PROVIDE.
Our operations are dependent upon our ability to support our highly complex
network infrastructure and avoid damage from fires, earthquakes, hurricanes,
floods, power losses, telecommunications failures and similar events. The
occurrence of a natural disaster or other unanticipated problems at our network
operations center or at a number of our network access points-of-presence could
cause interruptions in the services we provide. Additionally, failure of other
companies to provide the data communications capacity required by our network,
as a result of a natural disaster, operational disruption or any other reason,
could cause interruptions in the services we provide. Any damage or failure that
causes interruptions in our operations could materially and adversely affect our
business, operating results and financial condition. Our natural disaster
insurance excludes earthquakes and floods and may not cover all potential claims
of the foregoing types, or may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of our insurance coverage could have a material
adverse effect on our business, operating results and financial condition.
SECURITY BREACHES AND VIRUSES COULD HURT OUR BUSINESS.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Internet service providers and online service
providers have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Unauthorized access
could also potentially jeopardize the security of confidential information
stored in our computer systems or those of our subscribers, which might result
in liability to our subscribers, the loss of our current subscribers and the
possible deterrence of potential subscribers. Although we intend to continue to
implement industry-standard security measures, such measures have been
circumvented in the past, and there is no assurance that measures we implement
will not be circumvented in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, expenses, delays
or cessation of service to our subscribers, which could have a material adverse
effect on our business, operating results and financial condition. Our business
interruptions insurance may not cover all potential claims arising as a result
of viruses and other security breaches, or may not be adequate to indemnify us
for all liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of our insurance coverage could have a
material adverse effect on our business, operating results and financial
condition.
WE DEPEND ON KEY PERSONNEL WHO MAY LEAVE US AT ANY TIME AND SUCH A LOSS COULD
IMPEDE OUR SUCCESS.
Our success will depend on the continued employment of our key executive
officers. The loss of the services of any of our executive officers,
particularly our President and Chief Executive Officer, Matthew Hutchins, Sr.,
could disrupt our day-to-day operations, result in delays in the deployment of
our private, national Internet protocol network, impede our efforts to maintain
or form new relationships with service partners and to obtain new subscribers
and otherwise harm our business. We currently have "key man" insurance on the
following executives officers: Messrs. Matthew Hutchins, Sr., Charles W. (Bo)
Price and Daniel A. Gillett. Despite such insurance, the death or departure of
any of our key personnel could have a material adverse effect on our business,
operating results and financial condition. See "Management -- Employment
Agreements."
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IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
Our growth will require us to hire and train additional management,
technical and marketing personnel. There is intense competition for management,
technical and marketing personnel in the areas of our activities. Recruiting
qualified personnel is an intensely competitive and time-consuming process. We
may not be able to attract and retain the necessary personnel to accomplish our
business objectives, and we may experience constraints that will adversely
affect our ability to deploy our service in a timely fashion or to support our
users and operations. We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel. The failure to attract and retain
additional key employees could have a material adverse effect on our business,
operating results and financial condition.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY
AND WE MAY FACE CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY.
Despite the precautions we take to protect our technology and other
proprietary information, the possibility exists for a third party to copy or
otherwise obtain and use our products, services or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright, trademark and trade secret protection may be unavailable or
limited in certain foreign countries. The global nature of the Internet makes it
virtually impossible to control the ultimate destination of our content
offerings. Policing unauthorized use of our content offerings is difficult.
There is no assurance that the steps we take will prevent misappropriation or
infringement of our technology. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition. See "Business -- Intellectual Property."
WE MAY BE SUBJECT TO LIABILITY FOR PRODUCTS SOLD THROUGH OUR NETWORK.
We have had a very limited experience in the sale of products online and
the development of relationships with manufacturers or suppliers of such
products. Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. Liability claims
resulting from our sale of products could require us to spend significant time
and money in litigation or to pay significant damages. As with other online
service providers, patent claims could also be asserted against us based upon
our services or technologies. Although we carry general liability insurance, our
insurance may not cover potential claims of the foregoing types, or may not be
adequate to indemnify us for all liability that may be imposed, including losses
caused by our sale of defective products. Any imposition of liability that is
not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on our business, operating results and financial
condition.
WE MAY FACE LIABILITY FOR DEFAMATORY OR INDECENT CONTENT.
The law relating to liability of Internet service providers and online
service providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made to
impose liability on Internet and online service providers under both United
States and foreign law for defamation, the carriage of indecent materials or
other theories based on the nature and content of the materials disseminated
through their networks. Several lawsuits seeking to impose such liability are
currently pending against other companies. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon Internet and
online service providers of potential liability for information carried on or
disseminated through their systems could require us to implement measures to
reduce our exposure to this liability. This may require that we expend
substantial resources or discontinue offering certain services or products. The
increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could impact the growth of Internet use. One or more
of these factors could significantly harm our business. Our general liability
insurance may not cover potential claims of the foregoing types, or may not be
adequate to
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indemnify us for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of our insurance coverage could
have a material adverse effect on our business, operating results and financial
condition.
WE MAY BE SUBJECT TO GOVERNMENT REGULATION SUCH AS CABLE UNBUNDLING PROPOSALS,
THE APPLICATION OF TELECOMMUNICATION LAWS TO SERVICES PROVIDED OVER THE INTERNET
AND RULES GOVERNING THE USE OF THE MICROWAVE FREQUENCIES OVER WHICH OUR
EQUIPMENT AND WIRELESS COMMUNICATIONS SYSTEMS ARE DEPLOYED, ALL OF WHICH COULD
ADVERSELY AFFECT OUR BUSINESS BY REDUCING POTENTIAL REVENUES OR RAISING OUR
COSTS.
Although our services are not directly subject to current regulations of
the Federal Communications Commission or any other federal or state
communications regulatory agency, radio communications are subject to such
regulation and changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes that, directly or indirectly,
affect telecommunications costs, limit usage of subscriber-related information
or increase the likelihood or scope of competition from the regional bell
operating companies or other telecommunications companies, could affect the
prices at which we sell our services. See "Business -- Competition."
Radio communications are subject to regulation by United States and foreign
laws and international treaties. Among these requirements are Federal
Communications Commission rules governing the operation of Unlicensed National
Information Infrastructure, or U-NII, devices in the 5.25 GHz and 5.725 GHz to
5.825 GHz frequency bands, and governing operation of other devices in the 2.4
GHz frequency band, which has been allocated by the Federal Communications
Commission for use by Industrial, Scientific and Medical, or ISM, equipment. Our
products and wireless communications systems deployed in the U-NII and ISM bands
must conform to domestic and international requirements established to avoid
interference among users of microwave frequencies and to permit interconnection
of equipment. Each of the transceiver models which we purchase from our vendors
must be certified by the Federal Communications Commission. In addition,
domestic and international authorities regulate the allocation of the radio
frequency spectrum. Products to support new services can be marketed only if
permitted by suitable frequency allocations and regulations, and the process of
establishing new regulations is complex and lengthy. We may experience
difficulty obtaining allocation of spectrum and may experience spectral
interference by other radio frequency sources. A delay or failure to obtain
suitable allocations of available spectrum could have a material adverse effect
on our business. We may also face future regulation or other restrictions on the
use of the spectrum in which we operate. Any such regulation or restrictions
could have a material adverse effect on our business. See
"Business -- Government Regulation."
UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON OUR SERVICES MAY
INCREASE OUR PAYMENT OBLIGATIONS.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. A recently passed law places a
temporary moratorium on certain types of taxation on Internet commerce. We
cannot predict the effect of any current or future attempts to tax or regulate
commerce over the Internet. Any legislation that substantially impairs the
growth of e-commerce could harm our business.
PROPOSED FEDERAL AND STATE LEGISLATION WITH RESPECT TO INTERNET PRIVACY-RELATED
ISSUES MAY ADVERSELY IMPACT OUR BUSINESS.
Federal and state legislators are currently studying online privacy-related
issues. In particular, they are examining Internet sites' use of "cookies", or
identifiers, that enable sites, including advertisers, to track usage patterns
by compiling data and to deliver customized content to users. The Federal Trade
Commission and certain states' attorneys general are investigating such
practices as potentially unfair and deceptive practices. In addition, other
Internet privacy concerns, such as protecting the confidentiality of medical
records, personal finances and credit card numbers, are also being reviewed. We
have security
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measures in place to maintain the confidentiality of certain subscriber
information; however, our security measures may not prevent security breaches by
people who desire to steal or misuse personal or confidential information of or
about our subscribers. In addition, our own use of subscriber information could
be the subject of government investigation or regulation in the future. We
cannot predict the effect of any legislation to safeguard privacy on the
Internet or our potential liability thereunder. Any legislation that
substantially impairs the growth of e-commerce could cause our sales to decline
and have a material adverse affect on our business.
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We have not paid any dividends on our common stock, and we do not intend to
pay cash dividends in the foreseeable future on our common stock. We do have
dividend requirements on our preferred stock and have paid cash dividends of
approximately $38,000 through December 31, 1999, and have accrued additional
dividends of $1.8 million through December 31, 1999. All of the existing
preferred stock will convert automatically to common stock upon the consummation
of this offering.
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE COULD CAUSE AN INTERRUPTION IN, OR A
FAILURE OF, OUR NORMAL BUSINESS ACTIVITIES AND OPERATIONS.
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
was reached. We have not yet experienced any system problems related to the year
2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance" for a more detailed discussion.
CERTAIN DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS CONTROL A SIGNIFICANT
PORTION OF OUR VOTING STOCK AND MAY HAVE INTERESTS WHICH ARE ADVERSE TO YOURS.
You should be aware that James R. Price, our Chairman of the Board, his
brother, Charles W. (Bo) Price, a director and our Executive Vice President, and
Geneva Associates, one of our principal stockholders and a company whose
member-managers currently include two of our directors, and its affiliates will
control a total of approximately % of our voting stock immediately
following the completion of this offering, or approximately % if the
underwriters exercise their over-allotment option in full. Further, following
this offering, I(3)S Funding I, an affiliate of Geneva Associates, will have the
right to nominate one person to be a director and have us solicit proxies on its
behalf. As a result, the Prices and Geneva Associates and its affiliates will
have substantial influence over the outcome of actions requiring the approval of
our stockholders, including elections of our board of directors, and they may
make decisions that are adverse to your interests. See "Certain Relationships
and Related Party Transactions" and "Management -- Election of Certain
Directors."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THE
OFFERING, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND DEPRESS OUR STOCK PRICE.
We expect to use the net proceeds of this offering, over time, for general
corporate purposes, including working capital and capital expenditures. We may
also use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, product lines or products. Our management will have
the discretion to allocate the net proceeds to uses that stockholders may not
deem desirable. There can be no assurance that the net proceeds can or will be
invested to yield a return. See "Use of Proceeds."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF OUR
COMMON STOCK.
The price you pay for our common stock will be substantially higher than
the book value of the common stock. As a result, you will experience immediate
and substantial dilution in the pro forma combined net tangible book value of
your shares of $ per share, while our current stockholders will receive a
material increase in the pro forma combined net tangible book value of their
shares of common
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stock. The aggregate unrealized gain to be incurred by our current stockholders
as a result of this offering is . See "Dilution" for a more detailed
discussion.
IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, WE WOULD BECOME SUBJECT
TO SUBSTANTIAL REGULATION WHICH WOULD INTERFERE WITH OUR ABILITY TO CONDUCT OUR
BUSINESS ACCORDING TO OUR BUSINESS PLAN.
As a result of our previous financings, we have substantial cash, cash
equivalents and short-term investments. We plan to continue investing the excess
proceeds of these financings in short-term instruments consistent with prudent
cash management and not primarily for the purpose of achieving investment
returns. Investment in securities primarily for the purpose of achieving
investment returns could result in our being treated as an "investment company"
under the Investment Company Act of 1940. The Investment Company Act requires
the registration of companies that are primarily in the business of investing,
reinvesting or trading securities or that fail to meet certain statistical tests
regarding their composition of assets and sources of income even though they
consider themselves not to be primarily engaged in investing, reinvesting or
trading securities.
We believe that we are primarily engaged in a business other than investing
in or trading securities and, therefore, are not an investment company within
the meaning of the Investment Company Act. If the Investment Company Act
required us to register as an investment company, we would become subject to
substantial regulation with respect to our capital structure, management,
operations, transactions with affiliated persons and other matters. Application
of the provisions of the Investment Company Act to us would materially and
adversely affect our business, prospects, operating results and financial
condition.
A THIRD PARTY COULD BE PREVENTED FROM ACQUIRING YOUR SHARES OF STOCK AT A
PREMIUM TO THE MARKET PRICE BECAUSE OF OUR ANTI-TAKEOVER PROVISIONS.
There are provisions in our restated certificate of incorporation and
bylaws that may make it more difficult for a third party to acquire, or attempt
to acquire, control of us, even if a change in control would result in the
purchase of your shares at a premium to the market price. In addition, our
rights agreement contains rights that have potential anti-takeover effects. The
rights under the rights agreement may cause substantial dilution to an acquiror
that attempts to acquire us without obtaining the consent of our board of
directors or conditioning the offer on a substantial number of rights being
acquired or redeemed. Accordingly, these rights have the potential to deter a
potential acquiror from making takeover proposals or tender offers that are not
negotiated with our board of directors. See "Description of Capital Stock --
Certain Anti-Takeover Provisions under Delaware Law and in our Restated
Certificate of Incorporation and Bylaws" for a more detailed discussion.
Furthermore, the Delaware General Corporation Law may also discourage takeover
attempts that have not been approved by our board of directors.
WE DO NOT HAVE A PRIOR TRADING MARKET AND WE MAY EXPERIENCE A VOLATILE STOCK
PRICE.
A public market for our common stock has not previously existed. We cannot
predict the extent to which investor interest in us will lead to the development
of a trading market for our common stock or how our common stock will trade in
the future. The initial public offering price for the shares will be determined
by negotiations between the representatives of the underwriters and us.
Investors may not be able to resell their shares at or above the initial public
offering price.
The price at which our common stock will trade depends upon a number of
factors, particularly historical and anticipated operating results and general
market and economic conditions, some of which are beyond our ability to control.
Other factors that could cause the market price of our common stock to fluctuate
substantially include short-term changes to our operating results that are not
expected by financial analysts, adverse changes in the financial results of our
service partners and technological innovations by our competitors. The
occurrence of any of the other events described as risk factors in this
prospectus may also affect the market price of our common stock.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or
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disproportionate to the operating performance of such companies. Some of these
fluctuations may be due to speculative trading by individual investors,
including investors commonly referred to as "day traders." The trading prices of
many technology companies' stocks are at or near historical highs and these
trading prices and multiples are substantially above historical levels. These
trading prices and multiples may not be sustained. These broad market and
industry factors may materially adversely affect the market price of our common
stock, regardless of our actual operating performance. In the past, following
periods of volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, results which would seriously harm our
business.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL.
Sales of a large number of shares of our common stock in the public market
after this offering or the perception that such sales could occur could cause
the market price of our common stock to drop. Upon completion of this offering,
we will have approximately shares of common stock outstanding, of which
approximately shares will be freely transferable without restriction or
registration under the Securities Act of 1933, unless such shares are held by
our affiliates, as that term is defined in Rule 144 under the Securities Act.
The officers and directors and all of our existing stockholders have agreed with
Bear, Stearns & Co. Inc. not to sell or otherwise dispose of any of their shares
for 180 days after the date of this prospectus. However, Bear, Stearns & Co.
Inc. may, in its sole discretion, at any time without notice, release all or any
portion of the shares subject to lock-up agreements. Sales of common stock by
existing stockholders in the public market, or the availability of such shares
for sale, could adversely affect the market price of the common stock.
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the approximately 10,000,000 shares of common stock
reserved for issuance under our 1996 Omnibus Stock Plan. On the date 180 days
after the effective date of this offering, at least shares will be subject
to immediately exercisable options based on the number of options outstanding as
of December 31, 1999, assuming an effective date of this offering of ,
2000. Sales of a large number of shares could have an adverse effect on the
market price for our common stock.
The holders of shares of common stock, all of whom have executed the
lock-up agreement described earlier, will have certain rights with respect to
registration of such shares for sale to the public beginning 180 days after the
effective date of the offering. If such holders, by exercising their
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the market
price for our common stock. If we were to include in a company-initiated
registration shares held by such holders pursuant to the exercise of their
registration rights, such sales may have an adverse effect on our ability to
raise needed capital. See "Description of Capital Stock -- Registration Rights."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements relating to, among
other things, future results of operations, our plans and expectations regarding
our future services and operations and general industry and business conditions
applicable to us. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
us, including those we describe in the "Risk Factors" section of this
prospectus. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
We use market data, industry forecasts and projections throughout this
prospectus, which we have obtained from internal surveys, market research,
publicly available information and industry publications. Industry publications
generally state that the information they provide has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The forecasts and projections are based on
industry surveys and the preparers' experience in the industry and there is no
assurance that any of the projected amounts will be achieved. Similarly, we
believe that the surveys and market research we or others have performed are
reliable, but we have not independently verified this information. Neither we
nor any of the underwriters represents that any such information is accurate.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from this
offering, assuming an initial public offering price of $ per share, the
midpoint of the range set forth on the cover page of this prospectus. Net
proceeds are computed by deducting the underwriting discount and our estimated
offering expenses of $ from the total public offering price.
We currently intend to use the net proceeds from this offering for:
- approximately $ for capital and other expenditures associated with
the continued build-out of our private, national Internet protocol
network;
- approximately $ for working capital associated with the deployment of
our BroadbandNOW(TM) service;
- the payment of approximately $ of dividends on our preferred stock
accrued prior to the date of this offering; and
- approximately $ for other general corporate purposes.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest bearing, investment grade securities to the extent
permitted by the terms of any statistical asset tests imposed by the Investment
Company Act of 1940.
DIVIDEND POLICY
We have never paid any dividends on our common stock and do not intend to
pay any dividends on our common stock in the foreseeable future. The board of
directors currently intends to retain any earnings for use in our business. Any
future determination to pay dividends will be at the discretion of our board of
directors and will be dependent upon existing conditions such as our financial
condition, results of operations, capital requirements, business prospects and
other factors our board of directors deems relevant. Our preferred stock has
dividends at a defined rate and we pay and declare such dividends based on those
terms. All of the existing preferred stock will automatically convert to common
stock upon the consummation of this offering and dividends accrued to that date
will be paid at that time.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
on an actual, pro forma and pro forma as adjusted basis:
- The "Actual" column reflects our capitalization as of December 31, 1999,
without any adjustments to reflect subsequent events or anticipated
events;
- The "Pro Forma" column reflects the issuance of 1,265,723 shares of
Series A redeemable convertible preferred stock issued after December 31,
1999, in exchange for approximately $23.6 million in cash net of
expenses; and
- The "Pro Forma As Adjusted" column reflects our capitalization as of
December 31, 1999, with adjustments to give effect to the stock split and
conversion of all shares of outstanding preferred stock, including those
issued after December 31, 1999, into 9,693,690 shares of common stock
upon the closing of this offering, and the receipt of the estimated
proceeds from the sale of our common stock offered hereby (after
deducting the estimated offering expenses and underwriting discounts and
commissions).
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes thereto included elsewhere in this
prospectus. All shares of common stock have been adjusted to reflect the two for
one stock split to be effected on March 31, 2000.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Long-term debt and capital leases........................... $ 14,159 $ 14,159
Series A redeemable convertible preferred stock, $0.001 par
value
Authorized shares -- 6,900,000 shares actual and pro
forma; 50,000,000 pro forma as adjusted
Issued and outstanding -- 3,581,122 shares actual;
4,846,845 shares pro forma; none pro forma as
adjusted............................................... 66,915 90,501
Stockholders' equity:
Common stock, $0.001 par value Authorized
shares -- 150,000,000 shares actual and pro forma;
300,000,000 pro forma as adjusted Issued and
outstanding(1) -- 23,477,282 shares actual and pro
forma; shares pro forma as adjusted.................. 23 23
Additional capital........................................ 10,226 10,226
Accumulated deficit....................................... (22,680) (22,680)
-------- --------
Total stockholders' equity (deficit).............. (12,431) (12,431)
-------- -------- --------
Total capitalization.............................. 68,643 92,229
======== ======== ========
</TABLE>
- ---------------
(1) Outstanding shares do not include shares of common stock reserved for
issuance under our 1996 Omnibus Stock Plan and other agreements.
17
<PAGE> 21
DILUTION
The pro forma net tangible book value of our common stock as of December
31, 1999, was approximately $ million, or $ per share. Pro forma net
tangible book value per share represents the amount of our total assets,
excluding goodwill, less our total liabilities, divided by the total number of
outstanding shares of common stock after giving effect to the stock split to be
effected on March 31, 2000 and the conversion of all outstanding shares of Class
B common stock, Class C common stock and preferred stock into common stock that
will occur upon the closing of this offering. Dilution in pro forma net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of our common stock in this offering and the pro forma
net tangible book value per share of our common stock immediately after the
offering. After giving effect to the sale of the shares of common stock in
this offering, at an assumed initial public offering price of $ per share,
and after deducting the estimated underwriting discount and our estimated
offering expenses, the pro forma net tangible book value of our common stock
would have been $ or $ per share. This represents an immediate
increase of pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share as of December
31, 1999................................................ $
Pro forma net tangible book value per share attributable
to this offering........................................ $
Pro forma net tangible book value per share after this
offering................................................ $
Dilution per share to new investors....................... $
=======
</TABLE>
The following table summarizes on a pro forma basis as of December 31,
1999, the number of shares of common stock purchased from us, the total price
paid and the average price per share paid by existing stockholders and by the
new investors in this offering. This information is based on an assumed initial
public offering price of $ per share, before deducting the underwriting
discount and our estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. % $ % $
New investors..........................
----- ----- ------ ------
Total........................ 100.0% $ 100.0%
===== ===== ====== ======
</TABLE>
If the underwriters exercise their over-allotment option in full, we will
provide them with those shares. The tables above exclude an aggregate of
shares available for future issuance under our 1996 Omnibus Stock Plan at a
weighted average per share exercise price of $ , and also exclude an
aggregate of 900,000 shares available for future issuance under outstanding
stock purchase warrants at a weighted average per share exercise price of $9.40.
In addition, we have issued options to acquire shares with a weighted
average per share exercise price of $ . To the extent that any of these
options are exercised, there will be further dilution to new investors.
18
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of December 31, 1999,
and the pro forma consolidated statement of operations for the year ended
December 31, 1999, have been prepared to give effect to the issuance of our
redeemable convertible preferred stock subsequent to December 31, 1999, and to
give effect to the stock split and public offering described in this prospectus
as if they had occurred on January 1, 1999.
The accompanying unaudited pro forma consolidated financial information
should be read in conjunction with the historical consolidated financial
statements and the notes thereto, which are included elsewhere in this
prospectus. The unaudited pro forma consolidated financial statements are
provided for informational purposes only and do not purport to represent what
our financial position or results of operations would actually have been had the
preferred stock issuance, the stock split or this common stock offering occurred
on such dates or to project our results of operations or financial position for
any future period.
19
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 52,802,252
Accounts receivable, net of allowance for doubtful
accounts of $296,000.................................... 198,885
Prepaid expenses and other current assets................. 854,405
------------ ----------- ------------
53,855,542
Property and equipment, net................................. 22,780,966
Other assets................................................ 98,440
------------ ----------- ------------
Total assets....................................... $ 76,734,948
============ =========== ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,643,919
Accrued expenses.......................................... 826,661
Current portion of note payable and capital lease
obligations............................................. 4,621,396
------------ ----------- ------------
Total current liabilities.......................... 8,091,976
Note payable and capital lease obligations, less current
portion................................................... 14,158,627
Commitments
Redeemable convertible preferred stock:
Series A convertible preferred stock, $0.001 par value:
Authorized shares -- 6,900,000 actual; 50,000,000 pro
forma
Issued and outstanding shares -- 3,581,122 actual; none
pro forma
Liquidation preference of $67,325,127 actual; none pro
forma, plus any accumulated and unpaid dividends..... 66,915,017
Stockholders' equity (deficit):
Class A common stock, $0.001 par value:
Authorized shares -- 100,000,000 actual and none pro
forma
Issued shares -- 9,368,800 actual; pro forma........ 9,369
Class B common stock, $0.001 par value:
Authorized shares -- 25,000,000 actual and none pro
forma
Issued and outstanding shares -- 9,959,554 actual; none
pro forma............................................ 9,960
Class C common stock, $0.001 par value:
Authorized shares -- 25,000,000 actual and none pro
forma
Issued and outstanding shares -- 4,148,928 actual; none
pro forma............................................ 4,149
Common stock, $0.001 par value:
Authorized shares -- none actual; 300,000,000 pro forma
Issued and outstanding shares -- none actual; pro
forma................................................ --
Additional capital........................................ 10,225,492
Accumulated deficit....................................... (22,679,642)
------------ ----------- ------------
Total stockholders' equity (deficit)............... (12,430,672)
------------ ----------- ------------
Total liabilities, redeemable convertible preferred
stock, and stockholders' equity (deficit)........ $ 76,734,948
============ =========== ============
</TABLE>
- ---------------
(1) To adjust for the issuance of 1,265,723 shares of redeemable convertible
preferred stock subsequent to December 31, 1999, at an issue price of $18.80
per share for combined proceeds, net of offering expenses, of $23,585,616.
(2) To adjust for the conversion of the preferred stock to common stock
effective January 1, 1999.
(3) To reverse the paid and accrued dividends and accretion to date on the
preferred stock as we assume that the preferred stock was converted to
common stock as of January 1, 1999.
(4) To adjust for the conversion of all Class B and Class C common stock into
common stock at the time of the initial public offering.
(5) To adjust for the impact of this offering of shares of common stock at
a price of $ per share after deducting estimated underwriting discounts
and expenses.
20
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO
FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Internet subscriber services........................ $ 443,648
Managed network services............................ 117,459
Systems integration................................. 19,077
Equipment sales..................................... 324,381
Other revenue....................................... 3,977
------------ ---------- -----------
Total revenues.............................. 908,542
Expenses:
Operating costs..................................... 9,723,866
Cost of equipment sales............................. 312,787
Product development................................. 1,210,854
Sales and marketing................................. 1,011,876
General and administrative.......................... 4,538,068
------------ ---------- -----------
Total expenses.............................. 16,797,451
------------ ---------- -----------
Loss from Operations.................................. (15,888,909)
Interest (income)..................................... (1,141,073)
Interest expense...................................... 742,001
Other (income), net................................... (12,383)
------------ ---------- -----------
Net loss.............................................. (15,477,454)
------------ ---------- -----------
Preferred stock dividends and accretion............... 2,014,946
------------ ---------- -----------
Net loss attributed to common stockholders............ $(17,492,400)
============ ========== ===========
Basic and diluted net loss per share.................. $ (0.75)
============ ========== ===========
Weighted average shares outstanding................... 23,436,596
============ ========== ===========
</TABLE>
- ---------------
(1) To adjust weighted average shares outstanding and basic and diluted net loss
per share to reflect issuance of preferred stock, conversion of all stock to
common stock and issuance of stock related to this public offering.
(2) To reverse the effect of preferred stock dividends and accretion as the
conversion is assumed to be as of January 1, 1999.
21
<PAGE> 25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, related
notes and other financial information included elsewhere in this prospectus. The
consolidated statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999, and the consolidated balance sheet data as of
December 31, 1998 and 1999, have been derived from our consolidated financial
statements included elsewhere in this prospectus, which have been audited by
Ernst & Young LLP, independent auditors. The consolidated balance sheet data as
of December 31, 1996 and 1997, and the consolidated statement of operations data
for the years ended December 31, 1996 are derived from audited consolidated
financial statements not included in this prospectus. The consolidated balance
sheet data as of December 31, 1995 and the consolidated statement of operations
data for the year ended December 31, 1995 are derived from unaudited
consolidated financial statements not included in this prospectus. We have
prepared this unaudited information on the same basis as the audited
consolidated financial statements and have included all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of our consolidated financial position and operating results for
such periods. The historical results are not necessarily indicative of results
to be expected for any future period.
Our revenue streams were largely derived from our systems integration
business through Decem-ber 31, 1998. Beginning in late 1998, we strategically
de-emphasized our systems integration business and began to focus on our
Internet subscriber services. Therefore, results for these periods are not
directly comparable and are not indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Internet subscriber services.................... $ -- $ -- $ -- $ 17 $ 444
Managed network services........................ 14 103 159 133 117
Systems integration............................. 1,486 1,372 1,259 545 19
Equipment sales................................. 2,230 1,868 2,373 644 324
Other revenue................................... -- 7 10 16 4
-------- -------- -------- -------- --------
Total revenues........................... 3,730 3,350 3,801 1,355 908
Expenses:
Operating costs................................. 1,244 1,417 1,466 2,631 9,724
Cost of equipment sales......................... 1,649 1,301 2,062 541 312
Product development............................. -- 61 65 257 1,211
Sales and marketing............................. 340 330 341 346 1,012
General and administrative...................... 568 643 681 1,298 4,538
-------- -------- -------- -------- --------
Total expenses........................... 3,801 3,752 4,615 5,073 16,797
-------- -------- -------- -------- --------
Loss from Operations..................... (71) (402) (814) (3,718) (15,889)
Interest (income)................................. -- (32) -- (19) (1,141)
Interest expense.................................. 24 71 44 48 742
Other (income) expenses........................... (7) -- 25 28 (13)
-------- -------- -------- -------- --------
Net loss before taxes.................... (88) (441) (883) (3,775) (15,477)
Tax benefit (expense).................... (16) 16 -- -- --
-------- -------- -------- -------- --------
Net loss................................. $ (104) $ (425) $ (883) $ (3,775) $(15,477)
======== ======== ======== ======== ========
Preferred stock dividends and
accretion.............................. -- -- -- -- $ 2,015
-------- -------- -------- -------- --------
Net loss attributed to common
stockholders........................... $ (104) $ (425) $ (883) $ (3,775) $(17,492)
======== ======== ======== ======== ========
Basic and diluted net loss per share.............. $ (0.01) $ (0.04) $ (0.06) $ (0.20) $ (0.75)
======== ======== ======== ======== ========
Shares used to compute basic and diluted net loss
per share (in thousands)........................ 9,750 9,750 14,695 19,164 23,437
======== ======== ======== ======== ========
OTHER DATA(1):
Passings.......................................... -- -- -- 127,000 613,000
Passings constructed.............................. -- -- -- 2,762 39,127
Subscribers....................................... -- -- -- 84 2,313
Penetration....................................... -- -- -- 3.0% 5.9%
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 69 $ 151 $ 416 $ 3,093 $ 52,802
Working capital (deficit)...................... 220 (111) 284 2,763 45,764
Total assets................................... 1,399 831 1,378 10,967 76,735
Long-term debt and capital leases.............. -- -- -- 5,648 14,159
Redeemable convertible preferred stock......... -- -- -- -- 66,915
Stockholders' equity (deficit)................. 520 96 584 4,606 (12,431)
</TABLE>
- ---------------
(1) "Passings" include all of the doors for potential subscribers which, through
our existing agreements with our service partners, we have the right to be
granted access to and/or the right to construct facilities to provide our
services. We do not include passings attributable to service partners who do
not have the financial strength to construct the necessary infrastructure to
allow us to provide high-speed data services. "Passings constructed"
identifies the number of doors for potential subscribers where we have built
out the infrastructure necessary to provide high-speed data services within
24 hours of receiving a request to do so. "Subscribers" is the number of
customers that have subscribed to our service. "Penetration" is equal to the
number of subscribers divided by the passings constructed.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements, the
notes to our financial statements and the other financial information appearing
elsewhere in this prospectus. The following discussion includes forward-looking
statements that involve certain risks and uncertainties. See "Risk Factors."
OVERVIEW
We provide high-speed, high-bandwidth Internet access and customized
broadband content and applications under the BroadbandNOW(TM) tradename. We
began in December 1994 as a systems integrator through the acquisition of the
assets of the computer division of Olympia USA. We continued to provide systems
integration services through 1998 but began to shift our emphasis to providing
high-speed data services over the Internet in early 1998. Part of the vision of
our founders was to ensure high quality, high-speed access for our subscribers
and as such we have developed a private, national Internet protocol network to
allow us to control the quality of our subscribers' experience. Since 1997, we
have:
- Implemented an effective organizational infrastructure;
- Developed the BroadbandNOW(TM) line of services;
- Secured long-term contracts with various service partners, all of whom
serve the multiple dwelling unit, or MDU, single residence and/or
business markets; and
- Rolled out our service in 26 major metropolitan markets.
As of March 15, 2000, we employed 128 people, with divisions in sales,
operations, network engineering, finance and administration, product development
and marketing.
Our revenue streams were largely derived from our systems integration
business through December 31, 1998. Beginning in late 1998, we began recording
our initial Internet subscriber service revenues related to our new service.
These revenues, which represent monthly subscriber fees from our customers,
became our primary source of revenue in 1999. Our capital expenditures (fixed
assets) and operating costs have increased significantly as we have begun to
deploy our network and offer our service to subscribers.
We have issued preferred stock for proceeds aggregating approximately $91.1
million to help finance these additional and ongoing development costs. This
preferred stock will automatically convert to common stock upon the consummation
of this offering.
RESULTS OF OPERATIONS
We derive our Internet subscriber services revenue from customers who
subscribe to our monthly Internet access service. Internet subscriber services
revenue consists of:
- A one time installation fee, which we defer and recognize over one year
which is deemed to be the estimated life of the subscriber;
- Monthly access fees based on the level of service a subscriber chooses,
which we recognize as services are provided to the subscriber; and
- Monthly modem rental fee for use of a modem, which we recognize as
services are provided to the subscriber.
Access revenues are recognized on a gross basis when we contractually
provide a turnkey solution to our service partner, including customer support
and billing and collecting from the customer. Access revenues are recorded at
the net revenue share amount when our service partner provides the majority of
the services required by the subscriber, including customer support and billing
and collection, and remits us our net share of the revenues. Revenues are
expected to continue to increase in conjunction with subscriber growth rates as
we continue to build out our infrastructure to accommodate both current and
future markets with our service partners.
24
<PAGE> 28
Managed network services include web hosting, Internet access services and
e-mail services provided to businesses for a monthly fee, which revenues we
recognize as such services are provided. This revenue declined in 1998 and 1999
because we did not actively market these services to new customers. We currently
intend to market other types of managed network services that will allow us to
further leverage our existing private, national network infrastructure.
System integration services include web development and hardware
maintenance services provided to businesses. We have strategically de-emphasized
the system integration services business and we are no longer engaged in this
business. We do not intend to provide these services in the future. We expect
the negative impact on our future operating cash flows and operating results
from not providing system integration services will be offset by increased
operating cash flows and operating results from the other services that we
provide.
Equipment sales include the sale of computer hardware to third parties. We
have de-emphasized equipment sales by not actively marketing to new or existing
customers. We do not intend to actively seek equipment sales in the future,
although such sales may occur. We expect the negative impact on our future
operating cash flows and operating results from not seeking equipment sales will
be offset by increased operating cash flows and operating results from the other
services that we provide.
Operating costs for 1998 and 1999 consist mainly of salaries and related
expenses to install and maintain our current technologies, Internet transport
costs and local loop costs associated with our Internet protocol network,
depreciation related to the equipment used in our systems, facilities costs to
house our equipment and resources and revenue sharing fees. These costs will
increase in absolute terms and as a percentage of revenue in the near term as we
continue to build out our infrastructure to serve other markets. See "Liquidity
and Capital Resources."
Product development costs consist primarily of salaries and related
expenses to develop broadband content. We also include salaries and related
expenses for developing new technologies in product development costs. Costs are
expensed as incurred. These expenses will increase as we expand our product
offerings to include new technologies, new lines of business and added content
functionality. Cost of equipment sales represents costs of equipment purchased
for resale to customers. Sales and marketing expenses consist of salaries and
commissions of personnel that market our products, costs to solicit subscribers
and new service partners and promotional and marketing costs. General and
administrative expenses primarily consist of personnel costs related to
executive and administrative officers and support personnel, legal and
accounting expenses, consulting fees, licensing fees, travel and entertainment
expenses and facility costs. We expect general and administrative costs to
increase in absolute terms and they may increase as a percentage of revenue in
the near term.
Interest income consists of interest earned by our investment in short-term
securities. Interest expense relates to the note payable and capital leases to
which we have committed. Interest on these debt instruments is calculated based
on a fixed or floating rate of interest which approximates market and is payable
generally over a 24 to 36 month period.
Other income/expense consists primarily of gains and losses from disposals
of fixed assets.
YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenues
Internet subscriber services grew from $17,000 for the year ended December
31, 1998, to $444,000 for the year ended December 31, 1999, and became our major
source of revenue. Revenues increased as a result of an increase in our number
of subscribers. At December 31, 1998, we had 84 subscribers. As of December 31,
1999, that number had grown to 2,313.
Managed network services decreased from $133,000 for the year ended
December 31, 1998, to $117,000 for the year ended December 31, 1999. During 1998
and 1999, managed network services
25
<PAGE> 29
included web hosting, Internet access service and e-mail services provided to
businesses for a monthly fee. The decreases are a result of not actively
marketing these types of services to new customers.
System integration services decreased from $545,000 for the year ended
December 31, 1998, to $19,000 for the year ended December 31, 1999. These
decreases are a result of the systems integration business being de-emphasized
since 1998. By the end of 1998, there was no active sales personnel assigned to
system integration services and minimal maintenance personnel to support
existing system integration customers. By the end of 1999 we were no longer
providing these services.
Equipment sales decreased from $644,000 for the year ended December 31,
1998, to $324,000 for the year ended December 31, 1999. The decreases are a
result of the systems integration business being de-emphasized since 1998. The
sales did not decrease as much as expected because we generated $276,000 during
1999, related to a one-time sale of computer equipment which was not
representative of any ongoing systems integration business.
Operating Costs
Operating costs increased from $2,631,000 for the year ended December 31,
1998, to $9,724,000 for the year ended December 31, 1999, reflecting our focus
on building our infrastructure and deploying our services. The primary increase
is due to increases in depreciation related to increases in our capital
equipment expenditures. Other sources of the increase include salaries and
related expenses of employees working directly on the network build-out.
Cost of Equipment Sales
Cost of equipment sales have decreased from $541,000 for the year ended
December 31, 1998, to $312,000 for the year ended December 31, 1999. The
decrease directly relates to the decrease in equipment sales revenues which is
consistent with our de-emphasis of the systems integration business. The costs
did not decrease as much as expected because we incurred costs of $266,000
during 1999, related to sales of computer equipment which were not
representative of any ongoing systems integration business.
Product Development Costs
Product development costs increased from $257,000 for the year ended
December 31, 1998, to $1,211,000 for the year ended December 31, 1999. This
increase primarily reflects increased staffing and focus in our online services
area partially offset by our transfer of certain developed technologies into
operations.
Sales and Marketing
Sales and marketing expenses increased from $346,000 for the year ended
December 31, 1998, to $1,012,000 for the year ended December 31, 1999. The
primary source of the increase is due to increased staffing to cover our
existing markets, including the hiring of management level employees to run our
sales and marketing operations. Additionally, we have developed additional
marketing materials and promotions to support our service.
General and Administrative
General and administrative expenses increased from $1,298,000 for the year
ended December 31, 1998, to $4,538,000 for the year ended December 31, 1999, due
mainly to the addition of management level personnel and increased facility
expenses necessary to support our growth.
26
<PAGE> 30
Interest Income
Interest income increased from $19,000 for the year ended December 31,
1998, to $1,141,000 for the year ended December 31, 1999, reflecting income
derived from investing the funds we received in our private placement offering
in June, October and November 1999.
Interest Expense
Interest expense increased from $48,000 for the year ended December 31,
1998, to $742,000 for the year ended December 31, 1999, due to our increased use
of capital lease financing from our vendors to support our capital purchases. At
December 31, 1998, we had approximately $6.2 million of equipment financed
through capital leases and a note payable. As of December 31, 1999, that number
had grown to approximately $13.4 million.
Other Income/Expense
Other income/expense changed from an expense of $28,000 for the year ended
December 31, 1998, to income of $13,000 for the year ended December 31, 1999, as
a result of gains on disposals of certain assets during 1999.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenues
Internet subscriber services were not provided during 1997 and there were
no subscribers. For the year ended December 31, 1998, we earned $17,000 of
Internet subscriber services revenue. At December 31, 1998, we had 84
subscribers.
Managed network services decreased from $159,000 for the year ended
December 31, 1997, to $133,000 for the year ended December 31, 1998. The
decreases are a result of not actively marketing these types of services to new
customers.
System integration services decreased from $1,259,000 for the year ended
December 31, 1997, to $545,000 for the year ended December 31, 1998. These
decreases are a result of the systems integration business being de-emphasized
in 1998.
Equipment sales decreased from $2,373,000 for the year ended December 31,
1997, to $644,000 for the year ended December 31, 1998. The decreases are a
result of the systems integration business being de-emphasized in 1998.
Operating Costs
Operating costs increased from $1,466,000 for the year ended December 31,
1997, to $2,631,000 for the year ended December 31, 1998. The increase was
primarily attributable to increases in local and national network costs related
to our high-speed Internet business, along with increased staffing to support
the new line of business.
Cost of Equipment Sales
Cost of equipment sales showed sharp decreases for the year ended December
31, 1998, declining from $2,062,000 for the year ended December 31, 1997, to
$541,000 for the year ended December 31, 1998. This decrease reflects our
de-emphasis of systems integration and equipment sales.
Product Development Costs
Product development costs increased from $65,000 for the year ended
December 31, 1997, to $257,000 for the year ended December 31, 1998, mainly due
to additional labor costs associated with developing new products for our
business.
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Sales and Marketing
Sales and marketing expenses were $341,000 and $346,000 for the years ended
December 31, 1997 and 1998, respectively. These costs related primarily to our
systems integration business. The increase in sales and marketing expenses
related to our Internet access business did not occur until early 1999.
General and Administrative
General and administrative expenses increased from $681,000 for the year
ended December 31, 1997, to $1,298,000 for the year ended December 31, 1998.
This increase is primarily attributable to our hiring of additional officers and
support staff for our high-speed Internet business as well as increased facility
expenses related to our move to a new headquarters facility in order to
facilitate future growth and expansion of operations.
Interest Income
Interest income of $0 and $19,000 for the years ended December 31, 1997 and
1998, respectively, fluctuated based on our available cash balances.
Interest Expense
Interest expense remained fairly stable at $44,000 and $48,000 for the
years ended December 31, 1997 and 1998, respectively, as the increased
borrowings in 1998 did not occur until late in the year, and therefore the
interest accrued was minimal.
LIQUIDITY AND CAPITAL RESOURCES
Our major expenditures to date consist of purchasing and leasing the
hardware and software needed to continue to expand and build our Internet
protocol network. This includes costs of servers, national and local circuits,
routers, switches and other equipment necessary in our build-out. Capital
expenditures were approximately $20.2 million for 1999, which included $3.7
million related to the purchase of our corporate headquarters in December 1999.
We have historically financed our operations primarily through vendor financing
and through the sale of common stock and preferred stock.
During 1999, we issued a series of redeemable convertible preferred stock
as part of a private placement. Gross proceeds received from these transactions
included $20 million from Microsoft, $20 million from Nortel Networks, $10
million from Lucent Technologies, $7.3 million from Archstone Communities and
its affiliates, $5 million from GE Capital and $5 million from prior equity
investors, representing an aggregate investment of $67.3 million. Subsequent to
December 31, 1999, we issued additional preferred shares aggregating $23.8
million in gross proceeds. Gross proceeds include $20 million from Liberty
Media, $1 million from Summit Properties, $0.5 million from certain affiliates
of Archstone Communities and $2.3 million from other investors. See "Certain
Relationships and Related Party Transactions -- Transactions with Directors and
Officers."
Between December 1994 and December 31, 1999, we received approximately
$10.2 million related to the issuance of our common stock to equity investors.
In June 1998, we entered into a financing arrangement with Lucent
Technologies providing for financing of capital expenditures up to $10 million
in the form of a note payable. In August 1999, this financing agreement was
raised to $25 million. The terms of the agreement call for the repayment of
principal and interest on the borrowed amounts over 24 months with interest
accruing at the prime rate. Payments of both principal and interest are deferred
during the first year of the note. As of December 31, 1999, we have borrowed
approximately $12.1 million under this agreement and have accrued interest of
approximately $555,000, of which approximately $161,000 was payable and paid.
The average rate of interest was approximately 8%.
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In November 1998, we entered into a master capital lease financing
agreement with Nortel Networks. This agreement was amended effective January 1,
2000, to roll all outstanding leases into one single lease. The terms call for
monthly payments of $150,600 for 30 months with a $1 buy out provision at the
end of the lease term. As of December 31, 1999, we have $3.9 million outstanding
in capital leases with Nortel. We also have capital lease financing arrangements
with other suppliers that allow us to finance equipment purchases on an
individual basis.
In January 2000, we sold Marcus & Partners, L.P. a warrant to purchase
600,000 shares of common stock with an exercise price of $9.40 per share, for a
cash consideration of $175,000. See "Certain Relationships and Related Party
Transactions -- Transactions with Directors and Officers."
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
300,000 shares of common stock with an exercise price of $9.40 per share, for a
cash consideration of $60,000. The purchase right under the warrant for 100,000
of such shares will become exercisable upon the earlier to occur of (i) a change
in control of our company or (ii) one year from the date of grant at the
discretion of our President. See "Certain Relationships with Related Party
Transactions -- Transactions with Directors and Officers."
We expect to experience substantial negative cash flow from operating
activities for at least the next several years due to the continued development
and deployment of our network and services. Our future cash requirements as well
as our revenues will depend on a number of factors including: the service
partners that we contract with and their related locations and customer bases,
as well as the terms of our contracts with them; the location of future customer
bases; the type of technology that will be deployed at each location; the rate
at which subscribers purchase our service and the level of marketing required.
Net cash used in investing activities has increased from $238,000 in 1997,
to $1.5 million in 1998 and to $6.8 million in 1999. The majority of these
increases relate to purchases of software and hardware used in building out our
infrastructure.
Net cash provided by financing activities increased from $1.4 million in
1997, to $7.3 million in 1998 and $64.1 million in 1999 mainly due to the
issuance of common and preferred stock.
We anticipate incurring significant additional costs related to our future
build-out of network infrastructure and the continued deployment of our service
to subscribers. These costs are needed to support our infrastructure investment,
product development, marketing, sales and customer support needs. Our cash
balance as of March 15, 2000 was $67.1 million, an increase of $14.3 million
over our December 31, 1999 balance primarily due to additional issuances of our
preferred stock, partially offset by capital expenditures. We believe that the
net proceeds from this offering, together with our existing cash, cash
equivalents and capital lease financing, will be sufficient to fund our
aggregate capital expenditures and working capital requirements, including
operating losses, for the next 18 months. However, there can be no assurance
that any additional funds will be available at the time or times needed, or on
terms acceptable to us.
YEAR 2000 COMPLIANCE
The Year 2000 issue referred to existing computer programs' ability to
appropriately distinguish the year 2000 from the year 1900 when processing
transactions. We developed and executed a phased plan to achieve compliance with
Year 2000 initiatives that included reviewing our hardware and software that
support our operations and infrastructure, as well as our internal systems that
support our back office. For each of these areas, our plan called for us to
identify the systems, address their compliance with the Year 2000 issue, test
their compliance and make any upgrades considered necessary to ensure
compliance. As of this date, we are successfully running all of our systems and
have encountered no issues or malfunctions related to the Year 2000 issue. No
contingency plans had to be initiated; no additional costs were incurred.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 2000. We do not hold any derivative instruments nor do
we participate in any hedging activities. Accordingly, this pronouncement should
have no impact on our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." We
believe that our current revenue recognition policies comply with this bulletin.
Accordingly, this bulletin should have no impact on our financial statements.
MARKET RATE RISK
Our exposure to market risk is limited to interest rate risk. As of March
15, 2000, we had cash and cash equivalents of approximately $67.1 million which
consisted of cash and highly liquid short-term investments with original
maturities of less than 90 days. These balances largely consist of the proceeds
of our recent preferred stock financing. These investments are subject to
interest rate risk and will decrease in value if market interest rates increase.
The impact of a hypothetical increase of 10% would be immaterial to our
operations. Declines in interest rates over time will reduce our interest
income; however, we anticipate the balances in these investments to decrease as
we utilize the funds to continue building our systems. Additionally, we have a
note payable and capital lease obligations, but the impact of a hypothetical
increase in interest rates of 10% would be immaterial to our operations.
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BUSINESS
OVERVIEW
We provide high-speed, high-bandwidth, Internet access and customized
broadband content and applications under the BroadbandNOW(TM) tradename. We
provide these services to our subscribers via our private, national Internet
protocol network which we manage on an end-to-end basis to ensure peak
performance. By utilizing multiple broadband access technologies, including
cable modem, xDSL, Ethernet and wireless, we connect subscribers directly to our
network. Our mission is to provide our subscribers with the "always on, always
fast, always fun(TM)" experience of BroadbandNOW(TM) at data transmission speeds
that are substantially faster than typical dial-up connections.
MARKET OPPORTUNITY
The growth of Internet usage and increased demand for broadband content,
coupled with the limitations of the existing Internet structure, provides us
with a significant market opportunity. We have designed our network and services
to capitalize on these trends and overcome the limitations and inefficiencies of
the existing Internet architecture.
Growth of Internet Usage and Demand for Broadband Content
People are increasingly using the Internet for work, personal
communications, commerce and leisure. According to the Yankee Group, an
estimated 30 million, or approximately 30%, of the 100 million homes in the U.S.
today currently utilize dial-up connections with data transmission speeds of
56.6 Kbps or less. The increase in the number of subscribers and Internet usage
has led to the development of e-commerce strategies by traditional "brick and
mortar" merchants and businesses, broadening the services offered and creating
more traffic over the Internet. Business-to-consumer e-commerce is projected to
increase at a 65.7% CAGR from $11.5 billion in 1998 to $86.6 billion in 2002.
Business-to-business e-commerce is projected to increase at a 57.9% CAGR from
75.6 billion in 1999 to $470.3 billion in 2002. In addition, Internet
advertising is projected to increase from $1.4 billion in 1999 to $7.0 billion
in 2002. The growth in the number of subscribers, the increase in Internet usage
and the development of bandwidth-intensive applications are imposing burdens on
the current Internet infrastructure, resulting in primarily slower transmission
speeds and reduced network availability. The increasing demand by subscribers
for reasonably priced high-speed service that can handle bandwidth-intensive
applications is projected to cause the market for broadband Internet service to
grow rapidly. The number of U.S. households with broadband access is projected
to increase at a 111.5% CAGR from approximately 450,000 in 1998 to approximately
9 million in 2002, encompassing 16% of all online homes.
Limitations and Inefficiencies of Existing Internet Architecture
The full potential of the public Internet as a medium for communication,
education, entertainment and commerce remains untapped due to current problems
with its capacity, performance and reliability. Despite ongoing upgrades by
major telecommunications companies and facilities-based Internet service
providers, the existing Internet infrastructure can experience a degradation in
network performance to unacceptable levels when used by large numbers of users.
For example, the Internet frequently becomes overloaded when transmitting the
same data streams from popular web site servers to millions of individual users.
As demand for rich, multi-media content requiring broadband access increases,
these problems may be magnified.
Large Market Opportunity to Provide Broadband Services through Service
Partners
As a result of the above trends, companies with established customer
relationships in consumer service areas such as utility services, real estate
management and ownership and cable television services recognize a current
opportunity to provide broadband data services. However, provisioning broadband
services is complicated and expensive and often outside these companies' areas
of focus and expertise.
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Accordingly, these providers remain interested in partnering with others to
provide these services in exchange for a share of the revenues generated by
these services. We enable our service partners to offer a high-quality broadband
solution and overcome the limitations of the current public Internet through
access to our end-to-end managed, private, national network.
The motivation for offering these services varies depending on the partner.
For example, our current and prospective utility service partners are motivated
to use broadband access services as an additional growth opportunity in a large
and unregulated business. Our REIT service partners increasingly recognize that
high-speed Internet access is becoming a valued and required amenity, especially
at Class A and Class B properties. Our PCO service partners are motivated by the
opportunity to offer these high-quality services to their existing customers as
part of their bundle of services.
Recognizing the above opportunity, we have been able to establish
relationships with our service partners based on our ability to offer
high-speed, high-capacity Internet connectivity and customized broadband content
and applications over our own private, national Internet protocol network. Our
total market opportunity depends on the size of the markets in which each of our
service partners operates. Recent data from the Yankee Group suggests that:
- Electric utility providers today serve virtually all of the 100 million
residences in the U.S. Many utilities are now seeking to leverage these
existing customer relationships to begin offering bundled services
including voice, video and data. The deregulation of the electric
utility market is encouraging electric companies to market to retail
customers and to offer ancillary services in order to acquire and retain
subscribers as well as to increase revenues and margins. Current
research suggests that 30% of current utility customers are interested
in purchasing bundled services from their electricity providers, of
which approximately 48% of those customers indicated that they are
likely to purchase Internet services from their electric company.
- The total market for Internet services within the MDU sector is
approximately $1.6 billion annually out of a total $20 billion market
for voice, video and data within MDUs. There are approximately 20.6
million MDU units in the U.S. today which house approximately 48.3
million residents. Of these units, approximately 9.4 million are located
on 2% of MDU properties in the U.S., indicating a significant
concentration of potential Internet users, which currently comprise our
target MDU market.
In addition to utility, REIT and PCO service partners, we intend to
leverage our investments in our network and broadband access technologies by
expanding our access to additional customer doors through a variety of partners,
including multiple system cable operators.
OUR BUSINESS STRATEGY
Our Strategy. We intend to become a leading provider of high-speed,
high-bandwidth Internet access and customized broadband content and applications
to our subscribers. To achieve this objective, we intend to:
- Establish strategic relationships with service partners nationwide. We
establish strategic relationships with service partners in order to gain
access to our subscriber base more efficiently and with less cost than we
could independently and to benefit from preferential marketing access
rights to those potential subscribers. To date, we have established and
continue to pursue marketing and access partnerships with utility
companies, REITs and PCOs. We also intend to pursue relationships with
other emerging data communications providers such as multiple system
cable operators. We expect to continue emphasizing our partnership
strategy in existing and new areas in order to increase the size of our
addressable market for broadband services.
- Provide high quality services and a full range of high-speed data
solutions for our service partners. Our service partners benefit from the
extensive capital, time and effort we have invested to develop the
technical expertise, industry relationships and operational and network
infrastructure to deliver high-speed data service. We are able to offer
our service partners turnkey solutions through
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economically attractive, flexible contracts while permitting such
partners to retain control over all aspects of customer interface,
including billing and collections.
- Utilize and leverage multiple broadband access technologies for "last
mile" access. We utilize multiple broadband access technologies,
including cable modem, xDSL, Ethernet and wireless to connect subscribers
directly to our private, national network. Because we are able to utilize
multiple broadband access technologies for the "last mile", we are able
to provide nationwide services to our subscribers through our service
partners. Our proprietary Data Envelope(TM) technology allows us to be
indifferent to the available access technology and to continue to benefit
from ongoing advancements in "last mile" access technology.
- Continue the deployment of our private, nationwide Internet protocol
network to provide a platform for the delivery of high-quality access,
applications and content services to our subscribers. As of the date of
this prospectus, our nationwide Internet protocol network includes 25
network access POPs. We will seek to continue the expansion of our
network to reach an estimated 48 cities with 47 network access POPs by
the end of 2000. We utilize intelligent routing on our network,
efficiently carrying our subscribers' traffic as far as possible across
our network to maximize our ability to manage the quality of our
subscribers' broadband experience on an end-to-end basis. Our expanding
network reach and our intelligent routing strategy provide an ideal
platform for the delivery of high-quality access, applications and
content services to our subscribers.
- Link directPEER(TM) content partners directly to our private, nationwide
Internet protocol network. We seek to connect our private network
directly to providers and aggregators of broadband applications and
content in order to ensure high quality broadband transmission for our
subscribers. This is done by connecting our directPEER(TM) partners'
server systems directly to our nearest backbone data center through a
DS-3 or OC-3 connection. By attaching directPEER(TM) partners' networks
and server systems directly to our network, we are better able to ensure
quality of service delivery from end-to-end. Since the content never
leaves our connected systems, it is not susceptible to the reliability
and performance problems of the public Internet. We believe this strategy
enables the delivery of a new category of broadband content that would
not be possible without directPEER(TM). To date we have established a
directPEER(TM) partnership with Yahoo!
- Develop, aggregate and deliver additional broadband content and
applications. We believe that an important part of the value of broadband
connectivity is illustrated through access to and use of compelling
broadband content and applications. Consequently, we have developed a
proprietary web publishing platform that allows us and our service
partners to rapidly develop and integrate text, graphics and video
content for broadband delivery. We are actively publishing content
specifically developed for broadband access and have hired a writing and
editorial staff from the traditional magazine publishing industry to
further develop this initiative. In addition to our content development
initiative, we also aggregate content through our directPEER(TM)
initiative as well as through links to our front end customer interface,
including our BroadbandNOW(TM) launch page.
- Invest in the BroadbandNOW(TM)brand. We believe that brand and quality
will be key competitive advantages as the market for broadband services
matures. Consequently, we plan to make BroadbandNOW(TM) synonymous with
high-quality, "always on, always fast, always fun(TM)" broadband
services. We are making the necessary investments in network assets,
customer service and marketing to create and defend our brand as a
recognized symbol of high quality broadband services. We also continue to
emphasize our brand by customizing the BroadbandNOW(TM) launch page.
- Leverage our key supplier relationships to create customized technology.
We work closely with our key suppliers to customize equipment and
software to enable us to more effectively offer broadband services. Our
strategic affiliations with our vendors are critical in ensuring
consistent quality and interoperability between our private, national
network infrastructure and our multiple broadband access technologies. We
have worked closely with our key suppliers, such as Adaptive Broadband,
Lucent Technologies and Nortel Networks, to select off-the-shelf
solutions, when available, and
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customize products when necessary. We believe that our in-house
engineering capabilities and close relationships with these and other
suppliers are and will continue to be a key competitive advantage for us.
We have recently signed a Memorandum of Understanding with Microsoft,
which contemplates entering into additional agreements by outlining a
number of joint initiatives we will undertake. These initiatives are
focused upon increasing the speed at which consumers adopt broadband
services and the building of online, localized communities for our
subscriber base. We have also recently formed a strategic relationship
with Liberty Media through which we plan to distribute broadband content
developed by certain affiliates of Liberty Media to our subscribers.
OUR SOLUTION
For Service Partners
The relationships we have with our service partners enable us to reach our
subscribers with quality, high-speed broadband service. We have established and
are pursuing strategic relationships with utility companies, REITs and private
cable operators, collectively referred to as our service partners, to gain
access and preferential marketing rights to potential subscribers and deliver
our services. We believe that our current and potential service partners have
and will form relationships with us because we offer them a variety of
advantages:
- a turnkey Internet solution;
- our own private, nationwide Internet protocol network that is managed on
an end-to-end basis, ensuring a quality broadband experience;
- applications and content customized for broadband delivery;
- flexibility in structuring agreements to accommodate varying capital
expenditure profiles and management participation levels and leverage
existing infrastructure;
- flexibility to allow them to protect their existing customer bases by
permitting our service partners to retain the primary customer interface,
including billing and collection and customer service;
- the ability to offer nationwide service utilizing multiple broadband
access technologies; and
- the opportunity to build a brand with their customers through the
co-branding of the initial launch screens.
For Subscribers
We offer our subscribers several advantages over more traditional dial-up
Internet service providers, such as:
- the "always on, always fast, always fun(TM)" experience of
BroadbandNOW(TM) using their existing access technology;
- data transmission speeds substantially faster than other typical dial-up
connections;
- broadband content and other bandwidth intensive applications;
- guaranteed network service levels, achieved through our private, national
Internet protocol network with usage monitored on a 24 hour a day, seven
day a week basis from our network operations center in Dallas, Texas; and
- affordable, competitive prices for the level of service provided.
The BroadbandNOW(TM) experience begins with a proprietary broadband launch
screen that provides subscribers an initial portal to the Internet and provides
the content foundation of the BroadbandNOW(TM) experience. This launch screen
also offers a substantial base of content specifically designed and coded for
high-speed data connections.
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OUR SERVICE PARTNERS
Our service partners benefit from the extensive capital, time and effort we
have invested to develop the technical expertise, industry relationships and
operational and network infrastructure to deliver high-speed data services. We
are capable of providing a complete turnkey system overseeing the entire
process, including: the evaluation and upgrade of the existing cable and
telecommunications infrastructure; the installation and maintenance of the cable
or xDSL modems; the connection of properties or local networks to the Internet;
and the operation of a private, national Internet protocol network. Our service
partners also benefit from our purchasing power for local loop connections and
network equipment, and our comprehensive customer and technical service
organization which supports all of their high-speed data services on a 24 hour a
day, seven day a week basis. In addition, we offer our service partners the
ability to create customized Internet content on a co-branded basis.
We believe that our utility service partners, in particular, are interested
in partnering with us for several additional reasons. Due to regulatory changes
in the electric utility market, these companies are seeking alternative sources
of revenue to maintain or enhance profitability and growth. Many are leveraging
existing infrastructure and rights of way or licenses to develop communications
business strategies to offer additional services to existing customers. In order
to execute these business strategies, the electric utilities and their
affiliates are interested in relationships that provide them with technical
skills, technology, a reliable network and flexibility to facilitate access to
the broadband market.
Each service partner relationship is individually tailored to meet the
desires of our service partners regarding their desired level of participation
in service deployment and management, including:
- the type of "last mile" access using multiple broadband access
technologies;
- customer connection and installation;
- customer marketing;
- customer billing and collection; and
- customer service.
We attempt to obtain the most preferential access to potential subscribers
in negotiating each of our service partner relationships. The majority of our
master service agreements, which average seven years in duration, provide us
with the exclusive right to market, promote and sell high-speed data services in
conjunction with the service partner, within specific geographic areas or at
specified properties. In the case of certain PCO service partners, after
determining whether providing service is physically and economically feasible,
we execute a property specific addendum to the master service agreement which
governs the provision of our services to the specific property. Having the
exclusive right to market, promote and sell high-speed data services gives us a
direct link to the customers of our service partners, an advantage we feel is
important in establishing our company as the most logical provider of broadband
services in the minds of potential subscribers. Depending on the terms of the
contract, a subscriber may pay us directly or, alternatively, our service
partner may collect the individual payments and then pay us our share. Set out
below are additional details related to our primary service partner
relationships:
Utility Companies
In June 1999, we signed a long-term contract with Seren Innovations, the
communications subsidiary of Northern States Power, one of the top 30 electric
utilities in the U.S. This agreement provides us the exclusive right to offer
high-speed data services to single family residences which can be served by the
cable television plants currently being built by Seren in St. Cloud, Minnesota
and Contra Costa County, California. Under the contract, Seren provides access
to the homes covered by its cable plants in return for a share of the access
revenues generated from the properties. The contract also provides that in the
event Seren builds out xDSL technology in these markets, we have the exclusive
right to provide the same services to those customers under the same terms and
conditions as those served by cable modem technology.
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REITs
Since 1998, we have signed contracts to provide high-speed services to
properties owned by four of the leading multi-family REITs in the U.S.:
Archstone Communities, AvalonBay Communities, Camden Property and Forest City
Residential. Under each contract, the percentage of access revenues shared with
the REIT service partner is determined based on penetration levels at the MDUs
as well as the division of responsibilities for marketing our services and
providing property equipment, equipment maintenance and customer care. Our
high-speed data service is typically delivered to MDU residents through the
existing cable or telephone infrastructure at the property. Where the existing
infrastructure is owned by the REIT service partner, we can access properties
directly. Where the existing infrastructure is owned by a third party cable
operation, we will typically partner with a local cable provider or the private
cable operator in order to gain access to the cable plant for service
deployment, or, in the alternative, if we are not able to secure access from a
private cable operator or local cable provider, we will deploy alternative
broadband access solutions.
Private Cable Operators
Since 1998, we have signed contracts with four of the largest private cable
operators in the U.S.: CablePlus, Direct Digital Communications, Global
Interactive and OpTel. Our products and services are delivered over the existing
cable service using the coaxial cable infrastructure owned or operated by the
private cable operators. Under each contract, the percentage of access revenues
shared with the private cable operators is determined based on the penetration
level at each property as well as the amount of responsibility for property
equipment, equipment maintenance, customer billing and customer care. While
these service partners comprise a large percentage of our potential passings,
many of the private cable operators in the U.S. are under severe financial
duress and, as a result, we are uncertain as to how many additional properties
we will be able to activate with these service partners. See "Risk Factors -- We
may be adversely impacted by the financial difficulties of our PCO service
partners."
In November 1998, we signed a contract that provides us a right of first
refusal to offer high-speed data services to the national MDUs where GTE
provides or will provide satellite master antennae television, wireline cable
television, or direct broadcast satellite service and has elected to offer
high-speed data services. Under the agreement, we provide and manage our
high-speed data service to residents of the MDUs while GTE provides access to
its cable plant and pays for certain costs associated with providing the service
to customers in return for a share of the Internet access revenue.
OUR PRODUCTS
We currently offer the following types of broadband Internet services:
BroadbandNOW(TM) -- Personal Service
Our primary offering is the BroadbandNOW(TM) -- Personal Service, a
comprehensive Internet solution for the consumer. Personal Service subscribers
generally can achieve symmetrical data transmission speeds up to 1.5 Mbps, over
25 times faster than the typical dial-up data transmission speed of a 56.6 Kbps
modem. In addition, Personal Service customers receive "always on" instantaneous
access to the Internet. This eliminates the need for a dial-up procedure using
the telephone network. As of December 31, 1999, 97% of our current subscribers
subscribed to our Personal Service.
Pricing and service levels change on a regular basis. However, our current
levels of Personal Service are symmetrical and range from downstream and
upstream speeds of 64 Kbps to 1.5 Mbps. Pricing for our Personal Service ranges
from $29.95 per month to $79.95 per month, plus a modem rental fee for
subscribers who require a cable modem or DSL modem.
We typically charge customers an installation fee of $49.95 for desktop
computers and $139.95 for laptop computers and rent modems to customers for
$10.00 per month or sell subscribers a modem for $395.00.
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In addition to high-speed Internet access, Personal Service customers
receive three e-mail accounts, five megabytes of personal web space and the
BroadbandNOW(TM) Software Suite, which evaluates the subscriber's installed
software applications and automatically directs the subscriber to the latest
software downloads which are available and recommended by us for use with our
service, including Microsoft Internet Explorer, Netscape Communicator, Windows
Media Player, Real Player, Microsoft Outlook Express, Chat Software, QuickTime
and Shockwave. The services are supported by a 24 hour a day, seven day a week
help desk. Personal Service customers subscribe to the service on a
month-to-month basis.
BroadbandNOW(TM) -- Home Office Service
We also offer BroadbandNOW(TM) -- Home Office Service, a comprehensive
Internet solution for the home business. Home Office Service subscribers are
offered downstream data transmission speeds of up to 1.5 Mbps and tiered
upstream transmission speeds of up to 1.5 Mbps, depending on the level of
service chosen. Home Office Service subscribers receive a static Internet
protocol address, which enables the subscriber to install and operate a web
server for their home-based business. Our high-bandwidth and "always on"
connection is critical for customers operating businesses from their home,
particularly those operating online businesses with servers running
sophisticated multimedia and e-commerce applications. As of December 31, 1999,
3% of our current subscribers subscribed to our Home Office Service.
Our market is quite competitive and pricing and service levels change on a
regular basis. However, our current levels of Home Office Service range from
upstream speeds of 64 Kbps to 1.5 Mbps, with downstream speeds held at 1.5 Mbps.
Pricing levels currently range from $129 to $699 per month.
Home Office Service subscribers also receive three e-mail accounts, five
megabytes of personal web space, help desk support 24 hours a day, seven days a
week and the BroadbandNOW(TM) Software Suite. Initially, we require each Home
Office Service subscriber to sign a contract for six months of service.
Customized Co-Branded BroadbandNOW(TM) Portals and Content
Our media group, in conjunction with our service partners, develops
customized broadband launch screens, directories of content and localized
content for our subscribers. Each of these customized portals is marketed on a
co-branded basis under the BroadbandNOW(TM) brand, as well as the brand of our
service partner. Within this space, our subscribers can receive topical
information tailored to their individual preferences with specific emphasis
placed on content that has been developed specifically for broadband. In
addition, we also provide content that is applicable to subscribers of a
particular service partner. In the MDU marketplace, for example, the
BroadbandNOW(TM) portal may include direct links to information such as tenant
directories or schedules of upcoming events at the specific MDU property where
the subscriber resides. In the single family marketplace, content is usually
focused on more general topics related to the community at large. In partnership
with Microsoft, we intend to significantly expand the customized connected
community information portal concept over the next 12 to 18 months.
directPEER(TM)
In addition, we seek to connect our private network directly to other
providers and aggregators of broadband applications and content in order to
ensure high quality broadband transmission for our subscribers. This is done by
connecting our directPEER(TM) partners' server systems directly to our nearest
point-of-presence via a DS-3 or OC-3 connection. By attaching directPEER(TM)
partners' networks and server systems directly to our network, we are able to
ensure quality of service delivery from end-to-end. Since the content never
leaves our connected systems, it is not susceptible to the reliability and
performance problems of the public Internet. This enables the delivery of a new
category of broadband content that would not be possible without directPEER(TM).
We currently have a directPEER(TM)agreement with Yahoo! and a DS-3 connection
from our Dallas, Texas backbone data center directly to the Yahoo! server
system. As part of this agreement, we are jointly re-encoding content for
broadband transmission
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speeds and delivering this content to our subscribers via a co-branded
BroadbandNOW(TM) / Yahoo! Broadcast website which can only be accessed by our
subscribers.
[CHART]
[Graphic entitled, 'BROADBANDnow!(TM) directPEER(TM)' illustrating how
directPEER(TM) allows content providers to deliver content directly to
BROADBANDnow!(TM) subscribers over the BROADBANDnow!(TM) private, national
network, thereby bypassing the public Internet and avoiding inefficient
'bottlenecks' which can delay content delivery to the end subscriber.]
Other Broadband Internet Services
BroadbandNOW(TM) -- Virtual Web Hosting Service. Our
BroadbandNOW(TM) -- Virtual Web Hosting Service provides customers a shared
server web hosting service that enables customers to efficiently, reliably and
cost effectively establish a sophisticated web presence and distribute
information over the Internet without purchasing, configuring, maintaining and
administering the necessary Internet hardware and software. We offer a dedicated
server web hosting service for larger customers that require substantially more
server and network capacity than provided under the shared server web hosting
plan. This provides small business and home office customers with superior
reliability, security and customer support in comparison to hosting web sites
themselves, as well as increased performance resulting from having their servers
directly linked to our network.
e-Commerce Products and Services. We have entered into strategic agreements
with leading e-commerce partners to generate incremental revenue from our
customer base. Under a typical agreement, we embed a click-through advertisement
within the broadband content we develop, as well as a limited number of
click-through icons or advertisements on our launch screen. We receive a
percentage of the e-commerce partner's revenues generated from direct
"click-throughs." We have formed a relationship with Yahoo! in which we receive
a significant portion of revenue generated by advertisers or sponsors on our web
pages as well as revenue from our customers viewing pay per view events and
concerts produced by Yahoo! and hosted by us. In exchange, we provide Yahoo!
access to our customer base and have agreed to pay up to a specified portion of
the cost to re-encode or repurpose Yahoo!'s content for broadband access.
Planned Services. We intend to provide dial-in services for traveling
subscribers to access our network, personal e-mail and web services. Under our
current plan, subscribers do not need to maintain a separate dial-in account.
Going forward, we do not anticipate deploying a dial-up platform for this
service, but rather anticipate purchasing bulk hours of service for our
subscribers from vendors such as UUNet Technologies or GTE Internetworking. We
also plan to offer remote backup and personal firewall software to our Personal
Service and Home Office Service subscribers. We also intend to pursue service
partner relationships with other emerging data communications providers such as
multiple system cable operators.
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SALES AND MARKETING
Our sales and marketing process typically involves two phases: the initial
business development efforts necessary to establish service partner
relationships and gain access to potential subscribers and, secondly, once we
have executed an agreement with a service partner, the sales and marketing
process targeted directly to potential subscribers. The sales and marketing
effort targeting the subscriber will typically be done in conjunction with our
service partner. Our sales and marketing efforts with service partners and
subscribers are described below in greater detail.
Sales and Marketing to Service Partners
We have dedicated significant time and resources during the last two years
to developing and establishing service partner relationships with utility
companies, REITs and private cable operators in order to gain access to
potential subscribers. The sales cycle for a new service partner is typically
three to six months focusing primarily on the senior executives of the potential
service partner. Our business development personnel and senior executives are
very involved in the solicitation and development of these relationships and the
sales and promotion of our service offerings within the utility, REIT and
private cable operator sectors. The sales process ranges from an initial
introduction to our product and service offerings to the final execution of a
master service agreement governing our relationship and respective rights and
responsibilities regarding passings, capital investment in last mile
infrastructure, subscriber marketing and co-branding, customer service and
customer billing. Key components of our ongoing strategy for sales and marketing
to service partners include our ability to offer a customized solution for
high-speed data services and the continued dedication of business development
personnel and senior executives to this area of our business. Our investment in
the BroadbandNOW(TM) tradename as a co-branding tool for service partners and
further development of our private, nationwide Internet protocol network and
proprietary content and applications will continue to be important marketing
aspects in our customized solution service offering for these partners.
Sales and Marketing to Subscribers
Our sales and marketing efforts with subscribers vary depending upon the
nature of our service partner relationship. In some service partner
relationships we are responsible for all aspects of subscriber sales and
marketing, while in others we take a more limited role. We typically provide
most sales and marketing services in our relationships with REITs, while our
private cable operator and utility service partners typically prefer to provide
many aspects of the sales and marketing effort themselves. In both cases,
however, we work very closely with our service partners in developing and
implementing a marketing plan that typically uses a combination of direct
marketing, public relations, event marketing, personal selling and
telemarketing. A key aspect of our collaborative efforts with all of our service
partners is the co-branding of the BroadbandNOW(TM) tradename in all areas of
the sales and marketing process.
We generally launch service in each MDU property or local market with a
promotional event at which we demonstrate our services to potential subscribers
and generate sales leads. We also use promotional materials and signage to raise
awareness of our services before an official sales launch within a property or
market, and later follow up with event marketing, personal selling and
telemarketing to further drive subscriber sales. We also work closely with our
service partners to educate property leasing agents, in the case of REIT service
partners, and customer service representatives, in the case of our PCO and
utility service partners, on our high-speed data services. By educating our
service partners' employees that have direct interaction with potential
subscribers, our high-speed data services can be bundled effectively with other
services such as voice, video and electricity.
We also use upgrade programs for existing subscribers as a means of driving
subscriptions to higher bandwidth and price point service levels. For example,
during the first month of a subscriber's service, we often provide a
complimentary 10 day service level upgrade to allow the customer to experience
higher levels of speed on a temporary basis. After experiencing the faster
service level, the customer may decide
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to permanently upgrade to the higher level of service. All such service upgrades
and downgrades can be performed remotely from our network operations center.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
We believe that customer service and technical support are extremely
important in retaining subscribers. We operate a toll free help desk 24 hours a
day, seven days a week to provide customer service and technical support.
Customer service personnel are responsible for opening accounts and provisioning
service for new subscribers and providing follow-up support and maintenance for
inquiries relating to computer and software configuration, customer billing,
network and modem performance, and other related issues. We use customer support
and workflow management systems allowing us to track, route and report on
customer service issues and log trouble tickets as service calls are received.
We also provide service partners with periodic reporting on customer status and
performance versus the standards required under our service level agreements,
including the average time required to answer a call, the average time required
to resolve a customer inquiry, call history for a service partner's subscribers
and customer billing summaries.
We categorize our customer service and technical support personnel
according to three service levels. Tier I support personnel are responsible for
configuration and basic troubleshooting relating to customer software, hardware
and modems, escalating issues to other support personnel for resolution as
needed, and relaying information about call trends to Tier II support personnel.
Tier II support personnel are responsible for intermediate and advanced
troubleshooting, monitoring trends among customer inquiries, and training of
Tier I support personnel. Tier III support personnel are responsible for
monitoring the stability of the entire network, determining and diagnosing
network issues, communicating with Tier I and Tier II support personnel on
issues not resolved by Tier I or Tier II support personnel, and acting as a
liaison between customer service and technical support and the network
operations center. Tier III technical support personnel are co-located with our
network operations center staff, who are responsible for monitoring the
performance of the network from end-to-end on a 24 hour a day, seven day a week
basis. The close proximity of the two groups facilitates collaboration to
resolve subscriber problems rapidly and anticipate potential problems before
they can affect the user experience.
NETWORK ARCHITECTURE
Private, National Network
We have designed our private, national network on the premise that
sustainable, high-performance, broadband Internet access requires a
high-capacity, scalable, national architecture to alleviate Internet bottlenecks
and enable true end-to-end network management capabilities. We developed and
implemented our network architecture using existing protocols that link a
private, national Internet protocol network with local POPs serving our
subscribers in each market. We utilize multiple broadband access technologies,
including cable modem, xDSL, Ethernet and wireless, to connect subscribers
directly to our private, national network.
We are currently in the process of deploying a national network to serve as
a quality controlled private Intranet for BroadbandNOW(TM) subscribers in 48
cities. As of December 31, 1999, we had 25 POPs serving 26 markets and we expect
to have 47 POPs serving 48 markets by the end of 2000. Nine of our network POPs
are designated as network data centers which will house server farms to host
local e-mail, subscriber web pages, localized content and distributed content
caching. Local servers significantly enhance the user experience by reducing the
time required for round trip data transmission. Five of our network data centers
have server farms today, with the remaining server farms to be deployed as new
subscribers are added to the network in each of these areas.
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MAP
[Graphic entitled, "BROADBANDnow!(TM) National Network" depicting the
infrastructure of our private, national network on a map of the United States.
The graphic illustrates the connections of our points-of-presence with data
centers on the core span of the network to our points-of-presence connected by
regional network spans, and finally indicates regions where deployment of our
private, national network is in progress.]
The key elements of our network strategy include the following:
National Deployment of a Private Internet Protocol Network. We are
deploying our own private, national Internet protocol network backbone which
consists of a network of leased, high-speed fiber connections to our various
POPs. We currently lease long-haul circuits from major telecommunications
carriers, including GTE and Level 3 Communications. Our network currently
operates at DS-3, or a speed of 45 Mbps, and can be upgraded to OC-48, or
approximately 2.5 gigabits per second. Our network access POPs are typically
co-located in space leased from a local competitive exchange carrier or
incumbent local exchange carrier and equipped with high-speed, fully scalable
ATM switches, routers and servers all owned by us. Vendors of equipment for our
network include Cisco Systems, Lucent Technologies, Nortel Networks, and others.
These network access POPs have five main functions:
- to aggregate local access T-1 and DS-3 circuits from properties and
service partners we serve;
- to connect to our backbone with a minimum of two diverse backbone
circuits, providing redundant routing to multiple Internet access sites,
to provide redundant routing capable of surviving multiple fiber outages;
- to provide a 100 Mb connection to our local server farm and content
cache;
- to provide a DS-3 or OC-3 connection into the server farms of
directPEER(TM) broadband content partners; and
- to connect the network to multiple Tier I Internet providers in multiple
cities.
We pursue a "smart build" strategy in establishing our private, national
network infrastructure. When establishing a presence in a new market, we often
lease services from major telecommunications providers on a short-term basis
until we secure enough passings to economically justify a POP. When we achieve
critical mass in a market, we then lease co-location space for our servers,
routers and switching equipment to establish a POP. We believe this multi-phased
strategy provides us with a cost-effective and high
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<PAGE> 45
quality network infrastructure without burdening us with a high level of fixed
network costs during deployment of our products and services.
End-to-End Network Management. Our network is proactively managed on an
end-to-end basis through our extensive network management systems. The network
is centrally managed from our network operations center in Dallas, Texas where
we can dynamically identify and enhance network quality, service and
performance. The network operations center monitors the network infrastructure
on a 24 hour a day, seven day a week basis, enhancing our ability to address
performance bottlenecks before they affect the user experience. From the network
operations center, we can manage our network on a real-time basis from
end-to-end, including the backbone, regional POPs, on-property facilities,
servers and other components of the network infrastructure, even down to the
modem in the subscriber's home.
[CHART]
[Graphic entitled, "BROADBANDnow!(TM) Nationwide Managed Network"
illustrating how we manage our private, national network on an end-to-end basis
and how our distributed servers, directPEER(TM) and multiple Internet drains
ensure the quality of service and content delivery to subscribers.]
One of the key components of network management is ensuring subscriber
security and compatibility within the network. Many of the access technologies
we utilize provide "always on" access and therefore require additional security
measures in order to limit user-to-user visibility. In addition, since each
underlying access technology possesses different technological characteristics,
it is difficult for a provider to deploy all of these technologies and deliver a
consistent service offering, regardless of which underlying access technology is
used. In order to address these issues, we have worked directly with hardware
manufacturers to define the features and functionality necessary to allow
acceptably safe public deployment and compatibility. This effort allows us to
deploy on-property network solutions with a consistent set of service features,
regardless of the underlying access technology, through a proprietary method
called the Data Envelope(TM). When a BroadbandNOW(TM) subscriber requests
content, our Data Envelope(TM) instantaneously packages the broadband content
into the format most easily accepted by the access technology utilized. The Data
Envelope(TM) facilitates the most efficient routing of the content throughout
our private, national network while ensuring its quality and integrity.
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[CHART]
[Graphic entitled, "BROADBANDnow!(TM) Data Envelope(TM) for Multiple
Broadband Access Technologies" illustrating that our Data Envelope(TM) packages
broadband content requested by a subscriber into the format most easily accepted
by that subscriber's particular access technology, thereby facilitating
efficient routing of content through our private, national network and ensuring
its quality.]
In addition to providing subscriber security and compatibility, the Data
Envelope(TM) also allows us to limit data transmission rates in order to offer
tiered services, and going forward, to develop varied billing options such as
fixed and usage based billing.
Multiple Transit Connections. One of the stated design objectives of our
network is to avoid transiting subscriber traffic through a public network
access point. We will purchase Internet access circuits from Tier I providers in
the nine POP data centers as required by usage levels. As of December 31, 1999,
we had privately peered Internet access circuits in POP data centers located in
Dallas, Chicago, San Jose and Los Angeles purchased from Tier I providers. In
addition to these transit connections, we are using all routing tools available
to us and controlled by us to create symmetric paths to Internet locations.
LAST MILE ACCESS TECHNOLOGIES
We utilize multiple broadband access technologies, including cable modem,
xDSL, Ethernet and wireless to connect subscribers directly to our network.
Cable Modems
We utilize standards-based cable modem technology on properties where
access is secured on the coaxial distribution plant. Cable modem technology is a
faster alternative than analog modems or dial-up Internet access. Implementation
of our high-speed data service via cable modems requires access to a 6 MHz
downstream channel between 88 MHz and 860 MHz for a maximum shared downstream
data rate of 38.8 Mbps (at 256 Quadrature Amplitude Modulation); and a 3.2 MHz
upstream channel between 5 MHz and 42 MHz for a maximum shared upstream data
rate of 10.24 Mbps. Data capacity on the coaxial plant may be expanded through
either utilizing additional frequencies in the downstream or upstream direction
or physically splitting the coaxial and utilizing the same frequencies on each
separate plant. The DOCSIS cable modem technology we deploy meets the
requirements of the Data Envelope(TM) for data flow separation and deployment
for public service.
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xDSL
We utilize xDSL technology, an economical solution for high-speed Internet
access, on properties where access is secured on the copper telephone plant.
Implementation of our high-speed data service via xDSL is accomplished by
upgrading the performance of existing copper lines with the installation of
specialized equipment at both ends of the connection. We utilize a dedicated
pair of copper to deploy Symmetric DSL, or SDSL, at a data rate of up to 2.3
Mbps per line in the upstream and downstream concurrently. The DSL technology we
deploy meets the requirements of the Data Envelope(TM) for data flow separation
and deployment for public service.
Ethernet
We utilize Ethernet technology on properties where either access is secured
to or we have deployed new Category 3 or better wiring to the subscriber's
wall-jack. We will install an Ethernet switch with port based VLAN functionality
on each garden style building and provide 10 Mbps connection to each unit.
Connection of each switch to the central router on the property will be
accomplished via either a microwave or Ethernet connection. The Ethernet
technology we deploy meets the requirements of the Data Envelope(TM) for data
flow separation and deployment for public service.
Wireless
We utilize customized wireless technology that enables low power
line-of-sight transceivers to reliably transmit digital data in the Federal
Communications Commission's license-free spectrum. The transceivers have a power
output equal to or less than one watt and are designed for high-speed data
transmission in a point-to-multipoint configuration and operate in the ISM 2.4
GHz and U-NII 5.25 GHz to 5.35 GHz and 5.725 GHz to 5.825 GHz frequency bands.
Each of our transceiver models which we purchase from our vendors has been
certified by the Federal Communications Commission. To avoid harmful
interference from third parties and to prevent interference to third parties, we
rely on encryption or Direct Sequence Spread Spectrum techniques for data
security and channel allocation. Our technology provides for data transfer
speeds of up to 25 Mbps point-to-multipoint per antennae and meets the
requirements of the Data Envelope(TM) for data flow separation and deployment of
service to the public.
COMPETITION
The markets for consumer and business Internet services and online content
are extremely competitive. We compete with other Internet service providers on
two levels: in establishing relationships with service partners and for
subscribers. We expect that this competition will intensify in the future. Our
most direct competitors are Internet service providers partnering with multiple
system cable operators, REITs or local exchange carriers to provide high-speed
data services either over the cable television infrastructure using cable modems
or over the telephone system infrastructure using xDSL technology. Other
competitors include consumer and business Internet service providers, national
long distance carriers, wireless service providers, online service providers,
fiber-based competitive local exchange carriers, other competitive local
exchange carriers and Internet content aggregators. Many of these competitors
are offering, or will soon offer, technologies that will compete with some or
all of our high-speed data service offerings. Based upon the experiences of
Internet service providers in today's market, we believe that reliability of
service, brand recognition and customer support will be the most important
aspects of our service that will distinguish us from other companies offering
high-speed data services.
Cable-based Data Services
Companies, such as Excite@Home Corporation and Time Warner, actively seek
to utilize the cable television infrastructure to deploy high-speed, cable-based
data services. Excite@Home, controlled by AT&T, is rapidly expanding throughout
the U.S. and Canada. Additionally, Time Warner, the second largest cable company
in the U.S., along with MediaOne, Microsoft, Compaq and Advanced/Newhouse, has
established its own cable-based Internet service provider with proprietary
content, called Road
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Runner(TM), which features a variety of Time Warner publications and services
and which is marketed through Time Warner's own cable systems. Time Warner has
agreed to be acquired by America Online, a dial-up Internet service provider,
which acquisition will provide AOL its own cable-based infrastructure and
proprietary broadband content. Other companies that have publicly announced
limited-area trials for their own cable-based Internet services include Adelphia
Communications, BellSouth and Jones Intercable. Certain of these competitors are
marketing their cable-based services to unaffiliated cable system operators
using a partnering strategy similar to ours.
Incumbent Local Exchange Carriers
All of the largest incumbent local exchange carriers present in our target
markets are conducting technical and/or market trials or have entered into
commercial deployment of xDSL based services. We recognize that each incumbent
local exchange carrier has the potential to quickly overcome many of the issues
that we believe have slowed wide deployment of xDSL services by incumbent local
exchange carriers in the past, at which point they will represent strong
competition in all of our target service areas. The incumbent local exchange
carriers have an established brand name and reputation for high quality in their
service areas, possess sufficient capital to deploy xDSL equipment rapidly, have
their own copper lines and can bundle digital data services with their existing
analog voice services to achieve economies of scale in serving customers.
Other Competitive Local Exchange Carriers
Companies such as Teleport Communications Group (acquired by AT&T), Brooks
Fiber Properties (acquired by MCI WorldCom) and MFS Communications (acquired by
MCI WorldCom) have extensive fiber networks in many metropolitan areas that
primarily provide high-speed digital and voice circuits to large corporations.
They also have interconnection agreements with the incumbent local exchange
carriers pursuant to which they have acquired co-location space in many markets
we target. These companies are modifying or could modify their current business
focus to include residential and small business customers using xDSL in
combination with their current fiber networks. In addition, other companies such
as Covad Communications, Rhythms NetConnections and NorthPoint Communications
offer high-speed digital services using xDSL technology over the existing
telephone infrastructure, either alone or on a co-branded basis.
National Long Distance Carriers
Long distance inter-exchange carriers, such as AT&T, MCI WorldCom and
Sprint have deployed large-scale Internet access networks and asynchronous
transfer mode networks and sell connectivity to business and residential
customers, and have high brand recognition. They also have interconnection
agreements with many of the incumbent local exchange carriers and a number of
co-location spaces from which they are currently offering or could begin
offering competitive xDSL services.
Wireless Service Providers
Wireless service providers, such as AT&T, are developing wireless Internet
connectivity, including multichannel and local multipoint distribution services.
In addition, companies such as Teligent and WinStar Communications hold
point-to-point microwave licenses to provide fixed wireless services such as
voice, data and videoconferencing, although currently at higher price points
than our service. We may also face competition from satellite-based systems.
Motorola Satellite Systems, Hughes Electronics and others have filed
applications with the Federal Communications Commission for global satellite
networks which can be used to provide broadband voice and data services, and
several of these applicants have received authorization to operate their
proposed networks.
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Online Service Providers
Online service providers, such as America Online and WebTV Networks,
provide a variety of proprietary online services, content and applications
ranging from news and sports to consumer video conferencing over the Internet.
In addition to developing their own content or supporting proprietary third-
party content developers, online services often establish relationships with
traditional broadcast and print media outlets to bundle their content into the
service, such as Microsoft's relationship with NBC to provide multimedia news
and information programming over both the Internet and cable television through
MSNBC. Many of these online service providers have developed their own access
networks for modem connections and if they were to extend their access networks
to xDSL or other high-speed service technologies, they could become our
competitors. In addition, America Online's pending acquisition of Time Warner
will provide it with access to substantial entertainment and media content to
aggregate and distribute to AOL's large customer base, creating competitive
advantages in providing broadband services.
Internet Service Providers
Internet service providers, such as GTE Internetworking, UUNET Technologies
(acquired by MCI WorldCom), Earthlink Network, Concentric Network, Netcom
On-Line Communication Services (acquired by ICG Communications), CAIS Internet
and PSINet provide Internet access to residential and business customers,
generally using the existing public switched telephone network. Some Internet
service providers, such as UUNET in California and New York, have begun offering
xDSL-based services.
INTELLECTUAL PROPERTY
We have filed applications for federal registration or own common law
rights in the following trademarks: BroadbandNOW(TM), Data Envelope(TM),
directPEER(TM), MBAT(TM), "always on, always fast, always fun(TM)", BBNOW(TM)
and our logo. This prospectus also includes trade dress, trade names and the
trademarks of other companies. All other brand names or trademarks appearing in
this prospectus are the property of their respective holders.
We regard our technology as proprietary and attempt to protect it with
copyrights, trademarks, trade secret laws, restrictions on disclosure and other
methods. We also generally enter into confidentiality or license agreements with
our employees and consultants, and generally control access to and distribution
of our documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries, and the global nature of the Internet makes it virtually
impossible to control the ultimate destination of our content offerings.
Policing unauthorized use of our content offerings is difficult. There can be no
assurance that the steps we take will prevent misappropriation or infringement
of our technology. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results, and
financial condition.
From time to time, we may receive notice of claims of infringement of other
parties' proprietary rights, including claims for infringement resulting from
the downloading of materials by the online or Internet services we operate or
facilitate. There can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted or prosecuted against us or that any assertions or prosecutions will
not materially adversely affect our business, operating results and financial
condition. Irrespective of the validity or the successful assertion of such
claims, we would incur significant costs and diversion of resources with respect
to the defense thereof, which could have a material adverse effect on our
business, operating results and financial condition. If any claims or actions
are asserted against us, we may seek to obtain a license under a third party's
intellectual property
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rights. There can be no assurance, however, that under such circumstances a
license would be available on commercially reasonable terms, or at all.
GOVERNMENT REGULATION
Although our services are not directly subject to current regulations of
the Federal Communications Commission or any other federal or state
communications regulatory agency, radio communications are subject to such
regulation and changes in the regulatory environment relating to the Internet
connectivity market could affect the prices at which we sell our services and a
significant portion of our services may become subject to regulation at the
federal, state and/or local levels. Future federal or state regulations and
legislation may be less favorable to us than current regulations and legislation
and therefore have a material and adverse impact on our business and financial
prospects. In addition, we may expend significant financial and managerial
resources to participate in proceedings setting rules at either the federal or
state level, without achieving a favorable result.
Radio communications are subject to regulation by United States and foreign
laws and international treaties. Among these requirements are Federal
Communications Commission rules governing the operation of U-NII and ISM devices
and equipment. Our equipment and wireless communication systems deployed in the
unlicensed U-NII and ISM bands must conform to domestic and international
requirements established to avoid interference among users of microwave
frequencies and to permit interconnection of equipment.
The use of microwave signals depends upon the availability of frequencies
that permit interference-free operation. In many developed countries, the
unavailability of frequency spectrum has historically inhibited the growth of
microwave systems. However, two factors are alleviating this problem. First, the
proliferation of fiber optics for high capacity systems has reduced the demand
for microwave frequencies for such systems, thus freeing up frequency spectrum
for new types of services. Second, many government regulatory agencies are
reallocating frequencies from one type of use to another, thus providing
incentive for new communications services.
Federal and state legislators are currently studying Internet
privacy-related issues and have introduced numerous Internet and e-mail privacy
bills in the past few months, which are currently pending. In particular, they
are examining Internet sites' use of "cookies," or identifiers, that enable
sites, including advertisers, to track usage patterns by compiling data and then
deliver customized content to targeted users. The Federal Trade Commission and
several attorneys general are investigating such practices as potentially unfair
and deceptive practices. Other Internet concerns regarding user privacy or
secure transmission of personal or confidential information, as well as
encryption and other Internet security-related issues, are also being reviewed.
We have security measures in place to maintain the confidentiality of certain
subscriber information; however, our security measures may not prevent security
breaches by people who desire to steal or misuse personal or confidential
information of or about our subscribers. In addition, our own use of subscriber
information could be the subject of government investigation or regulation in
the future. We cannot predict the effect of any legislation to safeguard privacy
and provide security on the Internet or our potential liability thereunder. Any
legislation that substantially impairs the growth of e-commerce could materially
affect our business.
LEGAL PROCEEDINGS
We are not involved in any material litigation at this time.
EMPLOYEES
As of March 15, 2000, we had 128 employees. None of our employees is
represented by a labor union, and we consider our relations with our employees
to be good. Our ability to achieve our financial and operational objectives
depends in large part upon the continued service of our senior management and
key technical personnel and our continuing ability to attract and retain highly
qualified technical and managerial personnel.
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<PAGE> 51
PROPERTIES
Our headquarters are in a 40,000 square foot facility in Dallas, Texas,
which we purchased in December 1999. The Dallas facility houses our network
operations center, media group, sales and marketing staff, network engineering
staff, administrative staff and executive offices and we anticipate it will be
adequate as our headquarters for the foreseeable future. The network operations
center features tri-fiber entry from three distinct telecommunications carriers,
an uninterrupted power supply and a backup generator.
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<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth the names, ages and positions of our
executive officers, directors and other significant employees. Their respective
backgrounds are described below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
Executive Officers and Directors:
James R. Price............................ 60 Chairman of the Board
Matthew Hutchins, Sr. .................... 44 President, Chief Executive Officer and
Director
Charles W. (Bo) Price..................... 58 Executive Vice President and Director
Daniel A. Gillett......................... 38 Senior Vice President and Chief Financial
Officer
Charles R. Gregg, Jr...................... 34 Vice President of Corporate Development
and General Counsel
John J. Galgay, III....................... 32 Vice President of Network Engineering
Clay C. Scott, Jr. ....................... 71 Secretary and Director
Tracy Scott Turner........................ 39 Director
Russell R. Myers.......................... 39 Director
New Directors:
Gary S. Howard............................ 48 Director
Jeffrey A. Marcus......................... 53 Director
Jack A. Riggs............................. 41 Director
Other Significant Employees:
Paul M. Buss.............................. 36 Vice President of Marketing
David M. Intrator......................... 44 Vice President of Business Development
Don R. Ivey............................... 59 Vice President of Sales
Mark V. Poche............................. 43 Vice President of Operations
David E. Smartt........................... 28 Vice President of Finance
Angela A. Stephens........................ 39 Vice President of Administration
EXECUTIVE OFFICERS AND DIRECTORS
</TABLE>
JAMES R. PRICE co-founded BroadbandNOW in 1994 and has since served as
Chairman of the Board. From 1994 to January 2000 he also served as Chief
Executive Officer. From 1989 to 1994, he was President of RE/MAX Las Colinas
where he led a project to automate information systems designed specifically for
the real estate industry. From 1983 to 1989, Mr. Price served as President and
Chief Executive Officer of Pritronix, Inc., a private LAN systems integration
company, which he co-founded. Mr. Price and Charles W. (Bo) Price are brothers.
Mr. Price attended the University of Texas.
MATTHEW HUTCHINS, SR. has served as our President since October 1998 and a
Director since February 1999. In January 2000, Mr. Hutchins became our Chief
Executive Officer, where his responsibilities will continue to include, among
other things, primary responsibility for the management of our day-to-day
operations, as well as for overall corporate strategy. Prior to serving as
President, he was Vice President of Business Development and Corporate Affairs
since joining us in July 1997. From 1994 to 1997, Mr. Hutchins served as Chief
Executive Officer of The Tiger Group, L.L.C., a privately held international and
strategic business development consultancy specializing in the multimedia,
interactive telecommunications and information technology industries, which he
co-founded. From 1990 to 1994, he served as Vice President, International and
Chief Legal Officer of SpectraVision, Inc., a publicly-held company providing
video entertainment programming and interactive services for the lodging and
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<PAGE> 53
hospitality industry. Mr. Hutchins holds a B.A. degree in Political Science from
the University of Maine, an M.P.A degree from Texas Tech University, and a J.D.
degree from Texas Tech University. Mr. Hutchins is licensed to practice law in
the State of Texas.
CHARLES W. (BO) PRICE co-founded BroadbandNOW in 1994 and has since served
as Executive Vice President and Director. From 1989 to 1994, Mr. Price was
engaged independently in the commercial real estate business in Texas. From 1983
to 1989, Mr. Price served as Chairman of the Board of Pritronix, Inc., a private
LAN systems integration company, which he co-founded. Mr. Price and James R.
Price are brothers. Mr. Price holds a B.S. degree in Business Administration
from the University of Texas.
DANIEL A. GILLETT has served as our Senior Vice President and Chief
Financial Officer since February 2000. From March 1999 to February 2000, Mr.
Gillett served as our Vice President of Corporate Development and Chief
Financial Officer. From 1995 to 1999, Mr. Gillett served as a Partner with MG
Capital, a private investment banking firm which he co-founded and which focuses
on transactions in the telecommunications and technology industries. From 1989
to 1995, he served as a Vice President in Investment Banking with CS First
Boston and from 1984 to 1986 as a Staff Accountant with Price Waterhouse. Mr.
Gillett holds a B.B.A. degree in Accounting from Harding University and an
M.B.A. degree from Harvard University.
CHARLES R. GREGG, JR. has served as our Vice President of Corporate
Development and General Counsel since January 2000. From May 1998 until January
2000, Mr. Gregg served as Vice President of Business Development and General
Counsel of National Tile + Stone Corporation, a privately held company engaged
in the consolidation of the tile distribution industry. From 1993 to 1998, he
was an associate at the law firms of King & Spalding and Andrews & Kurth L.L.P.,
specializing in mergers and acquisitions, securities and general corporate
matters. He holds an A.B. degree in History from Princeton University and a J.D.
degree from The University of Texas School of Law.
JOHN J. GALGAY, III has served as our Vice President of Network Engineering
since joining us in May 1998. From 1994 to 1998, Mr. Galgay was employed by Bay
Networks, an internetworking equipment vendor that sold routers and switches and
provided fee based internetworking design and implementation services, in
various network design and strategic service capacities. Mr. Galgay has served
as a course lecturer at Northeastern University, lectured at industry
conferences, and authored an article on Integrated Services. He holds a B.A.
degree in Economics from the University of Texas at Austin and is currently
pursuing an M.S. degree in Information Systems from Northeastern University.
CLAY C. SCOTT, JR. has served as our Secretary and as a Director since our
incorporation in 1994. Mr. Scott is a member of the Texas State Bar and has been
a sole practitioner in Dallas, Texas for 40 years. Mr. Scott holds a B.S. degree
in Business from Texas A&M University and a J.D. degree from Southern Methodist
University.
TRACY SCOTT TURNER has served as a Director since April 1997. Mr. Turner is
also currently a principal at Geneva Associates, L.L.C., a merchant bank. Mr.
Turner is also the founding principal of Interra Ventures, L.L.C., a merchant
bank which focuses on Internet and telecommunications investments. From 1993 to
1996, Mr. Turner served as a Senior Vice President of the Private Placement
Group for ABN AMRO Bank. From 1986 to 1993, he was a Managing Director in the
Private Placement Group for Canadian Imperial Bank of Commerce. Mr. Turner also
currently sits on the board of directors of Wetland Environmental Technologies,
L.L.C., Golfport, Inc., Early Warning Corporation, Direct Digital
Communications, ParaComm, Inc. and Clean Air Research and Environmental and is a
principal of Turner Land and Cattle Company and Southern Capital Partners,
L.L.C. Prior to the consummation of this offering, the holders of the Class B
common stock had the right to elect two directors. Mr. Turner was elected by the
members of the Class B stockholders. Mr. Turner holds a B.S. degree in Economics
and Finance from Indiana University.
RUSSELL R. MYERS has served as a Director since April 1997. Upon the
consummation of this offering, Mr. Myers will resign from our board of
directors. Mr. Myers is currently a principal at Geneva Associates, L.L.C., a
merchant bank. He is also currently a principal of Blue Ridge Investors Limited
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<PAGE> 54
Partnership and Southern Capital Partners, L.L.C. In addition, since 1987, Mr.
Myers has served as the Vice President of Finance of Geneva Corporation, an
affiliate of Geneva Associates, L.L.C. Mr. Myers also currently sits on the
board of directors of Geneva Corporation, Blue Ridge Investors Group, Inc., SDX
Incorporated, a diversified electronic manufacturer, and U.S. Supply Company, a
manufacturer of tops, windshields and related accessories for golf carts. Prior
to the consummation of this offering, the holders of the Class B common stock
had the right to elect two directors. Mr. Myers was elected by the members of
the Class B stockholders. Mr. Myers holds a B.S. degree in Accounting and Legal
Administration from Greensboro College and an M.B.A. from the University of
North Carolina.
NEW DIRECTORS
GARY S. HOWARD will become a Director upon the consummation of this
offering, replacing Russell M. Myers who will resign from the Board of Directors
at that time. Mr. Howard has served as Executive Vice President, Chief Operating
Officer and a director of Liberty Media Corporation since July 1998. Mr. Howard
has also served as Chief Executive Officer of TCI Satellite Entertainment, Inc.
since December 1996. Mr. Howard served as Executive Vice President of TCI from
December 1997 to March 1999; as Chief Executive Officer, Chairman of the Board
and a director of TV Guide, Inc. from June 1997 to March 1999; and as President
and Chief Executive Officer of TCI Ventures Group, LLC from December 1997 to
March 1999. Mr. Howard served as President of TV Guide, Inc. from June 1997 to
September 1997; as President of TCI Satellite Entertainment, Inc. from February
1995 through August 1997; as Senior Vice President of TCIC from October 1994 to
December 1996; and as Vice President of TCIC from December 1991 through October
1994. Mr. Howard is a director of TV Guide, Inc., Liberty Digital, Inc. and TCI
Satellite Entertainment, Inc. Mr. Howard holds a B.S. degree in Accounting from
Colorado State University.
JEFFREY A. MARCUS will become a Director upon the consummation of this
offering. Mr. Marcus currently is a partner of Marcus & Partners, L.P., a
private equity investment firm he co-founded in March 1999. He previously served
as President and Chief Executive Officer of AMFM Corporation (formerly
Chancellor Media Corporation) from May 1998 until March 1999. Previously, Mr.
Marcus was Chairman, President and Chief Executive Officer of Marcus Cable
Company, a company he formed in 1990 after spending more than 23 years in the
cable television industry. Until November 1988, Mr. Marcus served as Chairman
and Chief Executive Officer of WestMarc Communications, Inc., an MSO formed
through the merger in 1987 of Marcus Communications, Inc. and Western Tele-
Communications, Inc. Mr. Marcus has more than 32 years of experience in the
cable television business. Mr. Marcus is a co-owner of the Texas Rangers
Baseball Club and Dallas Stars Hockey Club and serves as a director of Brinker
International, Inc., which owns, operates and franchises restaurants, and LIN
Television Corporation and is a director or trustee of several charitable and
civic organizations. Mr. Marcus holds a B.A. degree in Economics from the
University of California at Berkeley.
JACK A. RIGGS will become a Director upon the consummation of this
offering. Mr. Riggs is currently a controlling partner of DOTCOM Limited
Partnership, a private investment partnership. Mr. Riggs served as Chief
Financial Officer and Treasurer of broadcast.com from August 1997 to December
1999, and as a Director from December 1997 to July 1999 when broadcast.com was
acquired by Yahoo, Inc. From June 1996 to August 1997, Mr. Riggs served as
Corporate Controller of Kitty Hawk, Inc., a publicly traded international
airfreight carrier. From 1994 to 1996, Mr. Riggs served as Corporate Controller
of DHN Enterprises, Inc., a privately held wholesale parts distributor for the
transportation industry. Prior to that time, Mr. Riggs served as Regional
Controller of INACOM Corp., a master computer reseller. Prior to joining INACOM,
Mr. Riggs was with Coopers & Lybrand L.L.P. Mr. Riggs became a certified public
accountant in 1990 and holds a B.S. degree in Accounting from Louisiana Tech
University.
OTHER SIGNIFICANT EMPLOYEES
PAUL M. BUSS has served as our Vice President of Marketing since April
1998. From 1996 to 1998, Mr. Buss was Vice President of Brand Strategy for Oasis
Residential, Inc., a Las Vegas-based multi-family REIT with over 15,000 units,
where he oversaw marketing, organization development, and ancillary
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<PAGE> 55
services. From 1986 to 1996, Mr. Buss was with The Walt Disney Company in
several capacities, including staffing and organization development. Mr. Buss
holds a B.S. degree in Marketing from Appalachian State University.
DAVID M. INTRATOR has served as our Vice President of Business Development
since March 2000. From January 1999 to February 2000, Mr. Intrator served as
Vice President of Cable TV Development for A.H. Belo Corporation, a
publicly-held newspaper publishing and television broadcasting company. From
1994 to 1999, he served as Vice President of Programming, Marketing and New
Business Development for Marcus Cable Company, a privately-held national cable
television company. Mr. Intrator has 20 years of experience in the cable
television industry, holding other executive positions with Capital Cities
Cable, a multiple system operator, Home Shopping Network, a leader in electronic
retailing, and Viewer's Choice, a company providing movie and event pay-per-view
programming to the cable television and direct broadcast satellite industries.
Mr. Intrator holds a B.A. from The University of Connecticut and an M.P.A. from
The Maxwell School at Syracuse University.
DON R. IVEY has served as our Vice President of Sales since joining us in
June 1999. From 1998 to 1999, Mr. Ivey directed major projects for local
telephone services for AT&T Local Services in Texas. Prior to the merger of AT&T
and Teleport Communications Group, from 1994 to 1998, Mr. Ivey served as Vice
President/General Manager of Teleport Communications Group Texas. Mr. Ivey holds
a B.A. degree in Communications from Howard Payne College, an M.A. degree in
Religious Education from Southwestern Baptist Theological Seminary and a Ph.D.
degree in Educational Psychology from Southwestern Baptist Theological Seminary.
MARK V. POCHE has served as our Vice President of Operations since February
2000. From 1989 to February 2000, Mr. Poche worked for Marcus Cable Company, a
privately-held national cable company. He served as District Manager from 1995
to 1999 and as Group Manager from 1989 to 1995, with full profit and loss
responsibility for operating clusters of multiple franchised communities. Mr.
Poche holds a B.S. degree in Advertising from The University of Texas at Austin.
DAVID E. SMARTT has served as our Vice President of Finance since February
2000. From July 1999 to February 2000, Mr. Smartt served as our Director of
Finance. From 1995 to 1999, Mr. Smartt was employed in the Merchant Banking
Group of Banc One Capital Markets, Inc., most recently serving as a Vice
President focusing on private equity and mezzanine investing in a variety of
industries. From 1993 to 1995, he was employed in the Investment Banking Group
of CS First Boston. Mr. Smartt holds a B.S. degree in Finance and Marketing from
Boston College.
ANGELA A. STEPHENS has served as our Vice President of Administration since
February 2000. From August 1999 to February 2000, Ms. Stephens served as our
Director of Financial Reporting. From 1996 to 1999, Ms. Stephens served as an
independent financial consultant and trainer in the hospitality and insurance
industries. From 1993 to 1996, she served as Assistant Vice President of
Operations at Southwest Securities, Inc., focusing mainly in the mutual fund and
margin trading areas. Prior to 1993, Ms. Stephens had nine years of experience
in public accounting with KPMG, L.L.P., most recently serving as a Senior Audit
Manager. She holds a B.B.A. degree in Accounting from Baylor University and is a
Certified Public Accountant in the State of Texas.
ELECTION OF CERTAIN DIRECTORS
We have agreed with one of our stockholders, I(3)S Funding I, L.L.C., to
nominate a director designated by I(3)S Funding I, L.L.C., so long as their
designee is reasonably qualified, and we have agreed that the board of directors
will recommend in our proxy statement that the stockholders vote for such
designee. I(3)S Funding I, L.L.C. will have this right as long as it continues
to hold at least 4,979,798 shares of common stock. I(3)S Funding I, L.L.C. is an
affiliate of Geneva Associates, L.L.C. and two of our directors, Messrs. Tracy
S. Turner and Russell R. Myers, are currently member-managers of Geneva
Associates, L.L.C.; however, Mr. Myers will resign upon consummation of this
offering.
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<PAGE> 56
CLASSIFIED BOARD OF DIRECTORS
Our restated certificate of incorporation divides our directors into three
classes serving staggered three-year terms. As a result, stockholders will elect
approximately one-third of the board of directors each year. These provisions,
together with the provisions of the restated certificate of incorporation that
allow the board of directors to fill vacancies in or increase the size of the
board of directors, would prevent a stockholder from removing incumbent
directors and filling such vacancies with its nominees in order to gain control
of the board.
Upon the consummation of the offering and Russell R. Myers' resignation
from the board, Gary S. Howard will replace Mr. Myers as a director. Also upon
the consummation of the offering, Jeffrey A. Marcus and Jack A. Riggs will be
added as directors. Jack A. Riggs and Tracy S. Turner will serve as Class I
Directors, whose terms will expire at the 2001 annual meeting of stockholders;
Gary S. Howard, Jeffrey A. Marcus and Clay C. Scott, Jr. will serve as Class II
directors, whose terms will expire at the 2002 annual meeting of stockholders;
and Matthew Hutchins, Sr., James R. Price and Charles W. (Bo) Price will serve
as Class III Directors, whose terms will expire at the 2003 annual meeting of
stockholders.
BOARD COMMITTEES
The Compensation Committee consists of Messrs. James R. Price, Tracy S.
Turner and Russell R. Myers. The Compensation Committee:
- makes recommendations to the board of directors regarding our policies
relating to, and the amounts and terms of, all compensation of our
executive officers;
- engages any professional advisors as it deems appropriate; and
- fulfills such other powers and duties as determined and delegated by the
board of directors from time to time.
The Audit Committee consists of Messrs. Russell R. Myers, Clay C. Scott,
Jr. and Tracy S. Turner. The Audit Committee:
- reviews, with our independent auditors, our financial statements and
internal accounting controls and the plans and results of the audit
engagement;
- reviews the independence of our independent auditor;
- reviews the adequacy of our internal accounting controls;
- prepares an annual report on executive compensation for inclusion in our
proxy statement for the annual meeting of stockholders; and
- fulfills such other powers and duties as determined and delegated by the
board of directors from time to time.
The Administrative Committee for Option Plan, or Administrative Committee,
consists of Messrs. James R. Price, Matthew Hutchins, Sr. and Tracy S. Turner.
The Administrative Committee:
- administers and discharges the employee stock plans, option plans and
such other compensation plans that are established by the board of
directors from time to time; and
- fulfills such other powers and duties as determined and delegated by the
board of directors from time to time.
The Executive Committee consists of Messrs. James R. Price, Matthew R.
Hutchins, Sr. and Tracy S. Turner. The Executive Committee functions in the
place of the board of directors when it is not otherwise meeting.
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<PAGE> 57
DIRECTOR COMPENSATION
Russell R. Myers and Tracy S. Turner were each paid $2,500 in fiscal year
1997, 1998 and 1999 for their participation on the Compensation Committee. Other
than these payments, our directors generally do not receive compensation for
services provided as a director. We reimburse our directors for expenses
incurred in attending board and committee meetings. Upon the completion of this
offering, non-employee directors will each receive options to purchase 30,000
shares of common stock which vest over the three year term of each director.
Such shares shall be granted at the initial public offering price.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
chief executive officer and other highly compensated executive officers whose
salary and incentive compensation exceeded $100,000 for the year ended December
31, 1999, the "named executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
- --------------------------- --------- ------ ---------------------
<S> <C> <C> <C>
James R. Price......................................... $205,194 -- 340,000
Chairman of the Board and Chief Executive Officer
Matthew Hutchins, Sr. ................................. $191,878 -- 1,400,000
President and Director
Charles W. (Bo) Price.................................. $139,562 -- 200,000
Executive Vice President and Director
Daniel A. Gillett...................................... $143,529(1) -- 1,000,000
Vice President of Corporate Development and Chief
Financial Officer
John J. Galgay, III.................................... $130,345 -- --
Vice President of Network Engineering
</TABLE>
- ---------------
(1) Represents compensation for the period from March 1999 to December 1999.
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<PAGE> 58
OPTION GRANTS AND EXERCISES
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1999,
to the named executive officers. No stock appreciation rights were granted
during 1999.
OPTION GRANTS AND EXERCISES
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(4)
--------------------------------------------------------- ------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
- ---- ---------- --------------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
James R. Price........... 340,000(1) 9.32% $9.40 6/25/09 $2,009,400 $ 5,093,200
Matthew Hutchins, Sr. ... 100,000 2.74% $1.54 2/1/09 97,000 245,500
1,300,000(1) 35.64% $9.40 6/25/09 7,683,000 19,474,000
Charles W. (Bo) Price.... 200,000(1) 5.48% $9.40 6/25/09 1,182,000 2,996,000
Daniel A. Gillett........ 60,000 1.64% $1.54 3/1/09 58,200 147,300
940,000(1) 25.77% $9.40 6/25/09 5,555,400 14,081,200
John J. Galgay, III...... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options become exercisable in the event of an initial public offering.
(2) In 1999, we granted employees options to purchase an aggregate of 3,648,000
shares of common stock.
(3) The exercise price per share of each option was determined by our board of
directors in its good faith judgment and generally reflects its best
estimate of the fair value of our common stock on the date of each grant,
taking into account factors such as recent sales of securities, our
operating performance and market conditions.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the SEC and are based on the assumption that the exercise
price was the fair market value of the shares on the date of grant. There is
no assurance provided to any executive officer or any other holder of our
securities that the actual price appreciation over the 10-year option term
will be at the assumed 5% and 10% levels or at any other defined level.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning unexercised options
held as of December 31, 1999, by the named executive officers. They did not
exercise any options during this period.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER 31, ASSUMING A
1999 1999($)(1) $ PER SHARE VALUATION
--------------------------- --------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Price............. -- 340,000 -- --
Matthew Hutchins, Sr. ..... 600,000 1,400,000 $5,515,800 $ 786,000
Charles W. (Bo) Price...... -- 200,000 -- --
Daniel A. Gillett.......... -- 1,000,000 -- $ 471,600
John J. Galgay, III........ 166,666 333,334 $1,399,994 $2,800,006
</TABLE>
- ---------------
(1) The amount set forth represents the difference between the fair market value
of the underlying stock on December 31, 1999 ($9.40 per share), and the
exercise price of the option. The fair market value was determined by our
board of directors based on the per share sale price of the Class A
convertible redeemable preferred stock issued in 1999.
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<PAGE> 59
EMPLOYMENT AGREEMENTS
On June 24, 1999, we entered into employment agreements with Messrs. James
R. Price, Matthew Hutchins, Sr., Charles W. (Bo) Price and Daniel A. Gillett.
Each of the employment agreements has an initial term through June 30,
2001, but, beginning on June 30, 2000 and on June 30 each year thereafter, the
agreement is automatically extended for an additional year, unless either party
gives the other prior notice.
The employment agreements provide for each executive's base salary and a
maximum bonus of up to 50% of the base salary. The employment agreements also
provide for incentive stock options and participation in our employee benefit
plans.
In the event we terminate the executive without cause or if the executive
terminates his employment for good reason, the agreements provide: 24 equal
monthly installments equal to the sum of one-twelfth of the executive's annual
base salary plus the maximum bonus described above, the executive's outstanding
stock options and any stock subject to restricted stock purchase agreements
shall accelerate and fully vest, and to the extent permitted by law, accounts
under our deferred compensation plans or arrangements shall accelerate and fully
vest, including any amounts contributed by us for the year in which the
termination occurs.
In the event of certain changes of control, at the option of the employees:
the term of the employment will terminate, the employee's stock options and any
stock subject to restricted stock purchase agreements will accelerate and fully
vest, and we will pay the executive an amount equal to two times the annual base
salary then in effect plus 100% of the maximum bonus.
The employment agreements also provide that, during the term of the
agreement and for two years following the termination of the agreement, the
executive will not compete directly or indirectly in the U.S. or Canada in any
capacity in a business which is competitive with us. Provision has also been
made for the confidentiality of certain of our proprietary information and that
the executive, for two years after the termination of the employment agreement,
will not induce or attempt to influence any of our employees to terminate his or
her employment with us or to hire any of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or the
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. The Compensation Committee consists of Messrs. James R. Price, Tracy S.
Turner and Russell R. Myers. Mr. James R. Price is our Chairman of the board of
directors. Two of the current members of the Compensation Committee, Messrs.
Tracy S. Turner and Russell R. Myers, are member-managers of Geneva Associates,
L.L.C. Affiliates of Geneva Associates, namely I(3)S Funding I, L.L.C., Blue
Ridge Investors Limited Partnership and Blue Ridge Investors II Limited
Partnership, collectively own approximately 36.9% of our outstanding stock.
During 1999, Geneva Associates was paid $350,000 for financial advisory
services. Additionally, in June 1999, we issued 60,000 stock options to Geneva
Associates, L.L.C. in exchange for advisory services. The options vest over
three years and have an exercise price of $9.40 per share.
1996 OMNIBUS STOCK PLAN
In February 1996, we adopted our omnibus stock plan to advance the
interests of our company and to improve stockholder value by providing
additional incentives to attract, retain and reward highly motivated and
qualified employees, directors and consultants. Our omnibus stock plan was
amended and restated on October 7, 1999. The Administrative Committee of our
board of directors administers our omnibus stock plan subject to those specific
powers reserved for the board of directors in our omnibus stock plan.
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<PAGE> 60
Shares Subject to the Plan; General Terms
Under our omnibus stock plan, we can grant awards consisting of options,
reload options, restricted stock awards, stock appreciation rights, and
performance awards, totaling 10,000,000 shares of our common stock. That number
will be adjusted automatically if there shall be any increase or decrease in the
number of issued and outstanding shares through declaration of a stock dividend
or through any recapitalization resulting in a stock split-up, combination or
exchange of the shares of our common stock. Equitable adjustments to the number
of shares subject to each award and to the payment required to obtain such
shares will also be made so that the same proportion of shares will be subject
to the award and the aggregate consideration to acquire all shares subject to
the award remains as it was prior to the recapitalization. The Administrative
Committee has discretion to change the number of options and the exercise price
of the options when, in the Committee's judgment, such adjustment becomes
necessary by reason of certain corporate transactions specified in United States
Treasury Department regulations. As of December 31, 1999, we had granted options
under our omnibus stock plan to acquire 7,505,000 shares of our common stock of
which options for 14,400 shares had been exercised, 94,000 shares had been
cancelled and options for 7,396,600 shares of common stock remained outstanding.
These options vest over various periods, generally ranging from two to five
years. However, options to acquire 2,997,000 shares of common stock will
accelerate and fully vest upon the closing of this offering.
Eligibility
All of our employees, directors and consultants are eligible to receive
awards under our omnibus stock plan. For tax reasons, the availability of
incentive stock options is restricted to employees, with all other awards
available to employees, directors and consultants. The Administrative Committee,
as administrator of our omnibus stock plan, determines the prices, exercise
schedules, expiration dates and other material conditions under which recipients
may exercise their awards.
Types of Awards
Stock Options. Options granted under our omnibus stock plan may be either
options that are intended to qualify for treatment as "incentive stock options"
under Section 422 of the Internal Revenue Code or options that are not, which
are non-qualified stock options. The exercise price of incentive stock options
must be at least the fair market value of a share of the common stock on the
date of grant, and not less than 110% of the fair market value in the case of an
incentive stock option granted to an optionee owning 10% or more of the common
stock. Our omnibus stock plan limits the number of shares covered by incentive
stock options that an individual can receive, when exercisable by an optionee
for the first time in a calendar year as defined by our omnibus stock plan, to
an aggregate fair market value of $100,000 as measured on the date of the grant.
The term of an option may not exceed ten years (or five years in the case
of an incentive stock option granted to an optionee owning 10% or more of our
common stock). The Administrative Committee may condition the exercise of any
option upon any factors the Administrative Committee may determine.
Stock Reload Options. The Administrative Committee may grant stock reload
options. A stock reload option permits a participant who exercises an option by
delivering already owned stock to receive back from us a new option, at the
current market price, for the same number of shares delivered to exercise the
option. The new option may not be exercised until six months after it was
granted and expires on the date the original option would have expired had it
not been previously exercised. The Administrative Committee may also specify
additional terms, conditions and restrictions for the reload options and the
shares to be acquired upon the exercise thereof.
Restricted Stock Awards. The Administrative Committee may award shares of
restricted stock either alone or in addition to other awards granted under our
omnibus stock plan. The Administrative Committee shall determine the restricted
period during which the shares of stock may be forfeited if, for example, the
participant's employment is terminated. In order to enforce the forfeiture
provisions, our
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omnibus stock plan requires that no shares of restricted stock may be disposed
of prior to the termination of all restrictions.
Stock Appreciation Rights. The Administrative Committee may grant stock
appreciation rights or limited stock appreciation rights in conjunction with any
or all stock options granted under our omnibus stock plan. If granted in
conjunction with non-qualified stock options, stock appreciation rights may be
granted either at or after the time of the grant of the non-qualified stock
options. If granted in conjunction with incentive stock options, stock
appreciation rights may be granted only at the time of the grant of an incentive
stock option. A stock appreciation right entitles the holder to receive an
amount (payable in cash and/or common stock, as determined by the Administrative
Committee) equal to the fair market value of one share of our common stock over
the stock appreciation price or exercise price of the related option multiplied
by the number of shares subject to the stock appreciation. Limited stock
appreciation rights are similar to stock appreciation rights, but apply in the
event of a tender offer for 30% or more of our then outstanding common stock,
other than by us, and such offeror acquires our common stock pursuant to such
offer. In such event, a holder of a limited stock appreciation right is entitled
an amount (payable in cash and/or common stock, as determined by the
Administrative Committee) equal to the highest price paid for a share of our
common stock in any tender offer within 60 days prior to the exercise of the
limited stock appreciation over the exercise price of the related option
multiplied by the number of shares subject to the limited stock appreciation.
Performance Awards. The Administrative Committee may grant performance
shares and shares of stock depending on participant performance. Performance
grants may be made either alone or in addition to or in tandem with stock
options or restricted stock. Subject to the terms of our omnibus stock plan, the
Administrative Committee has complete discretion to determine the terms and
conditions applicable to any such stock-based awards. Terms and conditions of
awards may require continued employment or the attainment of specified
performance objectives or both.
Termination of Awards
Our omnibus stock plan limits the time during which a holder of an option
or an award can exercise an option or an award to no more than ten years. In
addition, an optionee who leaves our employment will generally have no more than
30 days to exercise an option, reduced to no days after employment is terminated
for cause, and additional rules apply to cases of death and disability. The
Administrative Committee may, however, override the plan's rules, other than the
ten year limit. We cannot grant additional options under our omnibus stock plan
after February 13, 2006, the tenth anniversary of its adoption.
Amendments to our 1996 Omnibus Stock Plan
Our board of directors, or the Administrative Committee with the prior
written authorization of the board of directors, may amend or terminate our
omnibus stock plan, as long as no amendment or termination affects options or
awards previously granted. However, the plan requires stockholder approval of
any amendment that increases the number of shares available under the plan, that
permits the granting of awards beyond the ten year period, that changes the
class of who is eligible to participate in our omnibus stock plan or for which
applicable law (including the Nasdaq Stock Market rules) requires stockholder
approval.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 15, 2000, and as adjusted
to reflect (i) the conversion of all of our preferred stock, Class B common
stock and Class C common stock to common stock immediately prior and subject to
the offering, (ii) the two for one stock split to be effected on March 31, 2000,
and (iii) the sale of shares of common stock offered in this offering for:
- each person who we know owns beneficially more than 5% of our common
stock;
- each of our directors and each of the persons who has agreed to become a
director following this offering;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Except as indicated in the notes to this table and under applicable
community property laws, to our knowledge, the persons named in the table have
sole voting and investment power with respect to all shares of common stock.
Options exercisable on or before May 15, 2000, or which become exercisable upon
the closing of this offering, are included as shares beneficially owned. For the
purposes of calculating percent ownership as of March 15, 2000, 34,673,072
shares were issued and outstanding, on an as converted basis, and, for any
individual who beneficially owns shares represented by options exercisable on or
before May 15, 2000, or which become exercisable upon the closing of this
offering, these shares are treated as if outstanding for that person, but not
for any other person.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER BEFORE AFTER
NAME OF BENEFICIAL OWNER OF SHARES CLOSING CLOSING
- ------------------------ ---------- ------- --------
<S> <C> <C> <C>
James R. Price(1)(2)........................................ 9,256,764 26.4%
Charles W. (Bo) Price(2)(3)................................. 9,656,708 27.7%
Clay C. Scott, Jr.(4)....................................... 500,000 1.4%
Matthew Hutchins, Sr.(5).................................... 2,650,000 7.1%
Daniel A. Gillett(6)........................................ 1,370,000 3.8%
John J. Galgay, III(7)...................................... 483,334 1.4%
Russell R. Myers(8)(9)(10)(11).............................. 12,246,786 35.3%
Tracy S. Turner(8)(10)...................................... 10,094,236 29.1%
Gary S. Howard(12).......................................... 2,127,658 6.1%
Jeffrey A. Marcus(13)....................................... 600,000 1.7%
Jack A. Riggs(14)........................................... 200,000 * *
I(3)S Funding I, L.L.C.(10)................................. 10,054,236 29.0%
Blue Ridge Investors Limited Partnership(11)................ 2,097,868 6.1%
Spotswood Capital, LLC(15).................................. 2,074,464 6.0%
Nortel Networks Inc.(16).................................... 2,127,658 6.1%
Microsoft Corporation(17)................................... 2,127,658 6.1%
Liberty BBandnow Holdings, LLC(12).......................... 2,127,658 6.1%
All directors and officers as a group (total of 12)(18)..... 31,715,519 78.5%
</TABLE>
- ---------------
* Less than 1%.
(1)Includes 340,000 shares of common stock issuable pursuant to an option
granted under our 1996 Omnibus Stock Plan which is immediately exercisable
upon the closing of this offering. Includes 266,664 shares of common stock
held of record by the Price Grantor Retained Annuity Trust which is
controlled by Barbara Price, James R. Price's wife, as Trustee. Mr. Price
disclaims beneficial ownership of these shares. Excludes 2,580,000 shares of
common stock held of record by Charles W.
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(Bo) Price, James R. Price's brother, and the shares reflected in note (3)
as to which James R. Price disclaims beneficial ownership.
(2)Includes 2,870,800 shares of common stock subject to the irrevocable proxies
over which James R. Price and Charles W. (Bo) Price exercise voting power.
James R. Price and Charles W. (Bo) Price disclaim beneficial ownership of
such shares except as to their pecuniary interest therein. Includes
2,452,604 shares of which James R. Price and Charles W. (Bo) Price have
voting control pursuant to voting trust agreements, which will terminate
upon the closing of this offering, James R. Price and Charles W. Price
disclaim beneficial ownership except as to any pecuniary interest therein.
The business address for James R. Price and Charles W. (Bo) Price is 1440
Corporate Drive, Irving, Texas 75038.
(3)Includes 200,000 shares of common stock issuable pursuant to an option
granted under our 1996 Omnibus Stock Plan which is immediately exercisable
upon the closing of this offering. Includes 420,000 shares of common stock
held of record by the Bo Price Grantor Retained Annuity Trust controlled by
Charles W. (Bo) Price, as Trustee. Mr. Price disclaims beneficial ownership
of these shares except to the extent of his pecuniary interests therein.
Does not include 3,326,696 shares of common stock held of record by James R.
Price, Charles W. (Bo) Price's brother. Includes 266,664 shares of common
stock held of record by the Price Grantor Retained Annuity Trust which is
controlled by Barbara Price, James R. Price's wife, as Trustee, over which
Charles W. (Bo) Price exercises voting power pursuant to a proxy. Includes
433,320 shares of common stock held of record by the Suzanne Price Williams
1999 GST Trust controlled by Suzanne Price Williams, James R. Price's
daughter, and Smith Barney Private Trust Company, as Trustees, over which
Charles W. (Bo) Price exercises voting power pursuant to a proxy. Mr. Price
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interests therein. Includes 433,320 shares of common stock held of
record by the Cynthia Price Stalcup 1999 GST Trust which is controlled by
Cynthia Price Stalcup, James R. Price's daughter, and Smith Barney Private
Trust Company, as Trustees, over which Charles W. (Bo) Price exercises
voting power pursuant to a proxy. Mr. Price disclaims beneficial ownership
of these shares except to the extent of his pecuniary interests therein.
(4)()
Includes 200,000 shares of common stock held by Clay Scott Family Partners,
Ltd. which is controlled by Clay C. Scott, Jr. Mr. Scott disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interests therein. The business address for Mr. Scott is 1440 Corporate
Drive, Irving, Texas 75038.
(5)Includes 2,650,000 shares of common stock issuable pursuant to options
granted under our 1996 Omnibus Stock Plan, all of which are exercisable
within sixty days of March 15, 2000 or upon the closing of this offering.
(6)()
Includes 1,370,000 shares of common stock issuable pursuant to options
granted under our 1996 Omnibus Stock Plan, all of which are exercisable
within sixty days of March 15, 2000 or upon the closing of this offering.
(7)()
Includes 483,334 shares of common stock issuable pursuant to options granted
under our 1996 Omnibus Stock Plan, all of which are exercisable within sixty
days of March 15, 2000.
(8)Includes all the shares held of record by I(3)S Funding I, L.L.C. Messrs.
Myers and Turner are each member-managers of Geneva Associates, L.L.C.,
which is the manager of I(3)S Funding I, L.L.C.
(9)Includes the shares held of record by Blue Ridge Investors Limited
Partnership. Mr. Myers is the Treasurer of Blue Ridge Investors Group, Inc.
which is a principal of Blue Ridge Investors Limited Partnership. Also
includes 94,682 shares of preferred stock held of record by Blue Ridge
Investors II Limited Partnership. Mr. Myers is a Manager of Blue Ridge
Investors Group II, L.L.C. which is a principal of Blue Ridge Investors II
Limited Partnership.
(10)Includes 1,093,404 shares of common stock held of record by James R. Price
and Charles W. (Bo) Price, as Trustee for I(3)S Funding I, L.L.C. which are
subject to the voting trust agreements referenced in note (2).
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(11)Includes 679,600 shares of common stock held of record by James R. Price and
Charles W. (Bo) Price, as Trustee for Blue Ridge Investors Limited
Partnership which are subject to the voting trust agreements referenced to
in note (2). The address of Blue Ridge Investors Limited Partnership is P.
O. Box 21962, Greensboro, NC 27420.
(12)Includes the 2,127,658 shares of common stock held of record by Liberty
BBandnow Holdings, LLC, a subsidiary of Liberty Media Corporation. Mr.
Howard is an Executive Vice President and Chief Operating Officer and a
director of Liberty Media Corporation. Mr. Howard disclaims beneficial
ownership in these shares. The address for Mr. Howard and Liberty BBandnow
Holdings, LLC is 9197 S. Peoria St., Englewood, CO 80112.
(13)Includes 600,000 shares of common stock issuable under a warrant granted to
Marcus & Partners, L.P., of which Mr. Marcus is a partner. The business
address for Mr. Marcus is 300 Crescent Court, Suite 800, Dallas, Texas
75201.
(14)Includes 300,000 shares of common stock issuable under warrants granted to
DOTCOM Limited Partnership, of which Mr. Riggs is a controlling partner.
Excludes the purchase right under the warrant for 100,000 of such shares
which will become exercisable upon the earlier to occur of (i) a change in
control of our company or (ii) one year from the date of grant at the
discretion of our President. The business address for Mr. Riggs is 5931
Velasco Avenue, Dallas, Texas 75206.
(15)Includes 679,600 shares of common stock held of record by James R. Price and
Charles W. (Bo) Price, as Trustee for Spotswood Capital, LLC, which are
subject to the voting trust agreements referenced to in note (2). The
address of Spotswood Capital, LLC is Suite 2190, First Union Tower, 300
North Greene Street, Greensboro, NC 27401.
(16)The address of Nortel Networks Inc. is 8 Federal Street, Billerica,
Massachusetts 01821.
(17)The address for Microsoft Corporation is One Microsoft Way, 8S/2055,
Redmond, Washington 98052.
(18)Includes all shares and options identified in the footnotes above except for
those set forth in notes (16) and (17) and also includes shares and options
held by our Vice President of Corporate Development and General Counsel. Our
officers and directors are eligible to purchase shares, and may purchase
shares, of common stock in the offering directly from the underwriters. See
"Underwriting -- Reserved Shares."
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Stock Sales
In March 1998, we sold I(3)S Funding I, L.L.C. 1,500,000 shares of Class B
common stock for $1.00 per share. Russell R. Myers and Tracy S. Turner are each
member-managers of Geneva Associates, L.L.C., which is the manager of I(3)S
Funding I, L.L.C.
In July 1998, we sold 1,750,000 shares of Class C common stock to Blue
Ridge Investors Limited Partnership for $1.00 per share. Mr. Myers is the
Treasurer of Blue Ridge Investors Group, Inc. which is a principal of Blue Ridge
Investors Limited Partnership. In connection with this sale and the sale of an
additional 1,750,000 shares of Class C common stock at the same time, we paid
Geneva Associates, L.L.C. an advisory fee of $87,000.
In December 1998, we sold 1,297,854 shares of Class B Common Stock to I(3)S
Funding I, L.L.C. and 324,464 shares of Class C Common Stock to Blue Ridge
Investors Limited Partnership for $1.541 per share. In connection with these
transactions and the sale of an additional 324,464 shares of Class C common
stock at the same time, we paid Geneva Associates, L.L.C. an advisory fee of
$75,000.
Pursuant to the Amendment to Stock Purchase Agreements, dated June 25,
1999, we agreed that we will nominate one I(3)S Funding I, L.L.C. designee to
our board of directors, so long as such designee is reasonably qualified, and
will recommend in our proxy statement that the stockholders vote for such
designee. I(3)S Funding I, L.L.C. will have this right so long as it continues
to hold at least 4,979,778 shares of Class A common stock attributable to the
Class B common stock (subject to adjustment as set forth in our certificate of
incorporation).
The advisory fees paid to Geneva Associates, L.L.C. for each of the
transactions listed above were comparable to those that would have been paid to
an unrelated third party.
Professional Services
Charles W. (Bo) Price, our Executive Vice President and a director, served
as our commercial real estate agent in the lease negotiations for our
headquarters in Dallas, Texas in July 1998. Mr. Price received a commission for
the transaction equal to $138,476. In December 1999, we purchased our corporate
headquarters. Mr. Price acted as our commercial real estate agent in this
transaction and received a commission of one percent, equal to $38,000, in
connection with this purchase. The commissions paid to Mr. Price in each of
these transactions were comparable to those that would have been paid to an
unrelated third party.
We have retained the law firm owned by Clay C. Scott, Jr., our Secretary
and a director, to provide legal services during the last fiscal year. The total
of all fees paid to Mr. Scott's firm in the last fiscal year were less than five
percent of the firm's total revenues for its last fiscal year.
In June 1999, we paid Geneva Associates, L.L.C. a financial advisory fee of
$300,000 in connection with the sale of $35 million of Series A preferred stock.
As part of this offering, we sold 127,128 shares and 11,702 shares of preferred
stock to Blue Ridge Investors II Limited Partnership and Blue Ridge Investors
Limited Partnership, respectively, for $18.80 per share. In December 1999, we
paid Geneva Associates, L.L.C. a financial advisory fee of $50,000 in connection
with the sale of $5 million of Series A preferred stock to GE Capital. Mr. Myers
is the manager of Blue Ridge Investors Group II, L.L.C. which is a principal of
Blue Ridge Investors II Limited Partnership.
Additionally, in June 1999, we issued 60,000 stock options to Geneva
Associates, L.L.C. in exchange for advisory services. The options vest over
three years and have an exercise price of $9.40 per share. There is no
arrangement with Geneva Associates, L.L.C. pursuant to which any future fees
will be paid by us to Geneva Associates for services.
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In January 2000, we sold Marcus & Partners, L.P. a warrant to purchase
600,000 shares of common stock with an exercise price of $9.40 per share, for a
cash consideration of $175,000. Jeffrey A. Marcus, who has agreed to become one
of our directors upon the consummation of the offering, is a partner of Marcus &
Partners. On December 21, 1999, we entered into an Advisory Agreement with
Marcus & Partners L.P., pursuant to which we agreed to pay Marcus & Partners, a
percentage based finders fee and a consulting fee consisting of four equal
payments of $45,000 each to be paid during the one year term of the agreement.
In January 2000, we paid Marcus & Partners a finders fee of $200,000 in
connection with the sale of $20 million of Series A preferred stock to Liberty
BBandnow Holdings, LLC, a subsidiary of Liberty Media Corporation. Jeffrey A.
Marcus, who has agreed to become one of our directors upon the consummation of
the offering, is a partner of Marcus & Partners. Gary S. Howard, who has agreed
to become one of our directors upon consummation of the offering, is an
Executive Vice President and Chief Operating Officer of Liberty Media
Corporation.
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
300,000 shares of common stock with an exercise price of $9.40 per share, for a
cash consideration of $60,000. The purchase right under the warrant for 100,000
of such shares will become exercisable upon the earlier to occur of (i) a change
in control of our company or (ii) one year from the date of grant at the
discretion of our President. Jack A. Riggs, who has agreed to become one of our
directors upon the consummation of the offering, is a controlling partner of
DOTCOM Limited Partnership.
The advisory fees paid to Geneva Associates, L.L.C. and the finders fee and
consulting fee paid to Marcus & Partners, L.P. for the transactions listed above
were comparable, in each case, to those that would have been paid to an
unrelated third party.
Indemnification Agreements
We have entered into Indemnification Agreements pursuant to which we will
indemnify all our directors and certain officers against judgments, claims,
damages, losses and expenses incurred as a result of the fact that any such
director or officer, in his capacity as such, is made or threatened to be made a
party to any suit or proceeding. Such persons will be indemnified to the fullest
extent now or hereafter permitted by the Delaware General Corporation Law. The
Indemnification Agreements also provide for the advancement of certain expenses
to such directors and officers in connection with any such suit or proceeding.
Insurance
We have a directors' and officers' liability insurance policy to insure our
directors and officers against losses resulting from wrongful acts committed by
them in their capacities as directors and officers, including liabilities
arising under the Securities Act.
STRATEGIC STOCK SALES
As part of our private placement of preferred stock, we sold shares of
preferred stock to certain strategic investors, including Archstone Communities,
Liberty Media, Lucent Technologies, Microsoft and Nortel Networks for $18.80 per
share. As a result of these purchases, Liberty Media, Microsoft and Nortel
Networks each acquired more than 5% of our common stock on an as converted
basis.
NORTEL PURCHASE AGREEMENT
On July 15, 1999, we entered into a Master Purchase Agreement with Nortel
Networks through which we agreed to purchase and Nortel agreed to provide
certain products and services for a specified amount over an original period of
five years. Thereafter, the agreement shall automatically renew for one year
terms, unless either party provides written notice of its intent not to renew
the agreement.
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MICROSOFT MEMORANDUM OF UNDERSTANDING
On November 29, 1999, we signed a Memorandum of Understanding with
Microsoft, which contemplates entering into additional agreements by outlining a
number of joint initiatives we will undertake. These initiatives are focused
upon increasing the speed at which consumers adopt broadband services and the
building of online, localized communities for our subscriber base.
LIBERTY MEDIA LETTER AGREEMENT
On January 25, 2000, we entered into a letter agreement with Liberty Media
where we agreed to offer Liberty Media and its affiliates a first right to offer
to provide broadband content owned or controlled by Liberty Media and/or its
affiliates for distribution by us under an agreement containing mutually
acceptable terms. We have agreed to negotiate terms of definitive agreements
with Liberty Media and/or its affiliates on terms consistent with the letter
agreement.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 300,000,000 shares of common stock, $0.001 par value, and 50,000,000
shares of preferred stock, $0.001 par value, of which our board of directors has
designated 250,000 shares as Series A junior participating preferred stock
pursuant to our rights agreement. See "Certain Anti-Takeover Provisions under
Delaware Law and in our Restated Certificate of Incorporation and
Bylaws -- Rights Agreement." A two for one stock split to be effected on March
31, 2000.
The following description is a summary of the material terms of our common
stock, preferred stock and other relevant items. Please see our restated
certificate of incorporation and bylaws, filed as exhibits to the registration
statement of which this prospectus is a part, for more detailed information.
COMMON STOCK
Upon the closing of this offering, each of the outstanding shares of Class
B common stock and Class C common stock will be converted into common stock on a
one for one basis, and our certificate of incorporation will be restated to
eliminate the Class B common stock and Class C common stock designations. If the
stock split and conversion of the Class B common stock, Class C common stock and
all of our preferred stock had occurred on December 31, 1999, 30,639,526 shares
of common stock of all classes would have been outstanding and held of record by
stockholders on such date. The holders of our common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders. Holders of our common stock are entitled to receive, when and if
declared by the board of directors, dividends and other distributions in cash,
stock or property from our assets or funds legally available for those purposes
subject to any dividend preferences of the preferred stock. The common stock
does not have any sinking fund provisions, redemption provisions, or preemptive
rights. All outstanding shares of common stock are fully paid and
non-assessable. In the event of our liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in the assets available
for distribution.
PREFERRED STOCK
Upon the closing of this offering, all our preferred stock outstanding will
be converted into an aggregate of 9,693,690 shares of common stock. Our board of
directors has the authority, without further action by the stockholders, to
issue an aggregate of 50,000,000 shares of preferred stock in one or more
series, of which our board of directors has designated 250,000 shares as Series
A junior participating preferred stock pursuant to our rights agreement. See
"Certain Anti-Takeover Provisions under Delaware Law and in our Restated
Certificate of Incorporation and Bylaws -- Rights Agreement." Our board of
directors may, without stockholder approval, issue preferred stock with dividend
rates, voting rights and other preferences, which rights and preferences could
adversely affect the voting power of the holders of the common stock. Issuance
of preferred stock could have the effect of delaying, deferring or preventing a
change in control. Currently, we have no plans to issue any preferred stock.
REGISTRATION RIGHTS
Pursuant to the First Amended and Restated Registration Rights Agreement,
holders of our preferred stock, comprising a total of 9,693,690 shares of common
stock, are entitled to two demand registrations upon the earlier to occur of
April 4, 2002, or 180 days following this offering. For a demand registration to
occur, the holders of at least 51% of the stock subject to the First Amended and
Restated Registration Rights Agreement must propose to dispose of some or all of
their registrable stock. Any such demand is subject to an underwriter's cutback.
In addition, at any time, commencing 180 days after this offering, such
holders are also entitled to an unlimited number of piggy-back registration
rights with respect to any registration of our securities under the Securities
Act, other than a registration effected solely to implement an employee benefit
plan or transaction to which Rule 145 under the Securities Act applies. All
piggy-back registrations are subject to an underwriter's cutback. Unless
terminated earlier, these registration rights terminate on June 2, 2006.
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With respect to any holder of these registration rights, its registration rights
terminate if such holder owns less than the number of shares of registrable
stock that could be sold within a single three-month period under Rule 144 under
the Securities Act.
As of the effective date of the registration statement, I(3)S Funding I,
L.L.C. has the right at any time after April 4, 2002, to require us at our
expense, to register up to two primary or secondary offerings of our common
stock to the extent legally permissible.
I(3)S Funding I, L.L.C., Blue Ridge Investors Limited Partnership and
Spotswood Capital LLC are entitled to an unlimited number of piggy-back
registration rights with respect to any registration of our securities by us or
any of our directors or officers who are also stockholders.
Each of Marcus & Partners, L.P. and DOTCOM Limited Partnership is entitled
to one demand registration upon the earlier to occur of 18 months following this
offering or 90 days following an offering by holders of our preferred stock.
Each of Marcus & Partners, L.P. and DOTCOM Limited Partnership is also entitled
to an unlimited number of piggy-back registration rights, subject to certain
conditions and the underwriter's cutback. Unless terminated earlier, these
registration rights terminate on June 2, 2006.
PROXIES
Certain stockholders, representing a total of 50,400 shares of common
stock, have executed an irrevocable proxy appointing James R. Price as their
proxy to attend our stockholders' meetings, to vote, to execute consents and
otherwise act in the same manner and with the same effect as the stockholder.
Each such proxy is in effect until July 1, 2000. Stockholders representing
1,318,400 shares of common stock also executed an irrevocable proxy appointing
James R. Price as their proxy in the same manner as the other proxies, but this
proxy remains in effect until revoked by the stockholders who are signatories to
the document. James R. Price has executed a substitute power of attorney
granting Charles W. (Bo) Price the right to act as proxy for each of these
stockholders. Chancellor Enterprises, Ltd. executed a proxy appointing James R.
Price or Charles W. (Bo) Price as its proxy to attend our stockholders'
meetings, to vote, to execute consents and otherwise act in the same manner and
with the same effect as the stockholder.
The Price Grantor Retained Annuity Trust executed a proxy appointing
Charles W. (Bo) Price as its proxy to attend our stockholders' meetings, to
vote, to execute consents and otherwise act in the same manner and with the same
effect as the stockholder. The Suzanne Price Williams 1999 GST Trust and the
Cynthia Price Stalcup 1999 GSP Trust also executed a proxy appointing Charles W.
(Bo) Price as their proxy in the same manner as the other proxies, but this
proxy terminates upon completion of this offering.
OPTIONS/WARRANTS
In February 1996, we adopted our omnibus stock plan pursuant to which our
employees may be granted incentive stock options to purchase common stock. We
reserved 10,000,000 shares of our common stock for future issuances under such
plan. As of December 31, 1999, there were options outstanding under our omnibus
stock plan to acquire 7,396,600 shares of common stock. See "Management -- 1996
Omnibus Stock Plan."
On February 5, 1997, we borrowed $400,000 pursuant to a loan agreement with
Eric Chancellor. In partial consideration of this loan, Mr. Chancellor was
granted the option to purchase 1,500,000 shares of our common stock at a price
of $0.10 per share, which option has been exercised in full.
On April 4, 1997, as a finder's fee related to the sale of our Class B
common stock to I(3)S Funding I, L.L.C., we granted John T. Miller an option to
purchase 486,840 of our common stock at a price of $0.209 per share. Mr. Miller
has exercised part of his option and purchased 50,000 shares. Mr. Miller must
exercise his option to purchase the remaining 436,840 shares of common stock on
or before April 1, 2002.
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In June 1999, we issued 60,000 stock options to Geneva Associates, L.L.C.
in exchange for advisory services. The options vest over three years and have an
exercise price of $9.40 per share.
In January 2000, we sold Marcus & Partners, L.P. a warrant to purchase
600,000 shares of common stock with an exercise price of $9.40 per share, for a
cash consideration of $175,000.
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
300,000 shares of common stock with an exercise price of $9.40 per share, for a
cost consideration of $60,000. The purchase right under the warrant for 100,000
of such shares will become exercisable upon the earlier to occur of (i) a change
in control of our company or (ii) one year from the date of grant at the
discretion of our President.
As part of our marketing strategy, we plan to issue warrants at fair market
value to certain REITs and MDUs for the purpose of inducing such parties to make
available to their tenants our broadband services on an exclusive basis. The
purchase rights under such warrants will be immediately exercisable; however, no
common stock issuable upon the exercise of such rights may be sold prior to the
expiration of at least six months following this offering and all common stock
so issued will be restricted stock within the meaning of Rule 144 of the
Securities Act.
CERTAIN ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW AND IN OUR RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS
Some provisions of our restated certificate of incorporation and bylaws
effective upon the closing of this offering, which provisions are summarized in
the following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
Classified Board of Directors
Our restated certificate of incorporation divides our directors into three
classes serving staggered three-year terms. As a result, stockholders will elect
approximately one-third of the board of directors each year. These provisions,
when coupled with the provision of our amended and restated certificate of
incorporation authorizing the board of directors to fill vacant directorships or
increase the size of the board of directors and the provision providing that
directors may only be removed for cause, may deter a stockholder from removing
incumbent directors and simultaneously gaining control of the board of directors
by filling the vacancies created by such removal with its own nominees.
Cumulative Voting
Our restated certificate of incorporation expressly denies stockholders the
right to cumulate votes in the election of directors.
Stockholder Action; Special Meeting of Stockholders
Our restated certificate of incorporation eliminates the ability of
stockholders to act by written consent, except for action by unanimous written
consent, which is expressly allowed. Our bylaws provide that special meetings of
stockholders may be called only by a majority of the board of directors, the
Chairman of the board, President or the majority of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders or to nominate candidates for election as
directors at an annual meeting of stockholders must provide timely written
notice. To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, that in the event
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that the annual meeting is called for a date that is not within 30 days before
or after such anniversary date, timely notice by the stockholder must be
received not later than the close of business on the tenth day following the
date on which notice of the date of the annual meeting was mailed to
stockholders or made public or 90 days before the meeting, whichever first
occurs. In the case of a special meeting of stockholders called for the purpose
of electing directors, timely notice by the stockholder must be received not
later than the close of business of the tenth day following the day on which
notice of the date of the special meeting was mailed or public disclosure of the
date of the special meeting was made or 90 days before the meeting, whichever
first occurs. Our bylaws also specify certain requirements as to the form and
content of a stockholder's notice. These provisions may preclude stockholders
from bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual meeting of stockholders.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could render more difficult or discourage an attempt to
obtain control by means of a proxy contest, tender offer, merger or otherwise.
Amendments; Supermajority Vote Requirements
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our restated certificate of incorporation imposes
supermajority vote requirements in connection with the amendment provisions of
our restated certificate of incorporation and bylaws, including those provisions
relating to the classified board of directors, removal of directors, action by
written consent and the ability of stockholders to call special meetings.
Rights Agreement
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
We have entered into a rights agreement which becomes effective upon this
offering. As with most stockholder rights agreements, the terms of our rights
agreement are complex and not easily summarized, particularly as they relate to
the acquisition of our common stock and to exercisability. The summary may not
contain all of the information that is important to you. Accordingly, you should
carefully read our rights agreement, which has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
Our rights agreement provides that each share of our common stock
outstanding will have one right to purchase one one-thousandth of a preferred
share attached to it. The purchase price per one one-thousandth of a preferred
share under the stockholder rights agreement is , subject to certain
adjustments.
Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately 10 days after someone acquires or commences a tender offer for 15%
of our outstanding common stock.
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After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of the common stock. Once
distributed, the rights certificates alone will represent rights.
All shares of our common stock issued before the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on the tenth anniversary of the date of this offering unless
earlier redeemed or exchanged by us.
If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to twice the purchase price of each right.
Each right will also entitle the holder to purchase a number of shares of
common stock of the acquiror having a then current market value of twice the
purchase price if an acquiror obtains 15% or more of our common stock and any of
the following occurs:
- we merge into another entity;
- an acquiring entity merges into us; or
- we sell more than 50% of its assets or earning power.
Under our rights agreement, any rights that are or were owned by an
acquiror of more than 15% of our outstanding common stock will be null and void.
We have deemed our significant stockholders specified in our rights agreement to
not be considered acquirors for this purpose.
Our rights agreement contains exchange provisions which provide that after
an acquiror obtains 15% or more, but less than 50%, of our outstanding common
stock, our board of directors may, at its option, exchange all or part of the
then outstanding and exercisable rights for common shares. In such an event, the
exchange ratio is one common share per right, adjusted to reflect any stock
split, stock dividend or similar transaction.
Our board of directors may, at its option, redeem all of the outstanding
rights under our rights agreement before the earlier of (1) the time that an
acquiror obtains 15% or more of our outstanding common stock or (2) the final
expiration date of the rights agreement. The redemption price under our rights
agreement is $0.01 per right, subject to adjustment. The right to exercise the
rights will terminate upon the action of our board ordering the redemption of
the rights and the only right of the holders of the rights will be to receive
the redemption price.
Holders of rights will have no rights as our stockholders, including the
right to vote or receive dividends, simply by virtue of holding the rights.
Our rights agreement provides that the provisions of the rights agreement
may be amended by the board of directors, without the approval of the holders of
the rights within the ten-day period after someone acquires or commences a
tender offer for 15% of our outstanding common stock. After this ten-day period,
however, the rights agreement may not be amended in any manner that would
adversely affect the interests of the holders of the rights, excluding the
interests of an acquiror. In addition, our rights agreement provides that no
amendment may be made to adjust the time period governing redemption at a time
when the rights are not redeemable.
Our rights agreement contains rights that have potential anti-takeover
effects. The rights may cause substantial dilution to a person or group that
attempts to acquire us without obtaining consent of our board of directors or
conditioning the offer on a substantial number of rights being acquired or
redeemed. Accordingly, the existence of the rights has the potential to deter
potential acquirors from making takeover proposals or tender offers that are not
negotiated with the board of directors. Nevertheless, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of the board of directors to negotiate with an acquiror on behalf of all its
stockholders. In addition, the rights should not interfere with a proxy contest.
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Delaware Business Combination Statute
Section 203 of the Delaware General Corporation Law imposes a three-year
moratorium on business combinations between a Delaware corporation and an
"interested stockholder" which is in general, a stockholder owning 15% or more
of a corporation's outstanding voting stock, or an affiliate or associate
thereof unless:
- prior to an interested stockholder becoming an interested stockholder,
the board of directors of the corporation approved either the business
combination or the transaction resulting in the interested stockholder
becoming an interested stockholder;
- upon consummation of the transaction resulting in an interested
stockholder becoming an interested stockholder, the interested
stockholder owns 85% of the voting stock outstanding at the time the
transaction commenced, excluding, from the calculation of outstanding
shares, shares beneficially owned by directors who are also officers and
certain employee stock plans; or
- on or after an interested stockholder becomes an interested stockholder,
the business combination is approved by the board of directors and
holders of at least 66 2/3% of the outstanding shares, other than those
shares beneficially owned by the interested stockholder, at a meeting of
stockholders.
Section 203 of the Delaware General Corporation Law applies to any corporation
incorporated in Delaware unless the corporation expressly elects not to be
governed by such legislation. We do not consider our significant stockholders to
be interested stockholders for the purposes of Section 203.
Limitations on Directors' Liability
Our restated certificate of incorporation provides that none of our
directors shall be liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- in respect of certain unlawful dividend payments or stock redemptions or
repurchases; or
- for any transaction from which the director derived an improper personal
benefit.
Additionally, if the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of our directors shall be limited to
the fullest extent permitted by the Delaware General Corporation Law, as
amended. The effect of these provisions is to eliminate our rights and our
stockholders' rights, through stockholders' derivative suits on our behalf, to
recover monetary damages against a director for breach of fiduciary duty as a
director, including breaches resulting from grossly negligent behavior, except
in the situations described above. These provisions do not limit the liability
of directors under federal securities laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe.
LISTING
We have applied for listing of our common stock on the Nasdaq National
Market under the trading symbol "BBNW."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option. Of the outstanding shares, the shares
being sold in this offering will be freely tradable, except that any shares held
by our "affiliates" may only be sold in compliance with the limitations
described below. The remaining shares of common stock will be
"restricted securities" that may be sold in the public market only if they are
registered under the Securities Act or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act. Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<C> <S>
Upon the date of this prospectus. These shares
are eligible for resale under Rule 144(k) and
are not subject to lock-up agreements.
After 90 days from the date of this prospectus.
These additional shares are eligible for resale
under Rules 144 and 701 and are not subject to
lock-up agreements.
After 180 days from the date of this prospectus.
These additional shares are eligible for resale
under Rules 144 and 701 upon release of lock-up
agreements.
</TABLE>
RULE 144
In general, under Rule 144, a person, or persons whose shares are required
to be aggregated, including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of 1% of the then-outstanding shares of common stock which
will be approximately shares immediately after this offering, or the
average weekly trading volume of the common stock during the four calendar weeks
preceding the date on which notice of that sale is filed. Sales under Rule 144
are subject to certain manner of sale limitations, notice requirements and the
availability of current public information about us.
RULE 144(k)
Under Rule 144(k), a person who is not considered an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years is entitled to sell such shares under
Rule 144(k) without compliance with certain restrictions, including the volume
limitations, contained in Rule 144.
STOCK OPTIONS
Through December 31, 1999, we have granted options to purchase 7,396,000
shares of common stock to specified persons pursuant to our omnibus stock plan.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately shares of common stock
reserved for issuance under our omnibus stock plan. See "Management -- 1996
Omnibus Stock Plan." The registration statement will become effective
automatically upon filing. Shares issued under the foregoing
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plan, after the filing of a registration statement on Form S-8 may be sold in
the open market, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates, the lock-up agreements and vesting
restrictions imposed by us.
LOCK-UP AGREEMENTS
Directors, officers and stockholders holding an aggregate of
shares of common stock have agreed that they will not, directly or indirectly,
sell, offer, or agree to sell, grant any option for the sale of, pledge or
otherwise dispose of any shares of common stock for a period of 180 days after
the date of this prospectus. However, Bear, Stearns & Co. Inc. may in its sole
discretion, at any time without notice, consent to the release of all or any
portion of the shares subject to lock-up agreements. We have agreed not to,
directly or indirectly, sell or otherwise dispose of any shares of common stock
during the 180-day period following the date of this prospectus, other than the
grant of options under our omnibus stock plan and the issuance of common stock
pursuant thereto, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates, the lock-up agreements and vesting
restrictions imposed by us.
In addition, following 180 days after the consummation of this offering,
the holders of shares of outstanding common stock will, under some
circumstances, have rights to require us to register their shares for future
sale. See "Description of Capital Stock -- Registration Rights."
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UNDERWRITING
GENERAL
Subject to the terms and conditions of the underwriting agreement between
us and the underwriters named below, who are represented by Bear, Stearns & Co.
Inc., Chase Securities Inc. and Jefferies & Company, Inc., the underwriters have
generally agreed to purchase from us the following respective numbers of shares
of common stock at the public offering price less the underwriting discounts and
commissions set forth on the cover of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Chase Securities Inc........................................
Jefferies & Company, Inc. ..................................
Total.............................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration statement,
the continuing correctness of our representations to them, the receipt of a
"comfort letter" from our accountants, the listing of the common stock on the
Nasdaq National Market and no occurrence of an event that would have a material
adverse effect on our business. The underwriters are obligated to purchase and
accept delivery of all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
change.
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The following table shows the per share and the total public offering
price, the underwriting discount to be paid by us to the underwriters and the
proceeds before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price..................................... $ $ $
Underwriting discounts and commissions.................... $ $ $
Proceeds, before expenses, to us ......................... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to of the shares offered by this prospectus
to be sold to some of our employees, officers, directors and other persons who
have expressed an interest. The number of shares of our common stock available
for sale to the general public will be reduced to the extent that those persons
purchase the reserved shares. Any reserved shares which are not orally confirmed
for purchase within one day of the pricing of the offering will be offered by
the underwriters to the general public on the same terms as the other shares
offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all of our existing
stockholders have agreed, without the prior written consent of Bear, Stearns &
Co. Inc. on behalf of the underwriters for a period of 180 days after the date
of this prospectus, not to directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"BBNW."
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Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among us and the representatives of the
underwriters. The material factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and valuations of generally comparable
companies; and
- estimates of our business potential.
There can be no assurance that an active trading market will develop for
our common stock or that our common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters have advised us that they do not expect sales of the
common stock to any accounts over which they exercise discretionary authority to
exceed 5% of the number of shares being offered in this offering.
NASD REGULATIONS
The underwriters will not confirm sales of the common stock to any account
over which they exercise discretionary authority without the prior written
specific approval of the customer.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999 and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our consolidated 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.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by King & Spalding, New York, New York. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Jenkens & Gilchrist, P.C., Dallas, Texas.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. As allowed by SEC rules, this prospectus does not contain
all of the information included in that registration statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
document are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to that registration statement, you should
read the applicable exhibit for a more complete understanding of the document or
subject matter involved.
You may read and copy any document we file with the SEC, including the
registration statement, of which this prospectus is a part, at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. These
documents may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006. Please call the SEC at 1-800-SEC-0330 for
further information on the SEC's public reference room. You may also request
copies of such documents, upon payment of a duplicating fee, by writing to the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such
documents over the Internet at the SEC's website at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
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GLOSSARY OF TERMS
ADSL....................... Asymmetrical Digital Subscriber Line. Currently the
most common form of DSL technology.
Asynchronous Transfer Mode
or ATM..................... High-bandwidth, low-delay, connection-oriented,
switching and multi-plexing technique requiring
53-byte, fixed-sized cells.
Backbone................... An element of the network infrastructure that
provides high-speed, high-capacity connections
among the network's physical points of presence,
i.e., connection points and Network Operations
Centers. The backbone is used to transport
subscriber traffic across the metropolitan area and
across the United States.
Bandwidth.................. Refers to the maximum amount of data that can be
transferred through a computer's backbone or
communication channel in a given time. It is
usually measured in Hertz, cycles per second, for
analog communications and bits per second for
digital communications.
Central office............. Incumbent carrier facility where subscriber lines
are joined to ILEC switching equipment.
CMTS....................... Cable Modem Termination System. Data head-end
equipment for data-over cable plants which converts
digital data conversion signals to/from analog for
transport on an HFC plant.
Co-location................ A location where a competitive carrier network
interconnects with the network of an incumbent
carrier inside an incumbent carrier's central
office.
Competitive carrier........ Category of telephone service provider, or carrier,
that offers local exchange and other services
similar to and in competition with those of the
incumbent carrier, as allowed by recent changes in
telecommunications law and regulation. A
competitive carrier may also provide other types of
services such as long distance telephone, data
communications, Internet access and video.
Copper line or loop........ A pair of traditional copper telephone lines using
electric current to carry signals from the central
office to a residence or business.
Digital.................... Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission and switching technologies employ a
sequence of these pulses to convey information, as
opposed to the continuously variable analog signal.
The precise digital numbers preclude distortion,
such as graininess or "snow", in the case of video
transmission, or static or other background
distortion in the case of audio transmission.
DOCSIS..................... Data Over Cable Service Interface Specification.
Downstream................. Refers to the dataflow from the network to the
subscriber.
DS-0....................... Digital Service 0. Standard telecommunications
industry digital signal format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. DS-0 service has a
bit rate of 64 Kilobits per second.
77
<PAGE> 81
DS-1....................... Digital Service 1. In the digital hierarchy, this
signaling standard defines a transmission speed of
1.544 Mbps.
DS-3....................... Digital Service 3. In the digital hierarchy, this
signaling standard defines a transmission speed of
44.736 Mbps, equivalent to 28 T-1 channels. This
term is often interchangeable with T-3.
xDSL....................... Digital Subscriber Line. A transmission technology
enabling high-speed access in the local copper
loop, often referred to as the last mile between
the network service provider -- i.e., an incumbent
carrier, competitive carrier or an Internet service
provider -- and the subscriber.
DSLAM...................... Digital Subscriber Line Access
Multiplexer. Aggregates multiple digital subscriber
lines into a single chassis for transport into/from
the data network.
e-commerce................. Electronic commerce. An Internet service that
supports electronic transactions between customers
and vendors to purchase goods and services.
Ethernet................... The most widely implemented LAN technology. Its
specification became the basis for the IEEE 802.3
standard. A typical Ethernet LAN utilizes coaxial
cable or twisted pair wires for its cabling
infrastructure. Through its access method it is
able to handle simultaneous access from the devices
on the network.
Firewall................... A computer device that separates a local area
network from a wide area network and prevents
unauthorized access to the local area network
through the use of electronic security mechanisms.
Frame relay................ A form of packet switching with variable length
frames that may be used with a variety of
communications protocols.
HFC........................ Hybrid Fiber Coaxial. A transmission network for
video and data delivery composed of fiber optic and
coaxial cables.
IEEE....................... Institute of Electrical and Electronics Engineers.
Incumbent carrier.......... A company providing local exchange services on the
date of enactment of the Telecommunications Act of
1996. These companies consist of the Regional Bell
Operating Companies, GTE and numerous independent
telephone companies.
Interconnection
agreement.................. A contract between an incumbent carrier and a
competitive carrier for the connection of a
competitive carrier network to the public switched
telephone network, as well as competitive carrier
access to incumbent carrier unbundled network
elements, e.g., copper loops. This agreement sets
out some of the financial agreements and
operational aspects of such interconnection and
access.
Internet................... An array of interconnected networks using a common
set of protocols defining the information coding
and processing requirements that can communicate
across hardware platforms and over many links; now
operated by a consortium of telecommunications
service providers and others.
78
<PAGE> 82
Internet protocol or IP.... A standard for software that keeps track of the
inter-network addresses for different nodes, routes
outgoing packets and recognizes incoming packets.
ISDN....................... Integrated Services Digital Network. A transmission
method that provides circuit-switched access to the
public network at speeds of 64 or 128 Kbps for
voice, data and video transmission.
Internet service
provider................... A company that provides direct access to the
Internet.
Interexchange carrier...... Usually referred to as a long-distance service
provider for traditional toll voice services. There
are many interexchange carriers, including AT&T,
MCI WorldCom, Sprint and Qwest.
Kbps....................... Kilobits per second. 1,000 bits per second.
Long distance carrier...... A long distance carrier providing services between
local access transport areas on an intrastate or
interstate basis, also referred to in the industry
as an "interexchange carrier". A long distance
carrier may also be a long distance resale company.
LAN........................ Local Area Network.
Mbps....................... Megabits per second. Millions of bits per second.
MDU........................ Multiple Dwelling Units.
Modem...................... An abbreviation of Modulator-Demodulator. An
electronic signal-conversion device used to convert
digital signals from a computer to analog form for
transmission over the telephone network. At the
transmitting end, a modem working as a modulator
converts the computer's digital signals into
analog-signals that can be transmitted over a
telephone line. At the receiving end, another modem
working as a demodulator converts analog signals
back into digital signals and sends them to the
receiving computer.
Network.................... An integrated system composed of switching
equipment and transmission facilities designed to
provide for the direction, transport and accounting
of telecommunications traffic.
OC-3....................... Optical carrier 3. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. OC-3 service has a
bit rate of 155.5 Mbps.
OC-12...................... Optical carrier 12. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. OC-12 service has a
bit rate of 622.8 Mbps.
OC-48...................... Optical carrier 48. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. OC-48 service has a
bit rate of 2.5 gigabits per second.
Packets.................... Information represented as bytes grouped together
through a communication node with a common
destination address and other attribute
information.
79
<PAGE> 83
Passings................... Passings include all of the doors for potential
subscribers which, through our existing agreements
with our service partners, we have the right to be
granted access to and/or the right to construct
facilities to provide our services. We do not
include passings attributable to service partners
who do not have the financial strength to construct
the necessary infrastructure to allow us to provide
high-speed data services.
Passings constructed....... Passings constructed identifies the number of doors
for potential subscribers where we have built out
the infrastructure necessary to provide high-speed
data services within 24 hours of receiving a
request to do so.
Resellers.................. Generally used to refer to a telecommunications
provider who does not own any switching or
transmission facilities. In reality, a large number
of providers furnish services through a combination
of owned and resold facilities.
Router..................... A device that accepts the Internet protocol from a
local area network or another wide area network
device and switches/routes Internet protocol
packets across a network backbone. Routers also
provide protocol conversion services to transfer
Internet protocol packets over frame relay,
Asynchronous Transfer Mode, and other network
services.
T-1........................ This is a Bell System term for a digital
transmission link with a capacity of 1.544 Mbps.
Upstream................... Refers to the dataflow from the subscriber to the
network.
VLAN....................... Virtual Local Area Network.
80
<PAGE> 84
BROADBANDNOW, INC.
CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the three years in
the period ended
December 31, 1999......................................... F-4
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit) for the
three years in the period ended December 31, 1999......... F-5
Consolidated Statements of Cash Flows for the three years in
the period ended December 31, 1999........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
BroadbandNOW, Inc.
We have audited the accompanying consolidated balance sheets of
BroadbandNOW, Inc., as of December 31, 1998 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of
BroadbandNOW, Inc., at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Dallas, Texas
January 21, 2000
(except for the last paragraph of
Note 5, as to which the
date is February 3, 2000 and except for the
first paragraph of Note 2, as to which
the date is March 31, 2000)
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts for the 2-for-1 stock split described in
Note 2 to the consolidated financial statements.
/s/ Ernst & Young LLP
Dallas, Texas
March 17, 2000
F-2
<PAGE> 86
BROADBANDNOW, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999
1998 1999 PRO FORMA
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 3,093,261 $ 52,802,252 $ 76,387,868
Accounts receivable, net of allowance for doubtful
accounts of $61,000 in 1998 and $296,000 at
December 31, 1999.................................. 156,102 198,885 198,885
Prepaid expenses and other current assets............. 198,286 854,405 854,405
----------- ------------ ------------
3,447,649 53,855,542 77,441,158
Property and equipment, net............................. 7,476,976 22,780,966 22,780,966
Other assets............................................ 42,150 98,440 98,440
----------- ------------ ------------
Total assets.................................. $10,966,775 $ 76,734,948 $100,320,564
=========== ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................................... $ 101,283 $ 2,643,919 $ 2,643,919
Accrued expenses...................................... 89,055 826,661 826,661
Current portion of note payable and capital lease
obligations........................................ 494,170 4,621,396 4,621,396
----------- ------------ ------------
Total current liabilities..................... 684,508 8,091,976 8,091,976
Note payable and capital lease obligations, less current
portion............................................... 5,647,989 14,158,627 14,158,627
Other long-term liabilities............................. 28,525 -- --
Commitments
Redeemable convertible preferred stock:
Series A convertible preferred stock, $0.001 par
value:
Authorized shares -- 6,900,000
Issued and outstanding shares -- 3,581,122 actual
at December 31, 1999 and none pro forma December
31, 1999
Liquidation preference of $67,325,127 plus any
accumulated and unpaid dividends at December 31,
1999 and none at December 31, 1999 pro forma..... -- 66,915,017 --
Stockholders' equity (deficit):
Class A common stock, $0.001 par value:
Authorized shares -- 100,000,000
Outstanding shares -- 9,310,800 and 9,368,800 at
December 31, 1998, and December 31, 1999,
respectively and 19,062,490 at December 31, 1999
pro forma........................................ 9,311 9,369 19,063
Class B common stock, $0.001 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 9,959,554 at
December 31, 1998 and December 31, 1999 and
December 31, 1999 pro forma...................... 9,960 9,960 9,960
Class C common stock, $0.001 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 4,148,928 at
December 31, 1998 and December 31, 1999 and
December 31, 1999 pro forma...................... 4,149 4,149 4,149
Additional capital.................................... 9,769,575 10,225,492 103,062,499
Accumulated deficit................................... (5,187,242) (22,679,642) (25,025,710)
----------- ------------ ------------
Total stockholders' equity (deficit).......... 4,605,753 (12,430,672) 78,069,961
----------- ------------ ------------
Total liabilities, redeemable convertible
preferred stock, and stockholders' equity
(deficit)................................... $10,966,775 $ 76,734,948 $100,320,564
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 87
BROADBANDNOW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Internet subscriber services....................... $ -- $ 17,453 $ 443,648
Managed network services........................... 159,062 133,500 117,459
Systems integration................................ 1,258,555 544,868 19,077
Equipment sales.................................... 2,373,097 643,721 324,381
Other revenue...................................... 10,320 15,584 3,977
----------- ----------- ------------
Total revenues............................. 3,801,034 1,355,126 908,542
Expenses:
Operating costs.................................... 1,465,810 2,630,700 9,723,866
Cost of equipment sales............................ 2,061,956 540,515 312,787
Product development................................ 64,803 256,975 1,210,854
Sales and marketing................................ 341,473 346,235 1,011,876
General and administrative......................... 680,825 1,298,268 4,538,068
----------- ----------- ------------
Total expenses............................. 4,614,867 5,072,693 16,797,451
----------- ----------- ------------
Loss from Operations................................. (813,833) (3,717,567) (15,888,909)
Interest (income).................................... -- (19,284) (1,141,073)
Interest expense..................................... 44,294 48,412 742,001
Other (income) expense, net.......................... 25,350 28,096 (12,383)
----------- ----------- ------------
Net loss............................................. (883,477) (3,774,791) (15,477,454)
----------- ----------- ------------
Preferred stock dividends and accretion.............. -- -- 2,014,946
----------- ----------- ------------
Net loss attributed to common stockholders........... $ (883,477) $(3,774,791) $(17,492,400)
=========== =========== ============
Basic and diluted net loss per share................. $ (0.06) $ (0.20) $ (0.75)
=========== =========== ============
Weighted average shares outstanding.................. 14,694,714 19,163,670 23,436,596
=========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 88
BROADBANDNOW, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES OF
SERIES A SERIES A
REDEEMABLE REDEEMABLE SHARES OF SHARES OF SHARES OF
CONVERTIBLE CONVERTIBLE CLASS A CLASS A CLASS B CLASS B CLASS C
PREFERRED PREFERRED COMMON COMMON COMMON COMMON COMMON
STOCK STOCK STOCK STOCK STOCK STOCK STOCK
----------- ----------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............. -- $ -- 9,750,000 $9,750 -- $ -- --
Issuance of common stock............... -- -- -- -- 7,161,700 7,162 --
Purchase of treasury stock (500,000
shares Class A common stock)......... -- -- (500,000) (500) -- -- --
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ------ --------- ------ ---------
Balance at December 31, 1997............. -- -- 9,250,000 9,250 7,161,700 7,162 --
Issuance of common stock, including
exercise of stock options............ -- -- 60,800 61 2,797,854 2,798 4,148,928
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ------ --------- ------ ---------
Balance at December 31, 1998............. -- -- 9,310,800 9,311 9,959,554 9,960 4,148,928
Exercise of stock options.............. -- -- 58,000 58 -- -- --
Sale of preferred stock................ 3,581,122 64,938,427 -- -- -- -- --
Dividends on preferred stock........... -- 1,764,314 -- -- -- -- --
Preferred stock dividends paid......... -- (38,356) -- -- -- -- --
Accretion of offering costs for
preferred stock...................... -- 250,632 -- -- -- -- --
Compensation expense related to stock
option grants........................ -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ------ --------- ------ ---------
Balance at December 31, 1999............. 3,581,122 $66,915,017 9,368,800 $9,369 9,959,554 $9,960 4,148,928
========= =========== ========= ====== ========= ====== =========
<CAPTION>
CLASS C
COMMON ADDITIONAL ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996............. $ -- $ 614,172 $ (528,974) $ 94,948
Issuance of common stock............... -- 1,377,638 -- 1,384,800
Purchase of treasury stock (500,000
shares Class A common stock)......... -- (12,000) -- (12,500)
Net loss............................... -- -- (883,477) (883,477)
------ ----------- ------------ ------------
Balance at December 31, 1997............. -- 1,979,810 (1,412,451) 583,771
Issuance of common stock, including
exercise of stock options............ 4,149 7,789,765 -- 7,796,773
Net loss............................... -- -- (3,774,791) (3,774,791)
------ ----------- ------------ ------------
Balance at December 31, 1998............. 4,149 9,769,575 (5,187,242) 4,605,753
Exercise of stock options.............. -- 11,265 -- 11,323
Sale of preferred stock................ -- -- -- --
Dividends on preferred stock........... -- -- (1,764,314) (1,764,314)
Preferred stock dividends paid......... -- -- -- --
Accretion of offering costs for
preferred stock...................... -- -- (250,632) (250,632)
Compensation expense related to stock
option grants........................ -- 444,652 -- 444,652
Net loss............................... -- -- (15,477,454) (15,477,454)
------ ----------- ------------ ------------
Balance at December 31, 1999............. $4,149 $10,225,492 $(22,679,642) $(12,430,672)
====== =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 89
BROADBANDNOW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
OPERATING
Net loss.............................................. $ (883,477) $(3,774,791) $(15,477,454)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 144,618 443,671 4,881,936
Amortization........................................ 18,324 76,855 599,892
Provision for losses on accounts receivable and
other current assets............................. 28,362 10,111 265,966
Loss (gain) on dispositions of property and
equipment........................................ -- 28,234 (11,592)
Compensation expense related to option grants....... -- -- 444,652
Changes in operating assets and liabilities:
Accounts receivable.............................. (366,728) 421,304 (308,749)
Other current assets and other assets............ 150,476 (220,153) (1,312,301)
Accounts payable and accrued expenses............ 19,213 (75,890) 3,251,717
---------- ----------- ------------
Net cash used in operating activities................. (889,212) (3,090,659) (7,665,933)
INVESTING ACTIVITIES
Purchases of property and equipment................... (238,636) (1,521,922) (6,781,705)
Proceeds from sale of property and equipment.......... -- 20,101 19,689
---------- ----------- ------------
Net cash used in investing activities................. (238,636) (1,501,821) (6,762,016)
FINANCING ACTIVITIES
Borrowings (payments) on bank line of credit.......... 20,570 (517,663) --
Payments on notes payable............................. -- -- (195,620)
Principal payments on capital lease obligations....... -- (9,677) (578,834)
Purchase of treasury stock............................ (12,500) -- --
Proceeds from issuances of preferred and common stock,
net of offering costs............................... 1,384,800 7,796,773 64,949,750
Dividends paid........................................ -- -- (38,356)
---------- ----------- ------------
Net cash provided by financing activities............. 1,392,870 7,269,433 64,136,940
---------- ----------- ------------
Net increase in cash.................................. 265,022 2,676,953 49,708,991
Cash at beginning of year............................. 151,286 416,308 3,093,261
---------- ----------- ------------
Cash at end of year................................... $ 416,308 $ 3,093,261 $ 52,802,252
========== =========== ============
SUPPLEMENTAL DISCLOSURES
Interest paid......................................... $ 44,294 $ 32,642 $ 433,872
========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 90
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
BroadbandNOW, Inc. (the Company) is a provider of high-speed,
high-bandwidth Internet connectivity, and customized broadband content and
applications under the BroadbandNOW(TM) tradename. The Texas company was founded
in 1994 through an acquisition of assets as a systems integration company.
Beginning in 1998, the Company shifted its emphasis to high-speed data services
over the Internet and began to build the national private Internet protocol
network needed to support its systems. The Company currently has completed the
initial build-out of its infrastructure and has begun operational marketing
efforts.
On January 6, 2000, the Company formed a Delaware holding company,
BroadbandNOW, Inc., from the existing capital structure of its former company, I
3S, Inc. All company operations will continue to be conducted in the Texas
corporation, which has been renamed BroadbandNOW Texas, Inc. and which is a
wholly-owned subsidiary of BroadbandNOW, Inc. As a result of the
reincorporation, the Company changed the par value on its Series A convertible
preferred stock and its Class A, B and C common stock from no par value to
$0.001 par value and cancelled its 500,000 shares of Treasury stock. Share and
per share information for each of the three years in the period ended December
31, 1999, have been retroactively adjusted to reflect the reincorporation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents. The Company's current cash
equivalents consist of high grade commercial paper.
Property and Equipment
The Company's property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Software and hardware.................................. 3 years
Office equipment and furnishings....................... 3 to 7 years
Building............................................... 39 years
Building improvements.................................. 5 years
</TABLE>
F-7
<PAGE> 91
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Software and hardware....................................... $7,826,467 $24,039,515
Office equipment and furnishings............................ 342,724 374,679
Building and improvements................................... 27,475 3,753,832
Construction in progress.................................... -- 149,705
---------- -----------
8,196,666 28,317,731
Less accumulated depreciation and amortization.............. 719,690 5,536,765
---------- -----------
Net property and equipment.................................. $7,476,976 $22,780,966
========== ===========
</TABLE>
See Note 3 for property and equipment under capital leases at December 31, 1998
and 1999.
Revenue Recognition
Internet subscriber service revenue consists of (i) a one-time installation
fee which is deferred and recognized over one year which is deemed to be the
estimated term of the subscription; (ii) monthly access fees based on the level
of service a subscriber chooses which is recognized as the service is provided,
and (iii) monthly modem rental fees for use of modems which is recognized as the
service is provided. Revenue for managed network services consists of monthly
fees for web hosting, business Internet access service and email services which
are recognized as the service is provided. Revenue for equipment sales is
recognized when shipped. Revenue for systems integration is recognized when the
service is performed.
The Company has entered into agreements with third parties to offer our
Internet access services to potential subscribers. The revenue sharing
provisions of the agreements are based on the level of service the Company
performs, the number of subscribers and penetration levels at the properties.
The Company recognizes Internet subscriber services revenue on a gross basis
when the services offered are a turn key solution whereby the Company provides
all services from marketing to installation to ongoing customer service. Net
revenues remitted by third parties who link into the Company's network but
provide the bulk of marketing, installation and customer care for the
subscribers are recorded at the net amount due to the Company. Gross revenues
recognized from Internet subscriber services were $347,176 and $16,864 for 1999
and 1998, respectively. Net revenues earned from Internet subscriber services
were $96,472 and $589 for 1999 and 1998, respectively.
Concentration of Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company sold computer
equipment and services primarily to large companies in the United States, while
Internet access services are sold to residents and to businesses. Credit is
extended based on an evaluation of the customer's financial condition, and
generally collateral is not required. Credit losses are provided for in the
financial statements and have consistently been within management's expectation.
Write-offs of Accounts Receivable were approximately $31,000 in 1999 and none in
1998. One customer comprised 10% of revenues in 1997. A second customer
comprised 14% and 11% of revenues in 1997 and 1998, respectively. A third
customer comprised 32% and 18% of revenues in 1997 and 1998, respectively. A
fourth and fifth customer comprised 32% and 15% of revenues in 1999,
respectively.
F-8
<PAGE> 92
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
Management estimates the fair value of: (i) cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate carrying value
due to the relatively short maturity of these instruments; and (ii) the
borrowings under the note payable and capital lease obligations approximate
carrying value because these borrowings accrue interest at floating interest
rates based on market or accrue interest at fixed rates which approximate market
rates.
Income Taxes
Income taxes are recorded using the liability method. Accordingly, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates expected to be in effect when the differences are expected to
reverse.
Net Loss per Share
Basic net loss per share is based on the net loss for the period adjusted
for dividend requirements and accretion on the Series A Convertible Preferred
Stock. The resulting net loss attributed to common stockholders is divided by
the weighted average number of shares of Class A, B and C common stock
outstanding during the period to arrive at basic net loss per share attributed
to common stockholders. Diluted loss per share is computed based upon adding the
weighted average number of shares of Class A, B and C common stock, the impact
of common stock options and the conversion of Series A Preferred Stock
outstanding during the periods presented. The dilutive effect of 7,396,600
shares of common stock resulting from the exercise of stock options and the
conversion of 3,581,122 shares of Series A preferred stock were not included in
the computation of diluted earnings per share because they are anti-dilutive for
all periods presented.
Advertising Costs
Advertising costs, which amounted to $2,566, $56,071 and $272,659 during
the years ended December 31, 1997, 1998 and 1999, respectively, are expensed in
the period incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, in the primary financial statements and provides
supplemental disclosures as required by Statement of Financial Accounting
Standard (SFAS) No. 123, Accounting for Stock-Based Compensation in the
accompanying notes.
Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of December 31, 1999, has been
prepared in accordance with Rule 11-01 of Regulation S-X. The pro forma balance
sheet reflects the issuance of 1,265,723 shares of Series A preferred stock for
a net amount of approximately $23,600,000 in January 2000 and the conversion of
3,581,122 shares of preferred stock outstanding and the 1,265,723 shares of
preferred stock mentioned above for 9,693,690 shares of common stock, and the
immediate accretion of the remaining $2,346,068 of offering costs on the
preferred stock.
F-9
<PAGE> 93
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. STOCKHOLDERS' EQUITY
On May 19, 1998, the Company's board of directors declared a 5-for-1 stock
split. Effective March 31, 2000, the Company declared a 2-for-1 stock split. All
share and per share information has been retroactively adjusted to reflect the
stock split.
Preferred Stock
On June 25, 1999, the Company authorized and designated 4,200,000 shares of
Series A Convertible Preferred Stock (Preferred Stock). On June 25, 1999, the
Company received net proceeds of $33,925,492 from the private placement of
1,861,702 shares of the Preferred Stock. Additionally, the Company received net
proceeds of $31,012,935 from the private placement of 1,719,420 shares of the
Preferred Stock in the fourth quarter of 1999. The Company intends to use the
proceeds to acquire capital assets necessary for future expansion and general
corporate purposes including working capital. Each share of Preferred Stock, as
of December 31, 1999, is convertible into two shares of Class A common stock, or
7,168,244 shares. The Preferred Stock carries mandatory redemption rights upon
the earlier of (i) June 15, 2004, (ii) change of control, as defined, or (iii)
the sale of a majority of the assets of the Company at a per share price equal
to the then applicable liquidation preference plus accumulated unpaid dividends.
Dividends accrue semi-annually at an annual rate of $1.504 per share payable at
the Company's option in cash or additional shares of Preferred Stock. The
Company incurred approximately $2.4 million in offering costs which are accreted
to the preferred stock as a dividend over the five year life of the stock.
During 1999, $250,632 of offering costs were accreted as dividends. In the event
of an Approved Offering, redemption or liquidation of Preferred Stock or the
declaration of a cash dividend on Common Stock, any accrued and unpaid dividends
on the Preferred Stock shall be paid in cash. Any remaining offering costs not
accreted will be recorded as dividends.
Upon the occurrence of an Approved Offering, each share of Preferred Stock
shall immediately and automatically be converted into such number of fully paid
and nonassessable shares of Class A Common Stock equal to the product of (i) the
number of shares of Preferred Stock held by such shareholder, multiplied by (ii)
the number determined by dividing the then current liquidation preference by the
then current conversion price.
An "Approved Offering" means the consummation of the first underwritten
public offering of Common Stock of the Company pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act, at an initial offering price that results in gross proceeds to the Company
(before deduction of underwriting discounts and expenses of sale) of not less
than $30,000,000.
A holder of Preferred Stock may, at any time and from time to time, convert
all or any part of the shares of Preferred Stock beneficially owned by such
holder into the applicable number of fully paid nonassessable shares of Class A
Common Stock.
The holders of the Preferred Stock are entitled to two demand registrations
under a Registration Rights Agreement upon the earlier of (i) April 4, 2002, or
(ii) 180 days after an Approved Offering.
Subsequent to December 31, 1999, the Company issued 1,265,723 additional
shares of Series A preferred stock for a gross amount of $23,795,616 and a per
share price of $18.80. Of the amount, $20,000,000 was issued to Liberty BBandnow
Holdings, LLC (see Note 5 -- Related Party Transactions).
Common Stock
The Company has three classes of common shares which each have identical
rights, except that the Class B shares may elect two directors to the Board of
Directors while the Class A shares may elect three or more directors, and Class
B and Class C shares have preference over liquidation priority. In the event of
F-10
<PAGE> 94
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liquidation or dissolution, the holders of the Class B and Class C shares will
receive $0.5021 and $1.0846 per share, respectively, if funds are available
after all secured debts have been settled. Each share of Class B common and
Class C common stock will automatically be converted into one share of Class A
common stock upon the consummation of an Approved Offering.
On April 4, 1997, the Company sold 7,161,700 shares of its Class B common
shares at a price of $0.20 per share in a private placement.
On March 31, 1998, the Company sold 1,500,000 shares of its Class B common
shares at a price of $1.00 per share in a private placement.
On July 16, 1998, the Company sold 3,500,000 shares of its Class C common
shares at a price of $1.00 per share in two private placements.
On December 30, 1998, the Company sold 1,297,854 shares of its Class B
common shares at a price of $1.54 and 648,928 shares of its Class C common
shares at a price of $1.54 per share in three private placements.
The holders of Class B common stock have the right at any time after April
4, 2002, to require the Company to register up to two primary or secondary
offerings of common stock.
STOCK OPTION PLAN
In February 1996, the Company's Board of Directors and shareholders
approved a stock option plan pursuant to which the Company may grant stock
options for Class A common stock to officers and key employees for the purchase
of up to twenty percent of the Company's common stock at the most recent stock
sale price on the date the option is granted and with option terms not to exceed
ten years.
At December 31, 1999, stock options for 600,000 shares of Class A common
stock were outstanding which vest over a one-and-a-half-year period, stock
options for 470,000 shares of Class A common stock were outstanding which vest
over a two-year period, stock options for 4,093,000 shares of Class A common
stock were outstanding which vest over a three-year period, and stock options
for 2,233,600 shares of Class A common stock were outstanding which vest over a
five-year period. The weighted average exercise price of these outstanding
options at December 31, 1999, is $4.47. Of the outstanding options, 1,690,254
shares were exercisable at December 31, 1999.
Stock option activity was as follows:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding at January 1, 1997...................... 610,000 $0.05
Options granted........................................... 245,000 0.20
---------
Options outstanding at December 31, 1997.................... 855,000 0.09
Options granted........................................... 3,002,000 0.51
Options exercised......................................... (6,400) 0.06
Options canceled.......................................... (53,000) 0.13
---------
Options outstanding at December 31, 1998.................... 3,797,600 0.42
Options granted........................................... 3,648,000 8.63
Options exercised......................................... (8,000) 0.11
Options cancelled......................................... (41,000) 1.25
---------
Options outstanding at December 31, 1999.................... 7,396,600 $4.47
=========
</TABLE>
F-11
<PAGE> 95
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at the five different exercise prices at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OUTSTANDING AT WEIGHTED AVERAGE REMAINING
EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE
---------------- --------------------- --------------------------
<C> <C> <S>
$0.05 579,000 6.55 years
$0.20 2,050,000 8.20
$1.00 1,132,600 8.53
$1.54 347,000 9.40
$9.40 3,288,000 9.50
---------
Total 7,396,600 8.76 years
=========
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock option
plans, and, accordingly, recognized compensation expense when the exercise price
of the options was less than the fair value of the underlying stock on the date
of the grant. The Company has recognized compensation expense for the year ended
December 31, 1999, for its stock options issued during the period at an exercise
price below fair value of the Company's shares. Total compensation expense
related to these grants is $1,329,168, of which $444,652 has been recognized in
1999 and the remainder will be recognized over the remaining two to five year
vesting periods of the options.
Had the Company determined compensation expense based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net loss
attributable to common stockholders and basic and diluted loss per share for
1997, 1998, and 1999, would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Net Loss attributable to common
stockholders:
As reported......................... $(883,477) $(3,774,791) $(17,492,400)
Pro forma........................... (890,923) (3,808,992) (18,499,997)
Basic and diluted net loss per share:
As reported......................... $ (0.06) $ (0.20) $ (0.75)
Pro forma........................... (0.06) (0.20) (0.79)
</TABLE>
In determining the fair value of the options granted for purposes of the
preceding pro forma disclosures, the Company used the minimum value
option-pricing model with the following weighted average assumptions for 1997,
1998, and 1999, respectively: risk-free interest rate of 5.1 percent; dividend
yield of zero; and an expected option life of approximately four years.
The weighted average fair value of options granted with exercise prices
equal to the fair value on the date of grant was $0.04, $0.14 and $1.34 for
1997, 1998 and 1999, respectively. The weighted average fair value of options
granted with exercise prices below the fair value on the date of grant was $4.20
in 1999.
At December 31, 1999, there were 1,936,840 options outstanding related to
stock options granted to non-employees for advisory services provided to the
Company in 1997, which are fully vested, and have exercise prices per share
which range from $0.10 to $0.20. The fair value of 436,840 of these options was
recorded as offering costs in the amount of approximately $78,000 related to
equity financing obtained. The remaining 1,500,000 options were issued in
connection with debt financing and were recorded at fair market value as
additional interest expense. The Company used the Black-Scholes option-pricing
model with the following assumptions to fair value the options: risk-free
interest rate of 5.1 percent; dividend yield of zero; volatility of 0.1 percent;
and an option life of five years.
F-12
<PAGE> 96
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reserved Capital Shares
The Company has reserved the following shares of Class A common stock:
<TABLE>
<S> <C>
Conversion of Series A Preferred Stock................... 9,787,234
Conversion of Class B and Class C shares................. 14,108,482
Stock Options -- Class A................................. 11,922,440
----------
35,818,156
==========
</TABLE>
3. NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS
During 1998 and 1999, the Company purchased computer hardware equipment
under a note payable. The note payable is collateralized by the underlying
assets. Its terms include a 24-month payment term and interest to be accrued at
prime.
The note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
Current maturities................................. $ 163,368 $ 1,950,682
Long-term maturities............................... 4,715,132 10,169,694
---------- -----------
$4,878,500 $12,120,376
========== ===========
</TABLE>
Capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Current maturities.................................. $ 330,802 $2,670,714
Long-term maturities................................ 932,857 3,988,933
---------- ----------
$1,263,659 $6,659,647
========== ==========
</TABLE>
Future minimum commitments relating to the note payable at December 31,
1999, are as follows:
<TABLE>
<S> <C>
2000.................................................... $ 3,538,251
2001.................................................... 6,524,962
2002.................................................... 4,451,700
2003.................................................... 126,730
-----------
Total minimum note payments............................. 14,641,643
Less amounts representing interest...................... 2,521,267
-----------
Present value of minimum lease payments................. $12,120,376
===========
</TABLE>
Future minimum lease commitments relating to capitalized leases at December
31, 1999, are as follows:
<TABLE>
<S> <C>
2000..................................................... $3,379,194
2001..................................................... 3,235,449
2002..................................................... 1,120,298
----------
Total minimum lease payments............................. 7,734,941
Less amounts representing interest....................... 1,075,294
----------
Present value of minimum lease payments.................. $6,659,647
==========
</TABLE>
F-13
<PAGE> 97
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment include $6,151,836 and $13,412,318 financed under
capitalized leases and note payable during 1998 and 1999, respectively.
Amortization of such amounts is included in accumulated depreciation and
amortization.
The Company has committed to purchase and/or license as applicable, and
take delivery of the products and services under a master purchase agreement as
follows (based on a twelve month period ending on June 30 of each respective
year):
<TABLE>
<S> <C>
2000................................................... $ 12,000,000
2001................................................... 18,000,000
2002................................................... 20,000,000
2003................................................... 25,000,000
2004................................................... 25,000,000
------------
$100,000,000
============
</TABLE>
The Company purchased approximately $195,000 of assets under the master
purchase agreement during the year ended December 31, 1999.
On July 23, 1999, the Company entered into an agreement to purchase
wireless equipment over the next five years in an amount up to $80 million. The
Company is obligated, under this agreement, to pay a minimum of five percent, or
$4 million, over the term of this agreement. As of December 31, 1999, the
Company has purchased approximately $340,000 of equipment under this agreement.
In February 1999, the Company entered into a three year content teaming
agreement with Yahoo! Under terms of the agreement, the Company is obligated to
pay Yahoo! $10,000 per month for services related to the re-encoding of
streaming video content. As of December 31, 1999, the Company had incurred
$100,000 related to this agreement. Future payments will be as follows:
<TABLE>
<S> <C>
2000...................................................... $120,000
2001...................................................... 120,000
2002...................................................... 20,000
--------
$260,000
========
</TABLE>
4. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax liability:
Property and equipment................... $ (370,112) $ (416,171)
Deferred tax assets:
Net operating loss carryforwards......... 1,951,596 7,294,909
Accounts receivable...................... 20,740 100,640
Accrual.................................. 13,739 64,328
Inventory................................ 110,602 --
----------- -----------
1,726,565 7,043,706
Valuation allowance........................ (1,726,565) (7,043,706)
----------- -----------
Net deferred tax assets.................... $ -- $ --
=========== ===========
</TABLE>
F-14
<PAGE> 98
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets are required to be reduced by a valuation allowance if
it is more likely than not that some portion or all the deferred tax assets will
not be realized. Realization of the future benefits related to deferred tax
assets is dependent on many factors, including the Company's ability to generate
taxable income within the near to medium term. Management has considered these
factors in determining the valuation allowance retained in fiscal year 1999.
The Company has net operating loss carryforwards of approximately $21.3
million at December 31, 1999, which begin to expire in 2010.
The following table summarizes the significant differences between the U.S.
Federal Statutory tax rate and the Company's effective tax rate for financial
statement purposes:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Federal income tax benefit at statutory rate.......... $(300,382) $(1,283,429) $(5,262,334)
Nondeductible expenses................................ -- 10,011 11,518
Net operating loss not benefited...................... 300,382 1,273,418 5,250,816
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
During 1997, 1998 and 1999, professional fees of approximately $11,306,
$16,000 and $27,503 were paid to Clay C. Scott, Jr., Secretary of the Board, for
legal services rendered to the Company.
During 1998 and 1999, advisory fees of approximately $162,000 and $350,000,
respectively, were paid to Geneva Associates, L.L.C. (Geneva) in connection with
the sales of common and preferred stock. Additionally, in June 1999, the Company
issued 60,000 stock options to Geneva in exchange for advisory services related
to business development. The options vest over three years and have an exercise
price of $9.40 per share. The options were recorded at fair value of $80,000 in
operating expenses. The fair value of the options was calculated using an
option-pricing model with the following assumptions: risk-free interest rate of
5.1 percent; dividend yield of zero; volatility of 10 percent; and an option
life of approximately three years. Certain principals of Geneva are members of
the Board of Directors of the Company.
On December 21, 1999, the Company entered into an Advisory Agreement with
Marcus & Partners, L.P. (Marcus) to assist the Company in developing new
customer and partner relationships. In the agreement, the Company agrees to pay
Marcus a percentage based finders fee and a consulting fee of four equal
payments of $45,000 during the one year term of the agreement. In January 2000,
the Company sold Marcus a warrant to purchase 600,000 shares of common stock
with an exercise price of $9.40 per share, for a cash consideration of $175,000
which approximated fair market value as determined by an independent third
party. This amount was recorded as additional capital in January 2000.
Additionally, the Company paid Marcus a finders fee of $200,000 in
connection with the sale of $20 million of Series A preferred stock to Liberty
BBandnow Holdings, LLC, a subsidiary of Liberty Media Corporation. Jeffrey A.
Marcus, who has agreed to become a member of the Board of Directors at the
consummation of an initial public offering, is a partner of Marcus. Gary S.
Howard, who has agreed to become a member of the Board of Directors at the
consummation of an initial public offering, is an Executive Vice President and
Chief Operating Officer of Liberty Media Corporation.
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
300,000 shares of common stock with an exercise price of $9.40 per share, for a
cash consideration of $60,000. The warrants were issued in exchange for
assistance in developing new customer and partner relationships. The Company
recorded expense of $27,000 in February 2000 to reflect the lower per share
value of these
F-15
<PAGE> 99
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrants as compared to the warrants issued above. The Company recorded
additional capital of $87,000 related to this transaction. The purchase right
under the warrant for 100,000 of such shares will become exercisable upon the
earlier to occur of (i) a change in control of the Company or (ii) one year from
the date of grant at the discretion of the Company's President. Jack A. Riggs,
who has agreed to become a member of the Board of Directors at the consummation
of an initial public offering, is a controlling partner of DOTCOM Limited
Partnership.
F-16
<PAGE> 100
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
BroadbandNOW, INC.
COMMON STOCK, $0.001 PAR VALUE
------------------------------
BEAR, STEARNS & CO. INC.
CHASE H&Q
JEFFERIES & COMPANY, INC.
, 2000
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
registrant. All amounts are estimates except the registration fee, the NASD
filing fee and the Nasdaq filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $30,360
NASD filing fee............................................. 8,000
Nasdaq listing fee.......................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Transfer agent fees......................................... *
Printing and engraving expenses............................. *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), permits a Delaware corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may pay expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action (upon
receipt of a written undertaking to reimburse the corporation if indemnification
is not appropriate), and must reimburse a successful defendant for expenses,
including attorneys' fees, actually and reasonably incurred, and permits a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL provides that indemnification may be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person is
entitled to indemnity for such expenses as the court deems proper.
Section 107(b)(7) of the DGCL permits a Delaware corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for a breach of the director's fiduciary duty as a director,
except for liability: (a) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions or (d) for any transaction from which the director
derived an improper personal benefit.
The Bylaws of the registrant, a copy of which is filed as an exhibit to the
Registration Statement, provides that each person who at any time is or was a
director or officer of the registrant, and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"Proceeding"), by reason of the fact that such person is or was a director or
officer of the registrant, or is or was serving at the request of the registrant
as a director or officer, partner, venturer, proprietor, member, employee,
trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, trust, employee benefit plan or other
for-profit or non-profit enterprise, whether the basis of a Proceeding is
alleged action in such
II-1
<PAGE> 102
person's official capacity or in another capacity while holding such office,
shall be indemnified and held harmless by the registrant, against costs,
charges, expenses (including without limitation, court costs and attorneys'
fees), judgments, fines and amounts paid or to be paid in settlement actually
and reasonably incurred or suffered by such person in connection with a
Proceeding, so long as a majority of a quorum of disinterested directors, the
stockholders or legal counsel through a written opinion do not determine that
such person did not act in good faith or in a manner he reasonably believed to
be in or not opposed to the best interests of the registrant, and in the case of
a criminal Proceeding, such person had reasonable cause to believe his conduct
was unlawful. The Bylaws also contain certain provisions designed to facilitate
receipt of such benefits by any such persons, including the prepayment of any
such benefits.
The Registrant has entered into Indemnification Agreements pursuant to
which it will indemnify certain of its directors and officers against judgments,
claims, damages, losses and expenses incurred as a result of the fact that any
director or officer, in his capacity as such, is made or threatened to be made a
party to any suit or proceeding. Such persons will be indemnified to the fullest
extent now or hereafter permitted by the DGCL. The Indemnification Agreements
also provide for the advancement of certain expenses to such directors and
officers in connection with any such suit or proceeding.
The registrant has a directors' and officers' liability insurance policy to
insure its directors and officers against losses resulting from wrongful acts
committed by them in their capacities as directors and officers of the
registrant, including liabilities arising under the Securities Act.
The form of underwriting agreement filed as an exhibit to this registration
statement provides for the indemnification of our directors and officers in
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The securities sold by the registrant during the last three years have not
been registered under the Securities Act. The holders of the securities referred
to below agreed to take their securities for investment and not with a view to
the distribution thereof. The certificates representing the securities contained
legends identifying certain restrictions on the transferability thereof. The
following information gives effect to the five for one stock split on May 22,
1998, but does not give effect to the conversion of the Class B common stock,
the Class C common stock and the preferred stock upon consummation of this
offering. The following information does give effect to the stock split which
will be effected on March 31, 2000.
Common Stock
The following sets forth information pertaining to sales of common stock by
the registrant during the last three years. Except as noted below, there were no
underwriting discounts or commissions on the sale of the common stock. Exemption
from registration of the shares of common stock listed below is claimed under
Section 4(2) of the Securities Act.
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
I(3)S Funding I, L.L.C.(1).... April 4, 1997 Class B common 7,161,700 $1,500,000
I(3)S Funding I, L.L.C. ...... March 31, 1998 Class B common 1,500,000 $1,500,000
Spotswood Capital, LLC........ July 10, 1998 Class C common 1,750,000 $1,750,000
Blue Ridge Investors Limited
Partnership................. July 10, 1998 Class C common 1,750,000 $1,750,000
I(3)S Funding I, L.L.C. ...... December 30, 1998 Class B common 1,297,854 $2,000,000
Spotswood Capital, LLC........ December 30, 1998 Class C common 324,464 $ 500,000
Blue Ridge Investors Limited
Partnership................. December 30, 1998 Class C common 324,464 $ 500,000
John T. Miller................ September 16, 1999 Class A common 50,000 $ 10,450
Chancellor Enterprises,
Ltd. ....................... February 1, 2000 Class A common 1,500,000 $ 150,000
</TABLE>
- ---------------
(1) John S. Miller received the option to purchase 243,420 shares of common
stock at a price of $0.418 per share as a finders fee for this transaction.
II-2
<PAGE> 103
Exemption from registration of the shares of common stock listed below is
claimed under Section 4(2) and Rule 701.
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
David Heitman...................... August 11, 1998 Class A common 2,000 $100
Thomas L. Jones.................... August 11, 1998 Class A common 2,000 $100
Anthony Martin..................... November 11, 1998 Class A common 2,000 $100
Christopher Bedford................ December 7, 1998 Class A common 200 $ 41
Christopher Bedford................ December 22, 1998 Class A common 200 $ 41
Christopher Bedford................ January 29, 1999 Class A common 600 $123
Ossama Abourakaba.................. August 3, 1999 Class A common 2,000 $100
Thomas L. Jones.................... August 16, 1999 Class A common 1,000 $ 50
Helen C. Cupples................... October 11, 1999 Class A common 200 $200
David Heitman...................... October 11, 1999 Class A common 2,000 $100
Denise Looper...................... October 11, 1999 Class A common 200 $200
Ossama Abourakaba.................. October 29, 1999 Class A common 2,000 $100
Ossama Abourakaba.................. January 31, 2000 Class A common 2,000 $100
Robyn Musgrave..................... January 31, 2000 Class A common 100 $100
</TABLE>
The following shares were issued as partial consideration for the purchase
of all of the assets of Applied Multimedia Productions, Inc. which had an
aggregate value of $33,913. Exemption from registration of the shares of common
stock listed below is claimed under Section 4(2).
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
Thon Morse........................ August 15, 1998 Class A common 13,600 (1)
Kristan V. Boggs.................. August 15, 1998 Class A common 13,600 (1)
Andy Shattuck..................... August 15, 1998 Class A common 13,600 (1)
Damon M. Fiske.................... August 15, 1998 Class A common 13,600 (1)
</TABLE>
- ---------------
(1) The shares were valued at $0.20 per share.
Preferred Stock
The following sets forth information pertaining to sales of preferred stock
by the registrant in a private placement. The aggregate offering price of the
preferred stock sold in the private placement was $91,120,743. Donaldson, Lufkin
& Jenrette Securities Corporation acted as the exclusive agent of the registrant
and received a fee equal to $1,986,699. Exemption from registration of the
shares of preferred stock listed below is claimed under Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
II-3
<PAGE> 104
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
Nortel Networks Inc. .......... June 25, 1999 Series A convertible 1,063,829 $20,000,000
preferred
Ascend Communications, Inc. ... June 25, 1999 Series A convertible 531,915 $10,000,000
preferred
I(3)S Funding I, L.L.C. ....... June 25, 1999 Series A convertible 127,128 $ 2,390,000
preferred
Blue Ridge Investors II Limited
Partnership.................. June 25, 1999 Series A convertible 127,128 $ 2,390,000
preferred
Blue Ridge Investors Limited
Partnership.................. June 25, 1999 Series A convertible 11,702 $ 220,000
preferred
General Electric Capital
Corp......................... October 29, 1999 Series A convertible 265,957 $ 5,000,000
preferred
Archstone Communities Trust.... November 2, 1999 Series A convertible 372,340 $ 7,000,000
preferred
Archstone Communities
Investment LLC-I............. November 2, 1999 Series A convertible 17,294 $ 325,127
preferred
Microsoft Corporation.......... November 24, 1999 Series A convertible 1,063,829 $20,000,000
preferred
Telecommunications Investments,
LLC.......................... January 6, 2000 Series A convertible 68,916 $ 1,295,616
preferred
TeleNet Capital Group, LLC..... January 6, 2000 Series A convertible 53,191 $ 1,000,000
preferred
Summit Properties, Inc......... January 6, 2000 Series A convertible 53,191 $ 1,000,000
preferred
Liberty BBandnow Holdings,
LLC.......................... January 25, 2000 Series A convertible 1,063,829 $20,000,000
preferred
Archstone Communities
Investment LLC-I............. January 27, 2000 Series A convertible 26,596 $ 500,000
preferred
</TABLE>
Warrants
The following sets forth information pertaining to sales of warrants by the
registrant during the last three years. Except as noted below, there were no
underwriting discounts or commissions on the sale of the warrants. Exemption
from registration of the warrants listed below is claimed under Section 4(2) of
the Securities Act.
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
Marcus & Partners, L.P........... January 6, 2000 Warrants 600,000 $ 175,000
DOTCOM Limited Partnership....... February 3, 2000 Warrants 300,000 $ 60,000
</TABLE>
II-4
<PAGE> 105
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1+ -- Form of underwriting agreement.
3.1** -- Form of Certificate of Incorporation.
3.2+ -- Form of Restated Certificate of Incorporation (to be
effective simultaneously with closing of offering).
3.3* -- Bylaws.
3.4+ -- Amended and Restated Bylaws (to be effective
simultaneously with closing of offering).
4.1+ -- Specimen of common stock certificate.
4.2+ -- Form of Rights Agreement
4.3** -- Certificate of Designations, Preferences and Relative
Rights of Series A Convertible Preferred Stock (to be
converted into common stock upon the closing of the
offering).
5.1+ -- Opinion of King & Spalding (including the consent of such
counsel) regarding the legality of the common stock.
10.1* -- Employment agreement dated June 24, 1999 between James R.
Price and the registrant.
10.2* -- Employment agreement dated June 24, 1999 between Charles
W. (Bo) Price and the registrant.
10.3* -- Employment agreement dated June 24, 1999 between Matthew
Hutchins, Sr. and the registrant.
10.4* -- Employment agreement dated June 24, 1999 between Daniel
A. Gillett and the registrant.
10.5* -- Form of Indemnification Agreement.
10.6* -- Omnibus Stock Plan of I3S, Inc., a Texas corporation,
effective February 13, 1996, and amended and restated on
October 7, 1999.
10.7* -- Form of Stock Option Agreements.
10.8** -- Forms of Power of Attorney for James and Charles W. (Bo)
Price.
++10.9** -- Master High Speed Data Services Access and Right of Entry
Agreement dated February 23, 1999 between Archstone
Communities Trust and the registrant.
++10.10** -- High Speed Data Services Marketing Agreement dated July
9, 1999 between AvalonBay Communities, Inc. and the
registrant.
++10.11** -- Broadband Content Teaming Agreement dated February 19,
1999 between Yahoo!/Broadcast.com and the registrant.
++10.12** -- Master High Speed Data Services Access Agreement dated
August 5, 1998 between Cable Plus Holding Company and the
registrant.
++10.13** -- Master High Speed Data Services Marketing Agreement dated
March 5, 1998 between Camden Development, Inc. and the
registrant.
++10.14** -- Master High Speed Data Services Access Agreement dated
March 16, 1999 between Global Interactive Communications
Corp. and the registrant.
++10.15** -- Master High Speed Data Services Agreement dated November
12, 1998 between GTE Media Ventures Incorporated and the
registrant.
++10.16** -- Strategic Alliance Agreement dated March 10, 1998 between
TVMAX Telecommunications, Inc., d/b/a Optel and the
registrant.
++10.17** -- Master High Speed Data Services Marketing Agreement dated
February 1, 1999 between Private Cable, Inc. and the
registrant.
++10.18** -- Master High Speed Data Services Agreement dated June 22,
1999 between Seren Innovations, Inc. and the registrant.
</TABLE>
II-5
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
++10.19** -- Purchase Agreement dated July 23, 1999 between Adaptive
Broadband Corporation and the registrant.
++10.20** -- Communications Services Agreement dated June 18, 1999
between Waller Creek Communications, Inc., d/b/a Pontio
Communications Company, Inc. and the registrant.
++10.21** -- Master Purchase Agreement dated July 15, 1999 between
Nortel Networks Inc. and the registrant.
++10.22** -- High Speed Data Services Right-of-Entry Agreement dated
October 14, 1999 between Forest City Residential
Management, Inc. and the registrant.
10.23** -- Advisory Agreement dated December 21, 1999 between Marcus
& Partners, L.P. and the registrant.
10.24** -- Letter Agreement dated January 25, 2000 between Liberty
Media Corporation and the registrant.
10.25* -- Stock Purchase Agreement dated April 4, 1997 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
10.26* -- Stock Purchase Agreement dated March 31, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
10.27* -- Amendment to Stock Purchase Agreement dated June 30, 1998
between I(3)S Funding I, L.L.C., the registrant, James R.
Price, Gary A. Dobbins, Clay C. Scott, Jr., Charles W.
(Bo) Price and George Venner.
10.28* -- Stock Purchase Agreement dated July 10, 1998 between
Spotswood Capital LLC, the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner and I(3)S Funding I, L.L.C.
10.29* -- Stock Purchase Agreement dated July 10, 1998 between Blue
Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner and I(3)S Funding I,
L.L.C.
10.30* -- Stock Purchase Agreement dated December 30, 1998 between
Spotswood Capital LLC., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Blue Ridge Investors Limited
Partnership and I(3)S Funding I, L.L.C.
10.31* -- Stock Purchase Agreement dated December 30, 1998 between
Blue Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner, Spotswood Capital,
LLC and I(3)S Funding I, L.L.C.
10.32* -- Stock Purchase Agreement dated December 30, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Spotswood Capital, LLC and Blue
Ridge Investors Limited Partnership.
10.33* -- Amendment to Stock Purchase Agreements dated June 25,
1999 between I(3)S Funding I, L.L.C., Blue Ridge
Investors Limited Partnership, Spotswood Capital, LLC,
the registrant, James R. Price, Gary A. Dobbins, Clay C.
Scott, Jr., Charles W. (Bo) Price and George Venner.
10.34** -- Series A Convertible Preferred Stock Purchase Agreement
dated June 25, 1999 between Nortel Networks Inc., Ascend
Communications Inc. (Lucent), Blue Ridge Investors II
Limited Partnership, I(3)S Funding I, LLC, Blue Ridge
Investors Limited Partnership and the registrant.
10.35** -- Series A Convertible Preferred Stock Purchase Agreement
dated November 2, 1999 between Archstone Communities
Trust, Archstone Communities Investment LLC-I and the
registrant.
10.36** -- Series A Convertible Preferred Stock Purchase Agreement
dated January 27, 2000 between Archstone Communities
Investment LLC-I and the registrant.
</TABLE>
II-6
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.37** -- Series A Convertible Preferred Stock Purchase Agreement
dated November 24, 1999 between Microsoft Corporation and
the registrant.
10.38** -- Series A Convertible Preferred Stock Purchase Agreement
dated January 25, 2000 between Liberty BBandnow Holdings,
LLC and the registrant.
10.39* -- First Amended and Restated Registration Rights Agreement
dated January 25, 2000 between the registrant and Blue
Ridge Investors Limited Partnership, Blue Ridge Investors
II Limited Partnership, I(3)S Funding I, L.L.C., Nortel
Networks Inc., Ascend Communications, Inc., Archstone
Communities Trust, Archstone Communities Investment
LLC-I, Paradigm/I(3)S, L.P., Microsoft Corporation, CFE,
Inc., TeleNet Capital Group, LLC, Telecommunications
Investments, LLC, Summit Properties, Inc. and Liberty
BBandnow Holdings, LLC.
10.40* -- Addendum to the First Amended and Restated Registration
Rights Agreement dated January 27, 2000 between Archstone
Communities Investment LLC-1 and the registrant.
10.41** -- Stock Purchase Warrant dated January 6, 2000 between
Marcus & Partners, L.P. and the registrant.
10.42** -- Subscription Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
10.43** -- Registration Rights Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
10.44** -- Stock Purchase Warrants between DOTCOM Limited
Partnership and the registrant.
10.45** -- Subscription Agreement dated as of February 3, 2000
between DOTCOM Limited Partnership and the registrant.
10.46** -- Registration Rights Agreement dated as of February 3,
2000 between DOTCOM Limited Partnership and the
registrant.
10.47** -- Secured Promissory Note dated June 25, 1998 between the
registrant (borrower) and Ascend Communications, Inc.
(lender) in the amount of $10,000,000, as amended for a
total of $25,000,000.
21.1* -- Subsidiaries.
23.1** -- Consent of Ernst & Young LLP.
23.2+ -- Consent of King & Spalding (included in Exhibit 5.1).
24.1* -- Power of attorney (included in the signature page of this
Registration Statement).
27.1* -- Financial data schedule.
99.1* -- Consent of Gary S. Howard.
99.2* -- Consent of Jeffrey A. Marcus.
99.3* -- Consent of Jack A. Riggs.
</TABLE>
- ---------------
* Previously filed
** Filed herewith
+ To be filed by amendment
++ Portions of this exhibit were omitted and have been filed separately with the
Secretary of the Securities and Exchange Commission pursuant to the
registrant's application requesting Confidential Treatment under Rule 406 of
the Securities Act.
(b) Financial Statement Schedules.
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.
II-7
<PAGE> 108
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
2) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be a part of this registration statement as of the time it was declared
effective.
3) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
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 of 1933 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 of 1933 and will be governed by the final adjudication of
such issue.
II-8
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on March 21, 2000.
BroadbandNOW, Inc.
By: /s/ MATTHEW HUTCHINS, SR.
----------------------------------
Matthew Hutchins, Sr.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Matthew Hutchins, Sr., President and Chief
Executive Officer of BroadbandNOW, Inc., and Daniel A. Gillett, Vice President,
Corporate Development and Chief Financial Officer of BroadbandNOW, Inc., or
either of them, and any agent for service named in this registration statement
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any registration statements filed
pursuant to Rule 462(b) under the Securities Act of 1933 and any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board March 21, 2000
- -----------------------------------------------------
James R. Price
/s/ MATTHEW HUTCHINS, SR. President, Chief Executive March 21, 2000
- ----------------------------------------------------- Officer and Director
Matthew Hutchins, Sr.
* Executive Vice President and March 21, 2000
- ----------------------------------------------------- Director
Charles W. (Bo) Price
* Senior Vice President and March 21, 2000
- ----------------------------------------------------- Chief Financial Officer
Daniel A. Gillett
* Secretary and Director March 21, 2000
- -----------------------------------------------------
Clay C. Scott, Jr.
* Director March 21, 2000
- -----------------------------------------------------
Tracy Scott Turner
* Director March 21, 2000
- -----------------------------------------------------
Russell R. Myers
*By: /s/ MATTHEW HUTCHINS, SR.
------------------------------------------------
Matthew Hutchins, Sr.
Attorney-in-fact
</TABLE>
II-9
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1+ -- Form of underwriting agreement.
3.1** -- Form of Certificate of Incorporation.
3.2+ -- Form of Restated Certificate of Incorporation (to be
effective simultaneously with closing of offering).
3.3* -- Bylaws.
3.4+ -- Amended and Restated Bylaws (to be effective
simultaneously with closing of offering).
4.1+ -- Specimen of common stock certificate.
4.2+ -- Form of Rights Agreement
4.3** -- Certificate of Designations, Preferences and Relative
Rights of Series A Convertible Preferred Stock (to be
converted into common stock upon the closing of the
offering).
5.1+ -- Opinion of King & Spalding (including the consent of such
counsel) regarding the legality of the common stock.
10.1* -- Employment agreement dated June 24, 1999 between James R.
Price and the registrant.
10.2* -- Employment agreement dated June 24, 1999 between Charles
W. (Bo) Price and the registrant.
10.3* -- Employment agreement dated June 24, 1999 between Matthew
Hutchins, Sr. and the registrant.
10.4* -- Employment agreement dated June 24, 1999 between Daniel
A. Gillett and the registrant.
10.5* -- Form of Indemnification Agreement.
10.6* -- Omnibus Stock Plan of I3S, Inc., a Texas corporation,
effective February 13, 1996, and amended and restated on
October 7, 1999.
10.7* -- Form of Stock Option Agreements.
10.8** -- Forms of Power of Attorney for James and Charles W. (Bo)
Price.
++10.9** -- Master High Speed Data Services Access and Right of Entry
Agreement dated February 23, 1999 between Archstone
Communities Trust and the registrant.
++10.10** -- High Speed Data Services Marketing Agreement dated July
9, 1999 between AvalonBay Communities, Inc. and the
registrant.
++10.11** -- Broadband Content Teaming Agreement dated February 19,
1999 between Yahoo!/Broadcast.com and the registrant.
++10.12** -- Master High Speed Data Services Access Agreement dated
August 5, 1998 between Cable Plus Holding Company and the
registrant.
++10.13** -- Master High Speed Data Services Marketing Agreement dated
March 5, 1998 between Camden Development, Inc. and the
registrant.
++10.14** -- Master High Speed Data Services Access Agreement dated
March 16, 1999 between Global Interactive Communications
Corp. and the registrant.
++10.15** -- Master High Speed Data Services Agreement dated November
12, 1998 between GTE Media Ventures Incorporated and the
registrant.
++10.16** -- Strategic Alliance Agreement dated March 10, 1998 between
TVMAX Telecommunications, Inc., d/b/a Optel and the
registrant.
++10.17** -- Master High Speed Data Services Marketing Agreement dated
February 1, 1999 between Private Cable, Inc. and the
registrant.
++10.18** -- Master High Speed Data Services Agreement dated June 22,
1999 between Seren Innovations, Inc. and the registrant.
++10.19** -- Purchase Agreement dated July 23, 1999 between Adaptive
Broadband Corporation and the registrant.
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
++10.20** -- Communications Services Agreement dated June 18, 1999
between Waller Creek Communications, Inc., d/b/a Pontio
Communications Company, Inc. and the registrant.
++10.21** -- Master Purchase Agreement dated July 15, 1999 between
Nortel Networks Inc. and the registrant.
++10.22** -- High Speed Data Services Right-of-Entry Agreement dated
October 14, 1999 between Forest City Residential
Management, Inc. and the registrant.
10.23** -- Advisory Agreement dated December 21, 1999 between Marcus
& Partners, L.P. and the registrant.
10.24** -- Letter Agreement dated January 25, 2000 between Liberty
Media Corporation and the registrant.
10.25* -- Stock Purchase Agreement dated April 4, 1997 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
10.26* -- Stock Purchase Agreement dated March 31, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
10.27* -- Amendment to Stock Purchase Agreement dated June 30, 1998
between I(3)S Funding I, L.L.C., the registrant, James R.
Price, Gary A. Dobbins, Clay C. Scott, Jr., Charles W.
(Bo) Price and George Venner.
10.28* -- Stock Purchase Agreement dated July 10, 1998 between
Spotswood Capital LLC, the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner and I(3)S Funding I, L.L.C.
10.29* -- Stock Purchase Agreement dated July 10, 1998 between Blue
Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner and I(3)S Funding I,
L.L.C.
10.30* -- Stock Purchase Agreement dated December 30, 1998 between
Spotswood Capital LLC., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Blue Ridge Investors Limited
Partnership and I(3)S Funding I, L.L.C.
10.31* -- Stock Purchase Agreement dated December 30, 1998 between
Blue Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner, Spotswood Capital,
LLC and I(3)S Funding I, L.L.C.
10.32* -- Stock Purchase Agreement dated December 30, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Spotswood Capital, LLC and Blue
Ridge Investors Limited Partnership.
10.33* -- Amendment to Stock Purchase Agreements dated June 25,
1999 between I(3)S Funding I, L.L.C., Blue Ridge
Investors Limited Partnership, Spotswood Capital, LLC,
the registrant, James R. Price, Gary A. Dobbins, Clay C.
Scott, Jr., Charles W. (Bo) Price and George Venner.
10.34** -- Series A Convertible Preferred Stock Purchase Agreement
dated June 25, 1999 between Nortel Networks Inc., Ascend
Communications Inc. (Lucent), Blue Ridge Investors II
Limited Partnership, I(3)S Funding I, LLC, Blue Ridge
Investors Limited Partnership and the registrant.
10.35** -- Series A Convertible Preferred Stock Purchase Agreement
dated November 2, 1999 between Archstone Communities
Trust, Archstone Communities Investment LLC-I and the
registrant.
10.36** -- Series A Convertible Preferred Stock Purchase Agreement
dated January 27, 2000 between Archstone Communities
Investment LLC-I and the registrant.
10.37** -- Series A Convertible Preferred Stock Purchase Agreement
dated November 24, 1999 between Microsoft Corporation and
the registrant.
10.38** -- Series A Convertible Preferred Stock Purchase Agreement
dated January 25, 2000 between Liberty BBandnow Holdings,
LLC and the registrant.
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.39* -- First Amended and Restated Registration Rights Agreement
dated January 25, 2000 between the registrant and Blue
Ridge Investors Limited Partnership, Blue Ridge Investors
II Limited Partnership, I(3)S Funding I, L.L.C., Nortel
Networks Inc., Ascend Communications, Inc., Archstone
Communities Trust, Archstone Communities Investment
LLC-I, Paradigm/I(3)S, L.P., Microsoft Corporation, CFE,
Inc., TeleNet Capital Group, LLC, Telecommunications
Investments, LLC, Summit Properties, Inc. and Liberty
BBandnow Holdings, LLC.
10.40* -- Addendum to the First Amended and Restated Registration
Rights Agreement dated January 27, 2000 between Archstone
Communities Investment LLC-1 and the registrant.
10.41** -- Stock Purchase Warrant dated January 6, 2000 between
Marcus & Partners, L.P. and the registrant.
10.42** -- Subscription Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
10.43** -- Registration Rights Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
10.44** -- Stock Purchase Warrants between DOTCOM Limited
Partnership and the registrant.
10.45** -- Subscription Agreement dated as of February 3, 2000
between DOTCOM Limited Partnership and the registrant.
10.46** -- Registration Rights Agreement dated as of February 3,
2000 between DOTCOM Limited Partnership and the
registrant.
10.47** -- Secured Promissory Note dated June 25, 1998 between the
registrant (borrower) and Ascend Communications, Inc.
(lender) in the amount of $10,000,000, as amended for a
total of $25,000,000.
21.1* -- Subsidiaries.
23.1** -- Consent of Ernst & Young LLP.
23.2+ -- Consent of King & Spalding (included in Exhibit 5.1).
24.1* -- Power of attorney (included in the signature page of this
Registration Statement).
27.1* -- Financial data schedule.
99.1* -- Consent of Gary S. Howard.
99.2* -- Consent of Jeffrey A. Marcus.
99.3* -- Consent of Jack A. Riggs.
</TABLE>
- ---------------
* Previously filed
** Filed herewith
+ To be filed by amendment
++ Portions of this exhibit were omitted and have been filed separately with the
Secretary of the Securities and Exchange Commission pursuant to the
registrant's application requesting Confidential Treatment under Rule 406 of
the Securities Act.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BROADBANDNOW, INC.
The undersigned natural person, acting as an incorporator of a
corporation under the General Corporation Law of Delaware, hereby adopts the
following Certificate of Incorporation for such corporation:
ARTICLE I
NAME
The name of the corporation is BroadbandNOW, Inc. (the "CORPORATION").
ARTICLE II
PURPOSE
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE III
CAPITAL
The authorized capital stock of the Corporation consists of 156,900,000
shares of stock, of which 100,000,000 shares are Class A Common Stock, par value
$0.001 per share ("CLASS A COMMON STOCK"), 25,000,000 shares are Class B Common
Stock, par value $0.001 per share ("CLASS B COMMON STOCK"), 25,000,000 shares
are Class C Common Stock, par value $0.001 per share ("CLASS C COMMON STOCK")
and 6,900,000 shares are Preferred Stock, par value $0.001 per share ("PREFERRED
STOCK"). The shares of "Class A Common Stock", "Class B Common Stock", and
"Class C Common Stock", are collectively referred to as the "COMMON STOCK".
3.1 COMMON STOCK. The preferences, limitations, and rights of the
Common Stock are:
3.1.1 VOTING. Except as set forth below, the Class A Common
Stock, Class B Common Stock, and Class C Common Stock shall have
identical voting rights, with the holders thereof having one vote for
each share held.
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3.1.2 ELECTION OF DIRECTORS. The holders of Class B Common
Stock shall elect two directors to the Board of Directors. All other
directors, with a minimum of three, shall be elected by the holders of
Class A Common Stock. The holders of the Class B Common Stock shall
have the right at any time to remove and replace the two directors
elected by them, with or without cause, and the holders of the Class A
Common Stock shall have the right to remove and replace the remaining
members of the Board at any time, with or without cause. The Board of
Directors shall consist of at least five directors.
3.1.3 LIQUIDATION RIGHTS. Until such time as there is an
Approved Offering (as hereinafter defined) or there is a redemption or
conversion of all Class B Common Stock and Class C Common Stock and
subject to any priorities of the Preferred Stock:
3.1.3.1 In the event of any liquidation, dissolution
or winding up of the Corporation (including without limitation
a liquidation or reorganization under Chapter 11 of the United
States Bankruptcy Code, as amended and as may hereinafter be
amended) (a "LIQUIDATION"), after payment of any priority
distributions due to the holders of Preferred Stock or
otherwise due to the holders of Class B Common Stock and Class
C Common Stock, the holders of Class B Common Stock and Class
C Common Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for
distribution to its stockholders (before any payment shall be
made to the holders of Class A Common Stock of the
Corporation) an amount equal to $1.0041 per share of Class B
Common Stock and $2.1692 per share of Class C Common Stock
(subject to appropriate adjustment for stock dividends, stock
splits, combinations, and similar recapitalizations affecting
the Class B Common Stock and Class C Common Stock) with such
amount to be calculated as of the date of such payment.
3.1.3.2 If, upon any Liquidation, the assets of the
Corporation available for distribution to its stockholders,
after payment of any priority distributions due to the holders
of Preferred Stock, shall be insufficient (a "LIQUIDATION
INSUFFICIENCY") to pay the holders of the Class B Common Stock
and Class C Common Stock the full amount to which they shall
be entitled, the holders of the Class B Common Stock and Class
C Common Stock shall be entitled to receive all of the assets
of the Corporation available for distribution to its
stockholders in proportion to the priority distributions above
set forth.
3.1.3.3 After payment of the liquidation preference
to the holders of the Class B Common Stock and Class C Common
Stock, the holders of the Class B Common Stock and Class C
Common Stock shall not be entitled to share in the
distribution of the remaining assets.
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3.1.4 CONVERSION RIGHTS OF CLASS B COMMON STOCK AND CLASS C
COMMON STOCK.
3.1.4.1 Automatic Conversion. Upon the occurrence of
an Approved Offering, all shares of Class B Common Stock and
Class C Common Stock held by each stockholder shall
immediately and automatically be converted into an equal
number of fully paid and nonassessable shares of Class A
Common Stock. The Corporation shall give not less than (i) ten
(10) days prior written notice to each holder of Class B
Common Stock and Class C Common Stock of the estimated date of
such Approved Offering and (ii) three (3) days prior written
notice of the actual date of the Approved Offering. The
Corporation and the holders of the Class B Common Stock and
Class C Common Stock shall carry out the exchange procedures
set forth under PARAGRAPH 3.1.4.3 as soon as practicable on or
after the consummation of the Approved Offering, it being
acknowledged by the Corporation that no holder shall be
required to give notice otherwise required by PARAGRAPH
3.1.4.2.
3.1.4.2 Optional Conversion. A holder of shares of
Class B Common Stock or Class C Common Stock may, at his
option, at any time and from time to time, convert all or any
part of the shares of Class B Common Stock or Class C Common
Stock beneficially owned by such holder into an equal number
of fully paid nonassessable shares of Class A Common Stock by
giving written notice to the Corporation and delivering the
certificates evidencing the Class B Common Stock or Class C
Common Stock in accordance with PARAGRAPH 3.1.4.3 below. Such
notice shall specify the date and place for the consummation
of the conversion.
3.1.4.3 Exchange of Stock Certificates. Following a
conversion pursuant to PARAGRAPH 3.1.4.1 above, each holder of
shares of Class B Common Stock and Class C Common Stock shall
surrender such holder's certificates evidencing such shares,
at the principal office of the Corporation or at such other
place as the Corporation shall designate, and shall thereupon
be entitled to receive certificates evidencing the number of
shares of Class A Common Stock into which such shares of Class
B Common Stock and Class C Common Stock have been converted.
Upon the effectiveness of a conversion pursuant to PARAGRAPH
3.1.4.1 above, each holder of shares of Class B Common Stock
and Class C Common Stock to be converted into shares of Class
A Common Stock shall be deemed to be the holder of record of
the Class A Common Stock issuable upon such conversion,
notwithstanding that the certificates representing such shares
of Class B Common Stock and Class C Common Stock shall not
have been surrendered at the office of the Corporation, that
notice from the Corporation regarding the conversion shall not
have been received by any holder of shares of Class B Common
Stock and Class C Common Stock, or that the certificates
evidencing such shares of Common Stock shall not have been
actually delivered to such holder.
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3.1.4.4 Adjustments to Conversion Ratio.
3.1.4.4.1 Adjustment for Subdivisions and
Combinations. If the Corporation at any time or from
time to time effects a subdivision or a combination
of any class of the outstanding Common Stock, the
conversion ratio(s) for converting shares of Class B
Common Stock and Class C Common Stock to Class A
Common Stock in accordance with PARAGRAPH 3.1.4.1
above (the "CONVERSION RATIO"), as in effect
immediately prior to the subdivision or combination,
shall be proportionately adjusted, as necessary, to
maintain conversion rights for the holders of the
Class B Common Stock and Class C Common Stock that
are equivalent to the conversion rights held by such
holders immediately prior to the subdivision or
combination. Any adjustment(s) under this
SUBPARAGRAPH 3.1.4.4.1 shall become effective at the
time the subdivision or combination becomes
effective.
3.1.4.4.2 Adjustment for Certain Dividends
and Distributions. In the event the Corporation at
any time declares or makes a dividend or other
distribution with respect to the Class A Common Stock
payable in additional shares of Class A Common Stock,
then and in each such event the then current
Conversion Ratio for the Class B Common Stock and
Class C Common Stock shall be adjusted effective as
of the date the additional shares of Class A Common
Stock are issued by multiplying the then current
Conversion Ratio for the Class B Common Stock and
Class C Common Stock by a fraction (A) the numerator
of which is the total number of shares of Class A
Common Stock issued and outstanding immediately after
the issuance of the additional shares of Class A
Common Stock and (B) the denominator of which is the
total number of shares of Class A Common Stock issued
and outstanding immediately prior to the issuance of
the additional shares of Class A Common Stock.
3.1.4.4.3 Adjustment for Other Dividends and
Distributions. In the event the Corporation at any
time declares or makes a dividend or other
distribution with respect to the Class A Common Stock
payable in securities of the Corporation other than
additional shares of Class A Common Stock, then in
each such event, provision shall be made so that the
holders of Class B Common Stock and Class C Common
Stock shall receive upon conversion thereof, in
addition to the number of shares of Class A Common
Stock receivable thereupon, the amount of securities
of the Corporation that they would have received had
their Class B Common Stock and Class C Common Stock
been converted into Class A Common Stock prior to the
effective date of the issuance of such other
securities.
3.1.4.4.4 Adjustment for Recapitalization,
Reclassification or Other Change. If the Class A
Common Stock issuable upon the conversion of the
Class B Common Stock and Class C Common Stock is
changed into the same or a different number of shares
of any class or
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classes of stock, whether by recapitalization,
reclassification or other change (other than a
subdivision or combination of shares, a stock
dividend or distribution, or a reorganization,
provided for elsewhere in this PARAGRAPH 3.1.4.4) or
into other securities or property, then in each such
event, provision shall be made so that the holders of
Class B Common Stock and Class C Common Stock shall
receive upon conversion thereof the kind and amount
of stock and other securities and property that they
would have received had their Class B Common Stock
and Class C Common Stock been converted into Class A
Common Stock immediately prior to such
reorganization, reclassification or change, all
subject to further adjustment as provided herein.
3.1.4.4.5 Adjustment for Reorganizations. If
at any time or from time to time there is a capital
reorganization of the Class A Common Stock (other
than a recapitalization, reclassification or other
change provided for elsewhere in this PARAGRAPH
3.1.4.4), then, in each such event, provision shall
be made so that the holders of Class B Common Stock
and Class C Common Stock shall receive upon
conversion thereof, the kind and amount of stock and
other securities and property that they would have
received had their Class B Common Stock and Class C
Common Stock been converted into Class A Common
Stock. In any such case, appropriate adjustment shall
be made in the application of the provisions of this
PARAGRAPH 3.1.4.4 with respect to the rights of
holders of the Class B Common Stock and Class C
Common Stock after the reorganization to the end that
the provisions of this PARAGRAPH 3.1.4.4 (including
adjustment of the Conversion Ratio for such Class B
Common Stock and Class C Common Stock then in effect
and number of shares purchasable upon conversion of
such Class B Common Stock and Class C Common Stock)
shall be applicable after that event and be as nearly
equivalent to the provisions hereof as may be
practicable.
3.1.4.5 Payment of Taxes. The Corporation shall pay
all issue taxes, if any, incurred in connection with the
issuance of its Class A Common Stock or other securities or
properties on conversion of any shares of the Class B Common
Stock or Class C Common Stock, but the Corporation shall not
pay any transfer or other taxes incurred by reason of the
issuance of such Class A Common Stock or other securities or
properties in names other than those in which the share or
shares of the Class B Common Stock or Class C Common Stock
surrendered for conversion may stand.
3.1.5 NOTICE OF ADJUSTMENTS. Whenever the amount of Class A
Common Stock or other securities deliverable upon the conversion of the
Class B Common Stock and Class C Common Stock shall be adjusted
pursuant to the provisions hereof, the Corporation shall forthwith
file, at its principal executive office and with any transfer agent or
agents for its Common Stock, a statement, signed by an authorized
officer of the Corporation, stating the newly adjusted amount of its
Class A Common Stock or other securities deliverable per share of the
Class B Common Stock and Class C Common
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<PAGE> 6
Stock calculated to the nearest one one-hundredth and setting forth in
reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based and shall mail
such certificate, by first class mail, postage prepaid, to each
registered holder of the Class B Common Stock and Class C Common Stock
at the holder's address as shown in the Corporation's books.
3.1.6 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
Class A Common Stock the full number of shares of Class A Common Stock
deliverable upon the conversion of all the then outstanding shares of
Class B Common Stock and Class C Common Stock and shall take all such
action and obtain all such permits or orders as may be necessary to
enable the Corporation lawfully to issue such Class A Common Stock upon
the conversion of the Class B Common Stock and Class C Common Stock.
3.1.7 NO FRACTIONAL SHARES. No fractions of shares of Class A
Common Stock shall be issued upon conversion. If more than one share of
Class B Common Stock and Class C Common Stock shall be converted at any
one time by the same holder, the number of full shares of Class A
Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Class B Common Stock and
Class C Common Stock so surrendered. In lieu of any fractional shares
that would otherwise be issuable upon conversion of any shares of Class
B Common Stock and Class C Common Stock the Corporation shall when, as
and if funds are legally available therefor pay cash equal to such
fraction multiplied by the fair market value of a share of Class A
Common Stock as determined by the Board of Directors.
3.1.8 APPROVED OFFERING. An "APPROVED OFFERING" means the
consummation of the first underwritten public offering of common stock
of the Corporation pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (or any successor provision), with a concurrent listing on the
New York Stock Exchange, the American Stock Exchange, or the Nasdaq
Stock Market, Inc. at an initial offering price of at least $20.00 per
share (subject to adjustment, as described in PARAGRAPH 3.1.4.4 above)
that results in gross proceeds to the Corporation (before deduction of
underwriting discounts and expenses of sale) of not less than
$30,000,000.
3.1.9 PREEMPTIVE RIGHTS. Subject to the preemptive rights of
any Preferred Stock, except in the event of and until such time as an
Approved Offering has been consummated, Class A Common Stock, Class B
Common Stock, and Class C Common Stock stockholders shall have
preemptive rights with regard to any future issuance of Common Stock of
the Corporation permitting the stockholders to purchase additional
shares of Common Stock pro rata at the same price and on the same terms
and conditions of such issuance. Excluded from these preemptive rights
are shares of Common Stock (i) issued upon conversion of Preferred
Stock or other convertible securities, (ii) issued to officers,
directors or employees of, or consultants to, the Corporation pursuant
to a stock grant or sale or option plan or other employee stock
incentive program, (iii) issued as a dividend or distribution on
Preferred Stock, or (iv) issued in connection with a merger,
acquisition or other non-cash offering. In the event Class B Common
Stock stockholders
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waive their preemptive rights with respect to a future issuance of
Common Stock, Class C Common Stock stockholders shall be deemed to have
waived their preemptive rights with respect to that issue.
3.1.9.1 The Corporation shall deliver a notice by
certified mail (the "PREEMPTION NOTICE") to the holders of the
preemptive rights stating (i) its bona fide intention to offer
such shares, (ii) the number of such shares to be offered, and
(iii) the price and all material terms, if any, upon which it
proposes to offer such shares. Such notice shall be given at
the addresses of the holders as reflected in the Corporation's
stock transfer records.
3.1.9.2 Within 20 calendar days after receipt of the
Preemption Notice, each such holder may elect to purchase or
obtain, at the price and on the terms specified in the
Preemption Notice, up to that portion of such shares or other
securities which equals the proportion that the number of
shares of Common Stock owned (assuming full conversion and
exercise of all convertible or exercisable securities).
3.1.9.3 The Corporation may, during the 90-day period
following the expiration of the period provided in PARAGRAPH
3.1.9.2 above, offer the remaining unsubscribed portion of the
shares to any person or persons at a price not less than, and
upon terms no more favorable to the offeree than those
specified in the Preemption Notice. If the Corporation does
not enter into an agreement for the sale of the shares within
such period, or if such agreement is not consummated within 90
days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such shares shall not be
offered unless first offered to the holders of Common Stock in
accordance herewith.
3.1.10 RIGHT OF FIRST REFUSAL. Except in the event of and
until the consummation of an Approved Offering, no holder of Common
Stock shall be permitted to dispose of any shares of the Common Stock
unless such shares shall have been offered for sale in writing first to
the Corporation and then to the other stockholders of the Corporation
(including the holders of a series of Preferred Stock to the extent
required by the Statement of Designation creating such series) (the
"REQUIRED PREFERRED STOCK") pro rata as set forth in this SUBSECTION
3.1.10. In the event a stockholder desires to transfer any Common
Stock, the stockholder desiring to make such transfer (the
"TRANSFERRING STOCKHOLDER") shall deliver written notice (the "OFFER
NOTICE") to the Corporation and to all other stockholders (including
the holders of the Required Preferred Stock) at least sixty (60) days
prior to the proposed transfer. The Offer Notice will disclose in
reasonable detail the proposed number of shares to be transferred, the
proposed transferee and the proposed price, terms and conditions of the
transfer.
3.1.10.1 Upon receipt of the Offer Notice, the
Corporation shall have the option (the "CORPORATION'S OPTION")
for a period of thirty (30) days to purchase or otherwise
acquire all or part of the shares described in the Offer
Notice for an aggregate amount (such aggregate amount being
hereinafter referred to as the "OPTION PRICE") equal to the
bona fide purchase price to be paid by the
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<PAGE> 8
proposed purchaser as described in the Offer Notice (which
amount shall be zero if the proposed transfer would take the
form of a gift or other gratuitous transfer). The Corporation
shall notify in writing all then current holders of Common
Stock and the holders of the Required Preferred Stock as to
whether it will exercise, partially exercise or not exercise
the Corporation's Option before the expiration of the
Corporation's Option.
3.1.10.2 In the event that the Corporation does not
elect to fully exercise the Corporation's Option within thirty
(30) days after receipt of the Offer Notice, the remaining
holders of Common Stock and Required Preferred Stock shall
have the option (each a "STOCKHOLDER'S OPTION") for a period
of ten (10) days from the earlier of (i) their receipt of
written notice from the Corporation of its decision not to
exercise or to only partially exercise the Corporation's
Option, or (ii) the expiration of the Corporation's Option
(the "STOCKHOLDER ELECTION PERIOD"), to purchase or otherwise
acquire all or part of the remaining shares which the
Corporation does not choose to purchase pursuant to the
Corporation's Option, in proportion to their respective
ownership of shares of Common Stock (assuming for this purpose
only, the full conversion of the Required Preferred Stock into
shares of Common Stock pursuant to the Statement of
Designation creating such series) which, for purposes of such
determination, shall include without duplication all
outstanding options, warrants or other rights owned by such
stockholders that are convertible into shares of Common Stock
as of the date of such notice from the Corporation (or the
expiration of the Corporation's Option), for an amount equal
to the applicable portion of the Option Price. Each holder of
Common Stock and Required Preferred Stock shall notify in
writing the Corporation as to whether such stockholder will
exercise, partially exercise or not exercise the Stockholder's
Option before the expiration of the Stockholder Election
Period. At the expiration of the Stockholder Election Period,
the Corporation shall promptly notify the holders of Common
Stock and Required Preferred Stock as to any remaining shares
for which no election to purchase has been made.
3.1.10.3 For a period of ten (10) days from the
receipt by the other holders of Common Stock and Required
Preferred Stock of the written notice from the Corporation as
described in the last sentence of PARAGRAPH 3.1.10.2 above,
the other holders of Common Stock and Required Preferred Stock
shall have the right (the "STOCKHOLDER'S SECOND OPTION") to
purchase or otherwise acquire such stockholder's portion of
the shares described in the Offer Notice in proportion to
their respective ownership of shares of Common Stock
(determined as described in PARAGRAPH 3.1.10.2 above).
3.1.10.4 If shares of a Transferring Stockholder
remain unsold after compliance with the procedures set forth
in this SUBSECTION 3.1.10, the Corporation shall have the
final option for ten (10) days to purchase or otherwise
acquire all of the remaining shares proposed to be transferred
for an amount equal to the applicable portion of the Option
Price. If, however, the Corporation and the other stockholders
do not individually or collectively elect to purchase all of
the
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shares being offered, the Transferring Stockholder may, within
thirty (30) days after the expiration of the Other Stockholder
Election Period (subject to the provisions of PARAGRAPH
3.1.10.6 below), transfer all of the shares specified in the
Offer Notice to the transferee identified in the Offer Notice
at the price and terms stated in the Offer Notice. If the
Transferring Stockholder fails to consummate such transfer
within the thirty (30) day period after the expiration of the
Other Stockholder Election Period, any transfer of the shares
thereafter shall again be subject to the provisions of this
SUBSECTION 3.1.10.
3.1.10.5 Unless otherwise agreed in writing, signed
by the person against whom such writing is sought to be
enforced, the closing of any acquisition of Common Stock
hereunder pursuant to the Corporation's Option or a
Stockholder's Option shall take place within forty-five (45)
days of an applicable option's exercise. If any such closing
does not take place within such forty-five (45) day period,
then the shares that were to be acquired shall be offered in
accordance with this SUBSECTION 3.1.10 as though the
applicable option had not been exercised.
3.1.10.6 Notwithstanding the foregoing provisions of
this SUBSECTION 3.1.10, the following shall apply in the event
of any Involuntary Transfer of Common Stock. An "INVOLUNTARY
TRANSFER" shall mean any transfer caused by the death of a
stockholder, as well as any transfer, proceeding or action by,
through, as a consequence of, or in which a stockholder shall
be deprived or divested of any right, title or interest in or
to any of the Common Stock of the Corporation, including,
without limitation, any seizure under levy, attachment or
execution, any transfer in connection with bankruptcy (whether
pursuant to a filing of a voluntary or an involuntary petition
under the United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Corporation
shall give written notice to each stockholder upon the occurrence, or
prospective occurrence, of such Involuntary Transfer within fifteen
(15) days of the date on which the Corporation is notified of the
occurrence or prospective occurrence of such Involuntary Transfer. The
foregoing provisions of this SUBSECTION 3.1.10 then shall apply, except
(i) the Option Price shall be the value of the Corporation as
determined by a qualified representative of a nationally recognized
investment banking or accounting firm mutually agreeable to the
Corporation and the stockholder who made, or may make, the Involuntary
Transfer, multiplied by the percentage of all equity interests in the
Corporation that is then represented by the shares that are the subject
of the Involuntary Transfer, such independent appraised value to take
into account the earnings and book value of the Corporation, and (ii)
the appraiser shall deliver written notice of such valuation to the
Corporation and to all other stockholders
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promptly following his completion of such valuation, and such written
notice shall be considered the Option Notice for purposes of this
SUBSECTION 3.1.10. The cost of the appraisal shall be shared equally by
the Corporation and the stockholder who made, or may make, the
Involuntary Transfer.
At the closing of any purchase by the Corporation or any
stockholders pursuant to this PARAGRAPH 3.1.10.6, the involuntary
transferee shall deliver certificates representing the Common Stock
being purchased, duly endorsed for transfer and accompanied by all
requisite stock transfer taxes, and such shares shall be conveyed free
and clear of any liens, claims, options, charges, encumbrances or
rights of others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall so
represent and warrant. The involuntary transferee shall further
represent and warrant that he is the beneficial owner of such shares.
In the event the provisions of this PARAGRAPH 3.1.10.6 shall
be held to be unenforceable with respect to any particular Involuntary
Transfer of Common Stock, or if all of the shares subject to the
Involuntary Transfer are not purchased by the Corporation and/or one or
more stockholders, and if the involuntary transferee subsequently
desires to transfer such Common Stock, the involuntary transferee shall
be deemed to be a "Transferring Stockholder" under this SUBSECTION
3.1.10.
3.1.10.7 Notwithstanding anything to the contrary contained in
this SUBSECTION 3.1.10, no stockholder shall transfer any Common Stock
at any time if such action would constitute a violation of any federal
or state securities laws or a breach of the conditions to any exemption
from registration of the shares under any such laws or a breach of any
undertaking or agreement of such stockholder entered into pursuant to
such laws or in connection with obtaining an exemption thereunder. Each
stockholder agrees that any shares purchased or acquired by such
stockholder shall bear appropriate legends restricting the sale or
other transfer of such shares in accordance with applicable federal and
state securities laws in addition to a legend referring to the
restrictions set forth herein.
3.1.11 OTHER RIGHTS. Holders of Class B Common Stock and Class
C Common Stock shall have all such additional rights as are set forth
in any Stock Purchase Agreements, as amended from time to time,
relating to Class B Common Stock and Class C Common Stock which has
been executed by the Corporation and approved by the Corporation's
Board of Directors.
3.2. PREFERRED STOCK.
3.2.1 DESIGNATIONS. Shares of Preferred Stock may be issued
from time to time in one or more series, each of which is to have a
distinctive serial designation as determined in the resolution or
resolutions of the Board of Directors providing for the issuance of
such Preferred Stock from time to time.
3.2.2 RIGHTS AND PREFERENCES. Each series of Preferred Stock:
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3.2.2.1 may have such number of shares;
3.2.2.2 may have such voting powers or may be without
voting powers;
3.2.2.3 may be subject to redemption at such time or
times and at such price;
3.2.2.4 may be entitled to receive dividends (which
may be cumulative or noncumulative) at such rate or rates, or
such conditions, from such date or dates, and at such times,
and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or series of
stock;
3.2.2.5 may have such rights upon the dissolution of,
or upon any distribution of the assets of, the Corporation;
3.2.2.6 may be made convertible into, or exchangeable
for, shares of any other class or classes, or of any other
series of the same class or of any other class or classes, of
stock of the Corporation at such price or prices or at such
rates of exchange, and with adjustments;
3.2.2.7 may be entitled to the benefit of a sinking
fund or purchase fund to be applied to the purchase or
redemption of shares of such series in such amount or amounts;
3.2.2.8 may be entitled to the benefit of conditions
and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issuance of any
additional stock (including additional shares of such series
or of any other series) and upon the payment of dividends or
the making of other distributions on, and the purchase,
redemption or other acquisition by the Corporation of stock of
any class; and
3.2.2.9 may have such other power, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof;
as in such instance is stated in the resolution or resolutions of the
Board of Directors providing for the issuance of such Preferred Stock.
Except where otherwise set forth in such resolution or resolutions the
number of shares comprising such series may be increased or decreased
(but not below the number of shares then outstanding) from time to time
by like action of the Board of Directors.
3.2.3 STATUS OF REDEEMED, PURCHASED OR CONVERTED SHARES OF
PREFERRED STOCK. Shares of any series of Preferred Stock which have
been redeemed (whether through the operation of a sinking fund or
otherwise) or purchased by the Corporation, or which, if convertible or
exchangeable, have been converted into or exchanged for shares of stock
of any other class or classes will, after the filing of a proper
certificate with the Delaware Secretary of State, have the status of
authorized but unissued shares of
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Preferred Stock and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part
of a new series of Preferred Stock created by resolution or resolutions
of the Board of Directors or as part of any other series of Preferred
Stock, all subject to the conditions or restrictions on issuance set
forth in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of any series of Preferred Stock
and to any filing required by law.
ARTICLE IV
DIRECTORS; ELECTION OF DIRECTORS
4.1 MANAGEMENT OF CORPORATION. All corporate powers shall be exercised
by the Board of Directors, except as otherwise provided by law or by the
Certificate of Incorporation. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
4.2 DIRECTORS. In furtherance and not in limitation of the powers
conferred by statute, the Certificate of Incorporation or the Bylaws of the
Corporation, the Board of Directors is expressly authorized:
4.2.1 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; and
4.2.2 to designate by resolution or resolutions one or more
committees, each committee to consist of one or more of the directors
of the Corporation, which, to the extent provided in said resolution or
resolutions or in the Bylaws of the Corporation, shall have and may, to
the fullest extent permitted by law, exercise the power 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 on which the Corporation desires to place a seal.
Such committee or committees shall have such name or names as may be
stated in the Bylaws of the Corporation or as may be determined from
time to time by resolutions adopted by the Board of Directors.
The Corporation may confer powers upon the Board of Directors of the
Corporation in its Bylaws in addition to the powers conferred upon the Board of
Directors in the Certificate of Incorporation and in addition to the powers and
authorities expressly conferred upon the Board of Directors by law.
4.3 NUMBER, ELECTION AND TERMS OF DIRECTORS. Subject to SUBSECTION
3.1.2, the number, qualifications, terms of office, manner of election, time and
place of meeting, compensation and powers and duties of the directors may be
prescribed from time to time by the Bylaws, and the Bylaws may also contain any
other provisions for the regulation and management of the affairs of the
Corporation not inconsistent with the law or the Certificate of Incorporation.
The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be not less than five (5) as specified from
time to time in the Bylaws of the Corporation. The directors, other than those
who may be elected by the holders of any series of
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<PAGE> 13
Preferred Stock, shall be divided into three classes, Class I, Class II and
Class III. Such classes shall be as nearly equal in number of directors as
possible. Each director shall serve for a term ending on the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term expiring at the annual meeting next following the end of the calendar year
1999, the directors first elected to Class II shall serve for a term expiring at
the second annual meeting next following the end of the calendar year 1999, and
the directors first elected to Class III shall serve for a term expiring at the
third annual meeting next following the end of the calendar year 1999. Each
director shall hold office until the annual meeting at which such director's
term expires and, the foregoing notwithstanding, shall serve until his successor
shall have been duly elected and qualified, unless he shall resign, become
disqualified, disabled or shall otherwise be removed.
At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they succeed,
unless, by reason of any intervening changes in the authorized number of
directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors, each director then continuing to serve as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term, or his prior death, resignation or
removal. If any newly created directorship may, consistent with the rule that
the three classes shall be as nearly equal in number of directors as possible,
be allocated to one or more classes, the Board shall allocate it to that of the
available classes whose terms of office are due to expire at the earliest date
following such allocation.
Election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. Cumulative voting of shares of any capital
stock having voting rights is prohibited.
ARTICLE V
REGISTERED OFFICE AND AGENT
The street address of the initial registered office of the Corporation
is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the
name of its initial registered agent at such address is The Corporation Trust
Company.
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<PAGE> 14
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial Board of Directors is
six (6) and the names, addresses and class of the persons who are to serve as
directors until their successor or successors are elected and qualified are or
their earlier death, resignation or removal:
<TABLE>
<S> <C>
James R. Price Tracy S. Turner
1440 Corporate Drive 300 N. Greene Street
Irving, Texas 75038 Suite 2100
Class III Director Greensboro, North Carolina 27401
Class I Director elected by holders of
Class B Common Stock
Charles W. (Bo) Price Russell R. Myers
1440 Corporate Drive 300 N. Greene Street
Irving, Texas 75038 Suite 2100
Class II Director Greensboro, North Carolina 27401
Class I Director elected by holders of
Class B Common Stock
Matthew Hutchins, Sr. Clay C. Scott
1440 Corporate Drive 1440 Corporate Drive
Irving, Texas 75038 Irving, Texas 75038
Class III Director Class II Director
</TABLE>
ARTICLE VII
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
No director of the Corporation shall be 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 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 this ARTICLE VII by the stockholders of
the Corporation shall not adversely affect any right of protection of a director
of the Corporation existing at the time of such repeal or modification.
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<PAGE> 15
ARTICLE VIII
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation shall have the right, subject to any express provisions
or restrictions contained in the Certificate of Incorporation, from time to time
to amend the Certificate of Incorporation or any provision thereof in any manner
now or hereafter provided by law, and all rights and powers at any time
conferred upon the directors or stockholders of the Corporation by the
Certificate of Incorporation and Bylaws or any amendment thereof are subject to
such right of the Corporation.
ARTICLE IX
AMENDMENT OF BYLAWS
The Bylaws of the Corporation may be amended or repealed, or new Bylaws
may be adopted, (i) by the Board of Directors of the Corporation at any duly
held meeting or pursuant to a written consent in lieu of such meeting, or (ii)
by the holders of a majority of the shares entitled to vote thereon represented
at any duly held meeting of stockholders, provided that notice of such proposed
action shall have been contained in the notice of any such meeting, or pursuant
to a written consent signed by the holders of a majority of the outstanding
shares entitled to vote thereon.
ARTICLE X
INCORPORATOR
The name and address of the incorporator is:
D. Forrest Brumbaugh, Esq.
Winstead Sechrest & Minick P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly I have hereunto set my hand as of the 15th day of December, 1999.
---------------------------------------
D. Forrest Brumbaugh
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<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
BROADBANDNOW, INC.
December 16, 1999
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
BroadbandNOW, Inc. (the "CORPORATION"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Corporation by ARTICLE III of its Certificate of Incorporation, as amended
(hereinafter referred to as the "CERTIFICATE OF INCORPORATION"), and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors, by unanimous written consent dated as of
December 16, 1999, duly approved and adopted the following resolution (the
"RESOLUTION"):
RESOLVED, that, pursuant to the authority vested in the Board of
Directors of the Corporation by ARTICLE III of its Certificate of Incorporation,
the Board of Directors does hereby create, authorize and provide for the
issuance of Series A Preferred Stock, $0.001 par value, with a liquidation
preference of $18.80 per share, consisting of Six Million Nine Hundred Thousand
(6,900,000) shares, having the designations, preferences, relative,
participating, optional and other special rights and the qualifications,
limitations and restrictions thereof that are set forth in the Certificate of
Incorporation and in this Resolution as follows:
1. NUMBER OF SHARES. The shares of the initial series of preferred stock
shall be designated "Series A Convertible Preferred Stock" (the "PREFERRED
STOCK"), and the number of shares of the Preferred Stock which may be issued
shall be Six Million Nine Hundred Thousand (6,900,000). The Board of Directors
may authorize the issuance of up to 4,893,617 shares of the 6,900,000 authorized
shares of the Preferred Stock (i) in consideration for cash payments to the
Corporation or (ii) upon consummation of the merger of BBNW Merger Sub, Inc., a
Texas corporation ("MERGER SUB"), with and into I 3S, Inc., a Texas corporation
("I 3S TEXAS") to the former I 3S Texas holders of shares of preferred stock
upon the conversion of such shares into shares of Preferred Stock or the right
to receive Preferred Stock pursuant to the terms of said merger. The remaining
2,006,383 shares of Preferred Stock may only be issued by the Corporation as
in-kind dividends on previously issued shares of the Preferred Stock in
accordance with SUBSECTION 2.1.1 below.
<PAGE> 2
2. PREFERRED STOCK. The designations, preferences, limitations,
relative rights and privileges in respect of the Preferred Stock are as follows:
2.1 DIVIDENDS.
2.1.1 The holders of Preferred Stock shall be entitled to
receive semi-annual dividends, out of funds legally available therefor, at a
rate per share (the "DIVIDEND RATE") equal to the greater of (a) $1.504 per
annum per share (said dividend to be appropriately adjusted for stock divisions,
dividends, combinations, recapitalizations and reclassifications), or (b) if a
dividend (other than a dividend payable in shares of Common Stock) is declared
during such semi-annual period on the Common Stock (or any class thereof),
subject to the approval or consent of the holders of the Preferred Stock as
provided in SECTION 2.2 hereof, an amount per share equal to the aggregate
amount of dividends declared with respect to that number of shares of the Common
Stock into which the Preferred Stock then outstanding shall then be convertible
pursuant to SECTION 2.5 hereof, divided by the number of shares of the Preferred
Stock then outstanding. Such dividends shall be fully cumulative, prior and in
preference to any declaration or payment of any dividend or other distribution
on any other class or series of capital stock of the Corporation but shall be
payable only when, as and if declared by the Board of Directors of the
Corporation out of funds legally available for the payment of dividends.
Payments of dividends shall be made in arrears, at the election of the
Corporation, (i) in cash or (ii) in kind in the form of additional shares of
Preferred Stock, provided, however, that all accrued but unpaid dividends on the
Preferred Stock must be paid, in arrears, in cash, before payment of any cash
dividends on any other series or class of capital stock of the Corporation.
Semi-annual dividend periods (each a "SEMI-ANNUAL DIVIDEND PERIOD")
shall commence on January 1 and July 1, in each year, except that the first
Semi-annual Dividend Period shall commence on the date of issuance of the
Preferred Stock, and shall end on and include the day immediately preceding the
first day of the next Semi-annual Dividend Period. Dividends on the shares of
Preferred Stock shall be payable on January 1 and July 1 of each year (a
"DIVIDEND PAYMENT DATE"), commencing July 1, 1999; provided, however, that no
obligation to pay a dividend shall exist until such dividends are declared by
the Board of Directors. Each such dividend shall be paid to the holders of
record of the Preferred Stock as they shall appear on the stock register of the
Corporation on such record date, not exceeding 45 days preceding such Dividend
Payment Date, as shall be fixed by the Board of Directors of the Corporation or
a duly authorized committee thereof.
If, on any Dividend Payment Date, all accrued and unpaid dividends
provided for in this SECTION 2.1 are not paid to the holders of the Preferred
Stock (whether declared or undeclared), whether in cash or in additional shares
of Preferred Stock, then such dividends shall cumulate with additional dividends
thereon, compounded semi-annually, at the dividend rate applicable to the
Preferred Stock as provided in this SECTION 2.1, for each succeeding full
Semi-annual Dividend Period during which such dividends shall remain unpaid. In
the event the Corporation elects to pay dividends in additional shares of
Preferred Stock, the Corporation shall on the Dividend Payment Date deliver to
the holders certificates representing such shares.
<PAGE> 3
Notwithstanding anything to the contrary in this Certificate of
Designation, in the event any conversion (including into Class A Common Stock),
redemption or liquidation occurs as of a date other than on a Dividend Payment
Date, the holder of Preferred Stock shall be paid, out of funds legally
available therefor, a pro rata dividend equal to the dividend payable for that
Semi-annual Dividend Period multiplied by a fraction, the numerator of which is
the number of days that have elapsed since the last Dividend Payment Date and
the denominator of which is the number of days in the Semi-annual Dividend
Period in which the conversion, redemption or liquidation occurs.
If the Corporation elects to pay a dividend on the Preferred Stock in
kind in the form of additional shares of Preferred Stock, the Corporation shall
issue and deliver to each holder of the shares of Preferred Stock in lieu of,
and in full satisfaction of, any dividends not paid in cash, additional shares
of Preferred Stock with an aggregate Liquidation Preference equal to the
dividend not paid in cash, with any fractional share owing such holder of shares
of Preferred Stock to be held by the Corporation and paid in the form of a whole
share when any fractional shares owed to such holder of the shares of Preferred
Stock equal at least one whole share and any such fractional shares thereafter
to be held and accounted for by the Corporation in accordance with generally
accepted accounting principles until paid as a whole share or shares.
2.1.2 The amount of any dividends accrued on any share of the
Preferred Stock on any Dividend Payment Date shall be deemed to be the amount of
any unpaid dividends accumulated thereon to and including such Dividend Payment
Date, whether or not earned or declared. The amount of dividends accrued on any
share of the Preferred Stock on any date other than a Dividend Payment Date
shall be deemed to be the sum of (i) the amount of any unpaid dividends
accumulated thereon to and including the last preceding Dividend Payment Date,
whether or not earned or declared, and (ii) an amount determined by multiplying
(x) the Dividend Rate by (y) a fraction, the numerator of which shall be the
number of days from the last preceding Dividend Payment Date to and including
the date on which such calculation is made and the denominator of which shall be
the full number of days in such Semi-annual Dividend Period.
2.1.3 Immediately prior to authorizing or making any
distribution in redemption or liquidation with respect to the Preferred Stock
(other than a purchase or acquisition of Preferred Stock pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding Preferred
Stock), the Board of Directors shall, to the extent of any funds legally
available therefor, declare a dividend in cash on the Preferred Stock payable on
the distribution date in an amount equal to any accrued and unpaid dividends on
the Preferred Stock as of such date.
2.1.4 In the event there have been any accrued and unpaid
dividends on the Preferred Stock at the time of the consummation of an Approved
Offering, the Corporation shall first pay in cash all accrued and unpaid
dividends (together with any dividends calculated through the date of
consummation of the Approved Offering) on the Preferred Stock from the proceeds
from the Approved Offering.
<PAGE> 4
2.1.5 Except as provided under SUBSECTION 2.1.6 or SECTION
2.4, the Corporation shall not declare or pay any dividend or make any other
distribution on any shares of Parity Stock or Junior Stock (other than dividends
payable in Parity Stock or Junior Stock, as the case may be, to holders thereof)
or purchase, redeem or otherwise acquire for consideration any shares of Parity
Stock or Junior Stock, unless all aggregate accrued dividends on all outstanding
shares of Preferred Stock shall have been paid for all past periods.
2.1.6 If any dividends shall have been declared but not paid
in full or funds set apart for payment in full on the payment date for such
dividends on the outstanding shares of the Preferred Stock and any Parity Stock
that is equal in rank as to dividends, then, to the extent any dividends are
thereafter paid or set apart for payment on the outstanding shares of the
Preferred Stock or such Parity Stock, the money for such payment or so set aside
shall be shared ratably by the holders of the outstanding shares of the
Preferred Stock and the holders of the outstanding Parity Stock in proportion to
the respective unpaid dividends.
2.1.7 All accumulated and unpaid dividends on the Series A
Convertible Preferred Stock of I 3S Texas that, upon the merger of Merger Sub
with and into I 3S Texas, are to be cancelled and converted into the right to
receive an equal number of shares of Preferred Stock, shall be deemed to be
accumulated and unpaid dividends on such shares of Preferred Stock. Dividends on
each outstanding share of Preferred Stock shall accumulate from the date of
original issuance of the share of the preferred stock of I 3S Texas in exchange
for which such share of Preferred Stock is originally issued.
2.2 VOTING RIGHTS.
2.2.1 The holders of Preferred Stock shall have no voting
rights whatsoever, except as set forth below in SUBSECTION 2.2.2 or as otherwise
existing under applicable law.
2.2.2 So long as any shares of Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent) of the holders of at least a majority of the shares of
Preferred Stock then outstanding, voting as a separate class, take any action
to:
2.2.2.1 approve an agreement or plan of merger or
consolidation or conversion under which the Corporation is to merge or
consolidate with or into any other corporation or convert into any other
business entity;
2.2.2.2 approve any sale or transfer of all or
substantially all of the assets of the Corporation;
2.2.2.3 create, authorize or issue any share of any
series or class of Prior Stock or Parity Stock, including the issuance of any
debt securities, stock or other security convertible into any class or series of
Prior Stock or Parity Stock;
<PAGE> 5
2.2.2.4 repurchase, redeem or retire any shares of
Preferred Stock or Parity Stock except pursuant to any provision of this
Certificate of Designation;
2.2.2.5 repurchase, redeem or retire any shares of
Common Stock or Junior Stock;
2.2.2.6 amend, alter or repeal any of the provisions
of the Certificate of Incorporation or this Certificate of Designation, if such
amendment, alteration or repeal would adversely affect any privilege,
preference, right or power of the Preferred Stock or the holders thereof;
2.2.2.7 increase or decrease the authorized number of
shares of Preferred Stock; or
2.2.2.8 authorize or pay any dividend or other
distribution (other than dividends payable to the holders of Preferred Stock as
contemplated by SUBSECTION 2.1.1 and dividends on the Class A Common Stock
payable in additional shares of Class A Common Stock) with respect to the
Preferred Stock or the Common Stock.
2.2.3 In addition to the special voting rights provided in
SUBSECTION 2.2.2 above, the holders of the Preferred Stock shall also have the
right to vote as a separate class on any matter if required by the General
Corporation Law of the State of Delaware or any successor statute.
2.3 PREEMPTIVE RIGHTS. The holders of the Preferred Stock shall have the
preemptive right to subscribe for any and all issuances of (i) Common Stock or
other equity securities of the Corporation; (ii) options to purchase or rights
to subscribe for Common Stock or other equity securities of the Corporation;
(iii) securities convertible into or exchangeable for Common Stock or other
equity securities of the Corporation; and (iv) options to purchase or rights to
subscribe for such convertible or exchangeable securities; provided that, the
holders of the Preferred Stock shall not have a preemptive right to subscribe
for (i) Compensatory Securities (as adjusted to provide for any dividends, stock
distributions, splits, combinations or recapitalization), (ii) securities to be
issued in connection with a merger, an acquisition or an offering for property
interests (other than cash or new deferred payment obligations), (iii)
securities to be issued upon the conversion of previously outstanding
convertible securities, (iv) securities to be issued pursuant to SECTION 2.1 and
(v) securities to be issued in an Approved Offering, or where the preemptive
rights have been waived by a majority of the Preferred Stock then outstanding.
In the event the Corporation shall propose to issue any securities with respect
to which the holders of the Preferred Stock have the preemptive rights set forth
above, the Corporation shall first make an offering of Preferred Stock in
accordance with the following provisions.
2.3.1 The Corporation shall deliver a notice by certified mail
(the "PREEMPTION NOTICE") to the holders of Preferred Stock stating (i) its bona
fide intention to offer such shares or other securities, (ii) the number of such
shares or other securities to be offered, and (iii) the price and all material
terms, if any, upon which it proposes to offer such shares or
<PAGE> 6
other securities. Such notice shall be given at the addresses of the holders as
reflected in the Corporation's stock transfer records.
2.3.2 Within 20 calendar days after receipt of the Preemption
Notice, each holder of Preferred Stock may elect to purchase or obtain, at the
price and on the terms specified in the Preemption Notice, up to that portion of
such shares or other securities which equals the proportion that the number of
shares of Common Stock owned or issuable upon conversion and exercise of all
convertible and exercisable securities then held by such holder, including the
Preferred Stock, bears to the total number of shares of Common Stock then
outstanding (assuming full conversion and exercise of all convertible or
exercisable securities). The Corporation shall promptly, in writing, inform each
holder of Preferred Stock that purchases all the shares or other securities
available to it (each a "FULLY-EXERCISING HOLDER") of any other holder's failure
to do likewise.
2.3.3 The Corporation may, during the 90-day period following
the expiration of the period provided in SUBSECTION 2.3.2 above, offer the
remaining unsubscribed portion of the shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Preemption Notice. If the Corporation does not enter into an
agreement for the sale of the shares within such period, or if such agreement is
not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such shares shall not be offered
unless first offered to the holders of Preferred Stock in accordance herewith.
2.4 LIQUIDATION RIGHTS.
2.4.1 In the event of a Liquidation, the holders of Preferred
Stock shall be entitled to receive, out of the assets of the Corporation legally
available for distribution to stockholders and before any payment shall be made
or any assets distributed to the holders of Junior Stock, an amount per share
equal to the sum in cash of (i) $18.80 (the "LIQUIDATION PREFERENCE"), plus (ii)
on a per share basis, an amount equal to all dividends, if any, accumulated and
unpaid, whether or not declared or earned, as of the date of the final
distribution to the holders of the Preferred Stock. If the Corporation at any
time after the Issuance Date effects a subdivision of the outstanding Preferred
Stock, the Liquidation Preference for the Preferred Stock in effect immediately
before the subdivision shall be proportionately decreased, and conversely, if
the Corporation at any time after the Issuance Date effects a combination of the
Preferred Stock, the Liquidation Preference for the Preferred Stock in effect
immediately before the combination shall be proportionately increased. Any such
adjustment to the Liquidation Preference shall become effective at the time the
subdivision or combination becomes effective.
2.4.2 After payment to the holders of Preferred Stock of the
amounts set forth in SUBSECTION 2.4.1 above, the remaining assets of the
Corporation shall first be distributed to the holders of Class B Common Stock
and Class C Common Stock in accordance with ARTICLE III of the Certificate of
Incorporation, and then the holders of the Corporation's Common Stock shall be
entitled to share in all of the remaining assets and funds of the Corporation
ratably in proportion to the number of shares of Common Stock then outstanding.
<PAGE> 7
2.4.3 If, upon any Liquidation, the assets to be distributed
among the holders of Preferred Stock and any Parity Stock that is of equal rank
as to distributions of assets shall be insufficient to permit payment to such
holders of the full amounts to which they shall be entitled, the holders of
Preferred Stock and such Parity Stock shall share ratably in any such
distribution of assets in accordance with the percentage which would be payable
if all such amounts were paid in full.
2.4.4 The Corporation shall provide written notice to each
holder of Preferred Stock at least 20 days prior to any event of Liquidation or
a Change of Control.
2.4.5 By giving written notice to the Corporation prior to any
Liquidation or Change of Control, the holders of Preferred Stock may, at their
option, elect to forego their Liquidation Preference, and have their shares of
Preferred Stock converted into Class A Common Stock immediately prior to the
event of Liquidation or Change of Control pursuant to SUBSECTION 2.5.2 hereof.
2.4.6 Except with respect to holders that elect to convert
their shares of Preferred Stock into Class A Common Stock, for purposes of this
SECTION 2.4, the holders of a majority of the Preferred Stock may elect to have
treated as a Liquidation: (i) the consolidation or merger of the Corporation
with or into any other corporation or any other reorganization of the
Corporation, unless the stockholders of the Corporation immediately prior to any
such transaction are holders of a majority of the voting securities of the
surviving or acquiring corporation immediately thereafter (and for purposes of
this calculation equity securities which any stockholder or the Corporation
owned immediately prior to such merger or consolidation as a stockholder of
another party to the transaction shall be disregarded); or (ii) the sale or
other transfer in a single transaction or a series of related transactions of
all or substantially all of the assets of the Corporation.
2.5 CONVERSION RIGHTS OF PREFERRED STOCK.
2.5.1 Automatic Conversion. Upon the occurrence of an Approved
Offering, each share of Preferred Stock shall immediately and automatically be
converted into such number of fully paid and nonassessable shares of Class A
Common Stock equal to the product of (A) the number of shares of Preferred Stock
held by such stockholder, multiplied by (B) the number determined by dividing
the then current Liquidation Preference by the then current Conversion Price.
The Corporation shall give not less than (i) ten (10) days prior written notice
to each holder of Preferred Stock of the estimated date of such Approved
Offering and (ii) three (3) days prior written notice of the actual date of the
Approved Offering. The Corporation and the holders of the Preferred Stock shall
carry out the exchange procedures set forth under SUBSECTION 2.5.3 as soon as
practicable on or after the consummation of the Approved Offering, it being
acknowledged by the Corporation that no holder shall be required to give the
notice otherwise required in SUBSECTION 2.5.2.
2.5.2 Optional Conversion. A holder of shares of Preferred
Stock may, at his option, at any time and from time to time, convert all or any
part of the shares of Preferred Stock beneficially owned by such holder into
such number of fully paid nonassessable shares of
<PAGE> 8
Class A Common Stock equal to the product of (A) the number of shares of
Preferred Stock held by such stockholder, multiplied by (B) the number
determined by dividing the then current Liquidation Preference by the then
current Conversion Price, by giving written notice to the Corporation and
delivering the certificates evidencing the Preferred Stock in accordance with
SUBSECTION 2.5.3 below. Such notice shall specify the date and place for the
consummation of the conversion (hereinafter such date, or the date of conversion
under SUBSECTION 2.5.1 above, or such other date as may be fixed by the mutual
agreement of the Corporation and such holder as the date for the particular
conversion, is referred to as the "CONVERSION DATE").
2.5.3 Exchange of Stock Certificates. Following a conversion
pursuant to SUBSECTION 2.5.1 or 2.5.2 above, each holder of shares of Preferred
Stock shall surrender such holder's certificates evidencing such shares, at the
principal office of the Corporation or at such other place as the Corporation
shall designate, and shall thereupon be entitled to receive certificates
evidencing the number of shares of Class A Common Stock into which such shares
of Preferred Stock have been converted. The Corporation, on the Conversion Date,
in exchange for the foregoing, will deliver to such holder or holders of the
Preferred Stock to be converted a certificate or certificates for the number of
shares of Class A Common Stock to which such holder shall be entitled as
aforesaid. Upon the Conversion Date, each holder of shares of Preferred Stock to
be converted into shares of Class A Common Stock shall be deemed to be the
holder of record of the Class A Common Stock issuable upon such conversion,
notwithstanding that the certificates representing such shares of Preferred
Stock shall not have been surrendered at the office of the Corporation, that
notice from the Corporation regarding the conversion shall not have been
received by any holder of shares of Preferred Stock, or that the certificates
evidencing such shares of Class A Common Stock shall not have been actually
delivered to such holder.
2.5.4 Dividends. No adjustment to the Conversion Price shall
be made for cash dividends declared but unpaid on any shares of the Preferred
Stock that shall be converted or for cash dividends on any Common Stock that
shall be issued upon such conversion, but all cash dividends declared and unpaid
on such shares of the Preferred Stock as of the Conversion Date shall constitute
a debt of the Corporation payable to the converting holder, and no cash dividend
shall be paid upon the Common Stock until such debt shall be paid or sufficient
funds set apart for the payment thereof.
2.5.5 Adjustments to Conversion Price.
2.5.5.1 Adjustment for Subdivisions and Combinations.
If the Corporation at any time or from time to time after the Issuance Date
effects a subdivision of the outstanding Class A Common Stock into a larger
number of shares, the Conversion Price for the Preferred Stock then in effect
immediately before that subdivision shall be proportionately decreased, and
conversely, if the Corporation at any time or from time to time after the
Issuance Date combines the outstanding shares of Class A Common Stock into a
smaller number of shares, the Conversion Price for the Preferred Stock then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this PARAGRAPH 2.5.5.1 shall become effective at the time
the subdivision or combination becomes effective.
<PAGE> 9
2.5.5.2 Adjustment for Certain Dividends and
Distributions. In the event the Corporation at any time or from time to time
after the Issuance Date declares or makes a dividend or other distribution with
respect to the Class A Common Stock payable in additional shares of Class A
Common Stock, then and in each such event the then current Conversion Price for
the Preferred Stock shall be decreased effective as of the date the additional
shares of Class A Common Stock are issued by multiplying the then current
Conversion Price for the Preferred Stock by a fraction (A) the numerator of
which is the total number of shares of Class A Common Stock issued and
outstanding immediately prior to the issuance of the additional shares of Class
A Common Stock and (B) the denominator of which is the total number of shares of
Class A Common Stock issued and outstanding immediately after the issuance of
the additional shares of Class A Common Stock.
2.5.5.3 Adjustment for Other Dividends and
Distributions. In the event the Corporation at any time or from time to time
after the Issuance Date declares or makes a dividend or other distribution with
respect to the Class A Common Stock payable in securities of the Corporation
other than additional shares of Class A Common Stock, then in each such event
provision shall be made so that the holders of Preferred Stock shall receive
upon conversion thereof, in addition to the number of shares of Class A Common
Stock receivable thereupon, the amount of securities of the Corporation that
they would have received had their Preferred Stock been converted into Class A
Common Stock prior to the effective date of the issuance of such other
securities.
2.5.5.4 Adjustment for Recapitalization,
Reclassification or Other Change. If the Class A Common Stock issuable upon the
conversion of the Preferred Stock is changed into the same or a different number
of shares of any other class or classes of stock, whether by recapitalization,
reclassification or other change (other than a subdivision or combination of
shares, a stock dividend or distribution, or a reorganization, provided for
elsewhere in this SUBSECTION 2.5.5) or into other securities or property, then
in each such event provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof the kind and amount of stock and
other securities and property that they would have received had their Preferred
Stock been converted into Class A Common Stock immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein.
2.5.5.5 Adjustment for Reorganizations. If at any
time or from time to time there is a capital reorganization of the Class A
Common Stock (other than a recapitalization, reclassification or other change
provided for elsewhere in this SUBSECTION 2.5.5), then in each such event,
provision shall be made so that the holders of Preferred Stock shall receive
upon conversion thereof, the kind and amount of stock and other securities and
property that they would have received had their Preferred Stock been converted
into Class A Common Stock immediately prior to such reorganization, all subject
to further adjustment as provided herein. In any such case, appropriate
adjustment shall be made in the application of the provisions of this SUBSECTION
2.5.5 with respect to the rights of holders of the Preferred Stock after the
reorganization to the end that the provisions of this SUBSECTION 2.5.5
(including adjustment of the Conversion Price for such Preferred Stock then in
effect and number of shares
<PAGE> 10
purchasable upon conversion of such Preferred Stock) shall be applicable after
that event and be as nearly equivalent to the provisions hereof as may be
practicable.
2.5.5.6 Minimum Adjustment. Except as hereinafter
provided, no adjustment of the Conversion Price hereunder shall be made if such
adjustment results in a change of the Conversion Price then in effect of less
than 0.1%. Any adjustment of less than 0.1% shall be carried forward and shall
be made at the time of and together with any subsequent adjustment which,
together with the adjustment or adjustments so carried forward, amounts to 0.1%
or more of the Conversion Price then in effect. However, upon conversion of the
Preferred Stock, the Corporation shall make all necessary adjustments not
theretofore made to the Conversion Price up to and including the date of such
conversion.
2.5.6 Notice of Adjustments. Whenever the Conversion Price or
the amount of Class A Common Stock or other securities deliverable upon the
conversion of the Preferred Stock shall be adjusted pursuant to the provisions
hereof, the Corporation shall forthwith file, at its principal executive office
and with any transfer agent or agents for its Preferred Stock and Class A Common
Stock, a statement, signed by an authorized officer of the Corporation, stating
the newly adjusted Conversion Price and adjusted amount of its Class A Common
Stock or other securities deliverable per share of the Preferred Stock
calculated to the nearest one one-hundredth and setting forth in reasonable
detail the method of calculation and the facts requiring such adjustment and
upon which such calculation is based and shall mail such certificate, by first
class mail, postage prepaid, to each registered holder of the Preferred Stock at
the holder's address as shown in the Corporation's books.
2.5.7 Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but unissued Class A
Common Stock the full number of shares of Class A Common Stock deliverable upon
the conversion of all the then outstanding shares of Preferred Stock and shall
take all such action and obtain all such permits or orders as may be necessary
to enable the Corporation lawfully to issue such Class A Common Stock upon the
conversion of the Preferred Stock.
2.5.8 No Fractional Shares. No fractions of shares of Class A
Common Stock shall be issued upon conversion. If more than one share of
Preferred Stock shall be converted at any one time by the same holder, the
number of full shares of Class A Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of Preferred
Stock so surrendered. In lieu of any fractional shares that would otherwise be
issuable upon conversion of any shares of Preferred Stock, the Corporation shall
when, as and if funds are legally available therefor pay cash equal to such
fraction multiplied by the fair market value of a share of Class A Common Stock
as determined by the Board of Directors.
2.5.9 Consolidation, Mergers. In case of any consolidation or
merger of the Corporation with or into another corporation, or in case of any
sale or conveyance to another corporation of all or substantially all of the
assets of the Corporation, the holder of each share of the Preferred Stock then
outstanding shall have the right thereafter, so long as such holder's conversion
right hereunder shall exist, to convert such share of the Preferred Stock into
the kind and amount of shares of stock and other securities and property
receivable upon such
<PAGE> 11
consolidation, merger, sale or conveyance by the holder of the number of shares
of Class A Common Stock of the Corporation into which such share of the
Preferred Stock might have been converted immediately prior to such
consolidation, merger, sale or conveyance, and the Corporation shall cause
proper provision to be made in the Articles or Certificate of Incorporation of
the resulting or surviving corporation or otherwise to protect such conversion
right.
2.5.10 Payment of Taxes. The Corporation shall pay all issue
taxes, if any, incurred in connection with the issuance of its Class A Common
Stock or other securities or properties on conversion of any shares of the
Preferred Stock, but the Corporation shall not pay any transfer or other taxes
incurred by reason of the issuance of such Class A Common Stock or other
securities or properties in names other than those in which the share or shares
of the Preferred Stock surrendered for conversion may stand.
2.5.11 Adjustments to Remain Effective. Any adjustment of the
Conversion Price herein provided shall remain in effect until further adjustment
of the Conversion Price is required hereunder.
2.6 REDEMPTION.
2.6.1 Mandatory Redemption at Election of Preferred Stock. The
Corporation shall be obligated to redeem and shall promptly redeem all of the
shares of Preferred Stock, upon written request by the holders of a majority of
the issued and outstanding shares of Preferred Stock after the occurrence of a
Triggering Event, for an amount per share equal to (i) the Liquidation
Preference, plus (ii) on a per share basis, an amount equal to all dividends, if
any, accumulated and unpaid, whether or not declared or earned (including any
dividends thereon calculated through the date of redemption) (the "MANDATORY
REDEMPTION OBLIGATION").
2.6.2 Failure to Make Payment. If and so long as the Mandatory
Redemption Obligation with respect to Preferred Stock shall not fully be
discharged, the Corporation shall not, directly or indirectly, declare or pay
any dividend or make any distributions on, or purchase, redeem or retire, or
satisfy any mandatory or optional redemption, sinking fund or other similar
obligation in respect of, any Parity Stock or Junior Stock or warrants, rights
or options exercisable for any such Parity Stock or Junior Stock (other than
dividends or distributions payable in a particular class or series of such
Parity Stock or Junior Stock, as the case may be, to holders thereof), except
that the Corporation may redeem Parity Stock that is also subject to mandatory
redemption provisions at such time on a pro rata basis with any required
redemption of the Series A Preferred Stock based on the relative required
redemption payment amounts.
2.7 RIGHT OF FIRST REFUSAL. The Preferred Stock shall be "Required
Preferred Stock" for purposes of SUBSECTION 3.1.10 of the Corporation's
Certificate of Incorporation.
2.8 CERTAIN DEFINITIONS. For purposes of this Certificate of
Designation, the following terms have the following meanings:
<PAGE> 12
"APPROVED OFFERING" shall mean the consummation of the first
underwritten public offering of Common Stock of the Corporation pursuant to
a registration statement filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (or any successor provision),
with a concurrent listing on the New York Stock Exchange, the American
Stock Exchange, or the Nasdaq Stock Market, Inc. at an initial offering
price of at least $20.00 per share (subject to adjustment for subsequent
stock divisions, stock combinations and stock dividends with respect to the
Common Stock) that results in gross proceeds to the Corporation (before
deduction of underwriting discounts and expenses of sale) of not less than
$30,000,000.
"CHANGE OF CONTROL" shall mean the occurrence of any of the events
described in Subsection 2.4.6.
"COMPENSATORY SECURITIES" shall mean shares of Common Stock, rights,
options or warrants granted or awarded by the Corporation, with the
approval of its Board of Directors, to employees or directors of the
Corporation as compensation for service to the Corporation in any such
capacities, if such rights, options or warrants are granted at an exercise
price or value not less than the fair market value of a share as of the
date of grant and do not exceed an aggregate of 6,000,000 shares of Class A
Common Stock (as adjusted to provide for any dividends, stock
distributions, splits, combinations or recapitalizations).
"COMMON STOCK" shall mean, collectively, the Class A Common Stock, the
Class B Common Stock and the Class C Common Stock of the Corporation.
"CONVERSION PRICE" shall mean the price at which shares of the Class A
Common Stock shall be deliverable upon conversion of the Preferred Stock as
adjusted from time to time as herein provided. The Conversion Price for the
Preferred Stock shall initially be $18.80 per share.
"ISSUANCE DATE" shall mean the actual initial date of issuance of the
Preferred Stock.
"JUNIOR STOCK" shall mean all Common Stock and all other shares of
stock of any other class of the Corporation, whether or not presently
authorized, ranking as to redemption, conversion, payment of dividends or
distribution of assets junior to the Preferred Stock.
"LIQUIDATION" shall mean any voluntary and involuntary liquidation,
dissolution or winding up of the Corporation (including without limitation
a liquidation or reorganization under Chapter 11 of the United States
Bankruptcy Code, as amended and as may hereinafter be amended).
"PARITY STOCK" shall mean all stock of the Corporation, whether or not
presently authorized, ranking, as to redemption, conversion, payment of
dividends or distribution of assets, on a parity with the Preferred Stock.
<PAGE> 13
"PRIOR STOCK" shall mean all stock ranking, as to redemption,
conversion, payment of dividends or distribution of assets, prior to the
Preferred Stock.
"STOCK PURCHASE AGREEMENTS" shall mean those certain Stock Purchase
Agreements by and among I(3)S Funding I, L.L.C. ("FUNDING"), Blue Ridge
Investors Limited Partnership ("BLUE RIDGE"), Spotswood Capital, LLC
("SPOTSWOOD"), the Corporation, James R. Price, Gary A. Dobbins, Clay C.
Scott, Jr., Charles Bo Price and George Venner dated as of April 4, 1997,
March 31, 1998 (as amended June 30, 1998), and December 30, 1998,
respectively, whereby Funding purchased an aggregate of 4,979,777 shares of
Class B Common Stock, and dated as of July 10, 1998 and December 30, 1998,
respectively, whereby Blue Ridge and Spotswood each purchased 1,037,232
shares of Class C Common Stock, all of which were further amended as of the
Issuance Date.
"TRIGGERING EVENT" shall mean the earlier to occur of (x) June 15,
2004, (y) a Change of Control, or (z) the sale of a majority of the assets
of the Corporation.
2.9 PROHIBITION AGAINST REISSUANCE OF SHARES OF PREFERRED STOCK. Any
shares of Preferred Stock that are repurchased or otherwise acquired by the
Corporation or shares of Preferred Stock canceled upon conversion of the
Preferred Stock into shares of Class A Common Stock may not be reissued by the
Corporation."
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY; SIGNATURE PAGE FOLLOWS]
<PAGE> 14
IN WITNESS WHEREOF, and in accordance with Section 151 of the General
Corporation Law of the State of Delaware, the undersigned has executed this
Certificate of Designation as of the date first above written.
BROADBANDNOW, INC.
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.8
FORM OF
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints James R. Price the undersigned's true and lawful attorney-in-fact,
including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of I 3S, Inc. Class A
Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of I 3S,
Inc., (ii) amendments to current or future agreements to which
the undersigned is a party related to any debt or equity of I
3S, Inc., and (iii) waivers or exercises of any rights or
powers related to the undersigned's Common Stock (including
without limitation the waiver of any right of first refusal,
preemptive right, right of co-sale or similar rights
pertaining to such Common Stock which the undersigned may
have); provided, however, that the attorney-in-fact may not
sell, assign, transfer or convey any of the undersigned's
right, title and interest in and to the Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of I 3S, Inc., (ii) otherwise act for
the undersigned at any such shareholders' meetings in the same
manner and with the same effect as if the undersigned was
personally present and acting thereon, (iii) waive notice of
any such shareholders' meetings, and (iv) execute consents in
lieu of shareholders' meetings of I 3S, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall be in addition to, and not in substitution
of, any Proxy the attorney-in-fact may have with respect to the Common Stock.
Any and all acts previously taken by, or purported to be taken by, the
attorney-in-fact as proxy for the undersigned are hereby, in all respects,
ratified, confirmed, approved and adopted by the undersigned.
This Power of Attorney shall remain in full force and effect until
revoked by the undersigned in a signed writing delivered to the foregoing
attorney-in-fact.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this ____ day of ____________________________.
<PAGE> 3
EXECUTED BY EACH OF THE FOLLOWING INDIVIDUALS
Gary Dobbins
Thomas L. Jones
Ossama Abourakaba
George Venner
Anthony Martin
Thon Morse
Damon M. Fiske
Andy Shattuck
Kristan V. Boggs
Christopher W. Bedford
David Heitman
<PAGE> 4
FORM OF
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints James R. Price the undersigned's true and lawful attorney-in-fact,
including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of I 3S, Inc. Class A
Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of I 3S,
Inc., (ii) amendments to current or future agreements to which
the undersigned is a party related to any debt or equity of I
3S, Inc., and (iii) waivers or exercises of any rights or
powers related to the undersigned's Common Stock (including
without limitation the waiver of any right of first refusal,
preemptive right, right of co-sale or similar rights
pertaining to such Common Stock which the undersigned may
have); provided, however, that the attorney-in-fact may not
sell, assign, transfer or convey any of the undersigned's
right, title and interest in and to the Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of I 3S, Inc., (ii) otherwise act for
the undersigned at any such shareholders' meetings in the same
manner and with the same effect as if the undersigned was
personally present and acting thereon, (iii) waive notice of
any such shareholders' meetings, and (iv) execute consents in
lieu of shareholders' meetings of I 3S, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall be in addition to, and not in substitution
of, any Proxy the attorney-in-fact may have with respect to the Common Stock.
Any and all acts previously taken by, or purported to be taken by, the
attorney-in-fact as proxy for the undersigned are hereby, in all respects,
ratified, confirmed, approved and adopted by the undersigned.
<PAGE> 5
This Power of Attorney shall remain in full force and effect until July
1, 2000, at which time it shall become revocable by the undersigned in a signed
writing delivered to the foregoing attorney-in-fact.
<PAGE> 6
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this ____ day of ______________________.
<PAGE> 7
EXECUTED BY EACH OF THE FOLLOWING INDIVIDUALS
Rhonda Barney and Roger Barney
Kenneth Schwenke
Lewis W. Pollok, Jr.
G.C. Markwardt
Lewis W. Pollok, III
Stephen R. Barnes
Mark G. Frederick and Carla J. Frederick
Tonja Rizai
Carolyn M. Clark
Ellen M. Burnett
Tyree B. Miller
Stuart Miller
Clemence P. Ligon
<PAGE> 8
FORM OF
PROXY OF
Number Class
Certificate No. Of Shares
of Shares
I, _______________________ , as holder of the shares described above,
revoke any previously executed proxies and appoint James R. Price as my proxy to
attend the shareholders' meetings of I 3S, Inc., to vote, execute consents, and
otherwise act for me in the same manner and with the same effect as if I were
personally present until _________________. Until such time, this proxy shall be
irrevocable.
I authorize my proxy to substitute any other person to act under this
proxy, to revoke any substitutions, and to file this proxy in any substitution
with the corporation.
DATED:
<PAGE> 9
EXECUTED BY EACH OF THE FOLLOWING INDIVIDUALS
George Venner
Thomas L. Jones
David Heitman
Andy Shattuck
Damon M. Fiske
Kristan V. Boggs
Thon Morse
Anthony Martin
Christopher W. Bedford
Rhonda C. Barney and Roger A. Barney
Kenneth F. Schwenke
Denise Looper
Helen C. Cupples
Lewis W. Pollok, Jr.
G.C. Markwardt
Lewis W. Pollok, III
Stephen R. Barnes
Mark G. Frederick and Carla J. Frederick
Tonja Rizai
Carolyn M. Clark
Clemence P. Ligon
Stuart Miller
Tyree B. Miller
Ellen M. Burnett
Helen C. Cupples
Denise Looper
<PAGE> 10
SUBSTITUTE
POWER OF ATTORNEY
Know all by these presents, that the undersigned, James R. Price,
previously named attorney-in-fact for each of the individuals (the
"SHAREHOLDERS") listed on EXHIBIT "A" attached hereto, hereby appoints Charles
W. (Bo) Price a true and lawful substitute attorney-in-fact, including without
limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as attorney-in-fact for each of the
Shareholders with respect to such Shareholders' Class A Common
Stock (the "COMMON STOCK"), any and all documents related to
(i) the financing, whether debt or equity, of I 3S, Inc., (ii)
amendments to current or future agreements to which the
Shareholders are a party related to any debt or equity of I
3S, Inc., and (iii) waivers or exercises of any rights or
powers related to the Shareholders' Common Stock (including
without limitation the waiver of any right of first refusal,
preemptive right, right of co-sale or similar rights
pertaining to such Common Stock which the Shareholders may
have); provided, however, that the substitute attorney-in-fact
may not sell, assign, transfer or convey any of the
Shareholders' right, title and interest in and to the Common
Stock;
2. to act as the Shareholders' proxy to (i) attend and vote at
shareholders' meetings of I 3S, Inc., (ii) otherwise act for
the Shareholders at any such shareholders' meetings in the
same manner and with the same effect as if the Shareholders
were personally present and acting thereon, (iii) waive notice
of any such shareholders' meetings, and (iv) execute consents
in lieu of shareholders' meetings of I 3S, Inc.; and
3. to exercise, do, or perform, as determined by such substitute
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such substitute attorney-in-fact full
power and authority to do and perform any and every act and thing whatsoever
requisite, necessary, or proper to be done in the exercise of any of the rights
and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of
substitution or revocation, hereby ratifying and confirming all that such
substitute attorney-in-fact, or such substitute attorney-in-fact's substitute or
substitutes, shall lawfully do or cause to be done, or shall lawfully have
already done or caused to be done, by virtue of this Substitute Power of
Attorney and the rights and powers herein granted.
<PAGE> 11
This Substitute Power of Attorney shall be in addition to, and not in
substitution of, any Power of Attorney the undersigned may have with respect to
the Common Stock. The undersigned shall have all powers to act as originally
granted by the Shareholders and either the undersigned or the substitute
attorney-in-fact may act individually or together in such capacity. Any and all
acts previously taken by, or purported to be taken by, the substitute
attorney-in-fact as attorney-in-fact for the undersigned are hereby, in all
respects, ratified, confirmed, approved and adopted by the undersigned.
This Power of Attorney shall remain in full force and effect until
revoked by the undersigned in a signed writing delivered to the foregoing
substitute attorney-in-fact.
IN WITNESS WHEREOF, the undersigned has caused this Substitute Power of
Attorney to be executed as of this 5th day of January, 2000.
/s/ James R. Price
-----------------------------------
James R. Price
<PAGE> 12
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints James R. Price the undersigned's true and lawful attorney-in-fact,
including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of I 3S, Inc. Class A
Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of I 3S,
Inc., (ii) amendments to current or future agreements to which
the undersigned is a party related to any debt or equity of I
3S, Inc., and (iii) waivers or exercises of any rights or
powers related to the undersigned's Common Stock (including
without limitation the waiver of any right of first refusal,
preemptive right, right of co-sale or similar rights
pertaining to such Common Stock which the undersigned may
have); provided, however, that the attorney-in-fact may not
sell, assign, transfer or convey any of the undersigned's
right, title and interest in and to the Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of I 3S, Inc., (ii) otherwise act for
the undersigned at any such shareholders' meetings in the same
manner and with the same effect as if the undersigned was
personally present and acting thereon, (iii) waive notice of
any such shareholders' meetings, and (iv) execute consents in
lieu of shareholders' meetings of I 3S, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall be in addition to, and not in substitution
of, any Proxy the attorney-in-fact may have with respect to the Common Stock.
Any and all acts previously taken by, or purported to be taken by, the
attorney-in-fact as proxy for the undersigned are hereby, in all respects,
ratified, confirmed, approved and adopted by the undersigned.
This Power of Attorney shall remain in full force and effect until
revoked by the undersigned in a signed writing delivered to the foregoing
attorney-in-fact.
<PAGE> 13
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this 5th day of January, 2000.
/s/ Charles W. (Bo) Price
----------------------------------
Charles W. (Bo) Price
<PAGE> 14
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints Charles W. (Bo) Price the undersigned's true and lawful
attorney-in-fact, including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of I 3S, Inc. Class A
Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of I 3S,
Inc., (ii) amendments to current or future agreements to which
the undersigned is a party related to any debt or equity of I
3S, Inc., and (iii) waivers or exercises of any rights or
powers related to the undersigned's Common Stock (including
without limitation the waiver of any right of first refusal,
preemptive right, right of co-sale or similar rights
pertaining to such Common Stock which the undersigned may
have); provided, however, that the attorney-in-fact may not
sell, assign, transfer or convey any of the undersigned's
right, title and interest in and to the Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of I 3S, Inc., (ii) otherwise act for
the undersigned at any such shareholders' meetings in the same
manner and with the same effect as if the undersigned was
personally present and acting thereon, (iii) waive notice of
any such shareholders' meetings, and (iv) execute consents in
lieu of shareholders' meetings of I 3S, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall be in addition to, and not in substitution
of, any Proxy the attorney-in-fact may have with respect to the Common Stock.
Any and all acts previously taken by, or purported to be taken by, the
attorney-in-fact as proxy for the undersigned are hereby, in all respects,
ratified, confirmed, approved and adopted by the undersigned.
This Power of Attorney shall remain in full force and effect until
revoked by the undersigned in a signed writing delivered to the foregoing
attorney-in-fact.
<PAGE> 15
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this 5th day of January, 2000.
/s/ James R. Price
---------------------------------------
James R. Price
<PAGE> 16
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints Charles W. (Bo) Price the undersigned's true and lawful
attorney-in-fact, including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of BroadbandNOW, Inc. Class
A Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of
BroadbandNOW, Inc., (ii) amendments to current or future
agreements to which the undersigned is a party related to any
debt or equity of BroadbandNOW, Inc., and (iii) waivers or
exercises of any rights or powers related to the undersigned's
Common Stock (including without limitation the waiver of any
right of first refusal, preemptive right, right of co-sale or
similar rights pertaining to such Common Stock which the
undersigned may have); provided, however, that the
attorney-in-fact may not sell, assign, transfer or convey any
of the undersigned's right, title and interest in and to the
Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of BroadbandNOW, Inc., (ii) otherwise
act for the undersigned at any such shareholders' meetings in
the same manner and with the same effect as if the undersigned
was personally present and acting thereon, (iii) waive notice
of any such shareholders' meetings, and (iv) execute consents
in lieu of shareholders' meetings of BroadbandNOW, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall be in addition to, and not in substitution
of, any Proxy the attorney-in-fact may have with respect to the Common Stock.
Any and all acts previously taken by, or purported to be taken by, the
attorney-in-fact as proxy for the undersigned are hereby, in all respects,
ratified, confirmed, approved and adopted by the undersigned.
<PAGE> 17
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this 3rd day of February, 2000.
PRICE GRANTOR RETAINED ANNUITY
TRUST
By: /s/ Barbara Price
-------------------------------------
Barbara Price, Trustee
<PAGE> 18
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints Charles W. (Bo) Price the undersigned's true and lawful
attorney-in-fact, including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of BroadbandNOW, Inc. Class
A Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of
BroadbandNOW, Inc., and (ii) amendments to current or future
agreements to which the undersigned is a party related to any
debt or equity of BroadbandNOW, Inc.; provided, however, that
the attorney-in-fact may not sell, assign, transfer or convey
any of the undersigned's right, title and interest in and to
the Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of BroadbandNOW, Inc., (ii) otherwise
act for the undersigned at any such shareholders' meetings in
the same manner and with the same effect as if the undersigned
was personally present and acting thereon, (iii) waive notice
of any such shareholders' meetings, and (iv) execute consents
in lieu of shareholders' meetings of BroadbandNOW, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall be in addition to, and not in substitution
of, any Proxy the attorney-in-fact may have with respect to the Common Stock.
Any and all acts previously taken by, or purported to be taken by, the
attorney-in-fact as proxy for the undersigned are hereby, in all respects,
ratified, confirmed, approved and adopted by the undersigned.
This Power of Attorney shall remain in full force and effect until the
consummation of the first underwritten public offering of the Common Stock
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (or any successor
provision), with a concurrent listing on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq Stock Market, Inc.
<PAGE> 19
This Power of Attorney may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and
such counterparts together shall constitute one instrument.
<PAGE> 20
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this 3rd day of February, 2000.
SUZANNE PRICE WILLIAMS 1999
GST TRUST
By: /s/ Suzanne Price Williams
---------------------------------------------
Suzanne Price Williams, Trustee
By: /s/ Debra McIntosh, V.P. & Trust Officer
---------------------------------------------
Smith Barney Private Trust Company, Trustee
<PAGE> 21
POWER OF ATTORNEY
Know all by these presents, that the undersigned hereby constitutes and
appoints Charles W. (Bo) Price the undersigned's true and lawful
attorney-in-fact, including without limitation:
1. to execute for and on behalf of the undersigned, in the
undersigned's capacity as a holder of BroadbandNOW, Inc. Class
A Common Stock (the "COMMON STOCK"), any and all documents
related to (i) the financing, whether debt or equity, of
BroadbandNOW, Inc., and (ii) amendments to current or future
agreements to which the undersigned is a party related to any
debt or equity of BroadbandNOW, Inc.; provided, however, that
the attorney-in-fact may not sell, assign, transfer or convey
any of the undersigned's right, title and interest in and to
the Common Stock;
2. to act as the undersigned's proxy to (i) attend and vote at
shareholders' meetings of BroadbandNOW, Inc., (ii) otherwise
act for the undersigned at any such shareholders' meetings in
the same manner and with the same effect as if the undersigned
was personally present and acting thereon, (iii) waive notice
of any such shareholders' meetings, and (iv) execute consents
in lieu of shareholders' meetings of BroadbandNOW, Inc.; and
3. to exercise, do, or perform, as determined by such
attorney-in-fact in his sole and absolute discretion, any act,
right, power, duty or obligation whatsoever that the
undersigned now has or may acquire the legal right, power or
capacity to exercise, do, or perform in connection with,
arising out of, or relating to the Common Stock, except as set
forth above.
The undersigned hereby grants to such attorney-in-fact full power and
authority to do and perform any and every act and thing whatsoever requisite,
necessary, or proper to be done in the exercise of any of the rights and powers
herein granted, as fully to all intents and purposes as the undersigned might or
could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be
done, or shall lawfully have already done or caused to be done, by virtue of
this Power of Attorney and the rights and powers herein granted.
This Power of Attorney shall remain in full force and effect until the
consummation of the first underwritten public offering of the Common Stock
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (or any successor
provision), with a concurrent listing on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq Stock Market, Inc.
This Power of Attorney may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and
such counterparts together shall constitute one instrument.
<PAGE> 22
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney
to be executed as of this 3rd day of February, 2000.
CYNTHIA PRICE STALCUP 1999 GST TRUST
By: /s/ Cynthia Price Stalcup
-----------------------------------------------
Cynthia Price Stalcup, Trustee
By: /s/ Debra McIntosh, V.P. & Trust Officer
-----------------------------------------------
Smith Barney Private Trust Company, Trustee
<PAGE> 1
EXHIBIT 10.9
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
ACCESS AND RIGHT OF ENTRY AGREEMENT
This MASTER HIGH SPEED DATA SERVICES ACCESS AND RIGHT OF ENTRY AGREEMENT (this
"Agreement") is entered into as of the 23rd day of February 1999 ("Effective
Date"), by and between I3S, INC., a Texas corporation, with a place of business
at 1440 Corporate Drive, Irving, Texas 75038 ("I3S"); and ARCHSTONE COMMUNITIES
TRUST, a Maryland real estate investment trust, with a place of business at 7670
South Chester Street, Suite 100, Englewood, Colorado 80112, including all
affiliates and subsidiaries which may become parties to this Agreement from time
to time (collectively, "ARCHSTONE"). ARCHSTONE and I3S are sometimes
hereinafter referred to individually as a "Party" and collectively as the
"Parties".
RECITALS
WHEREAS, ARCHSTONE currently owns and manages multiple dwelling unit communities
(collectively, "MDUs") in several metropolitan markets throughout the United
States;
WHEREAS, I3S provides system integration and network services, including,
without limitation, high speed data services as more specifically described in
Exhibit D attached hereto and incorporated herein by reference ("HSDS"), to
multiple system franchise cable operators ("MSOs"), private cable operators
("PCOs"), and real estate investment trusts ("REITs"), nationwide; and
WHEREAS, ARCHSTONE desires that I3S provide HSDS to certain MDUs agreed to by
the parties (individually, a "Property", and collectively, the "Properties") and
I3S desires to provide such HSDS as set forth below; and
WHEREAS, I3S and ARCHSTONE anticipate that they will enter into agreements (each
an "MDU Property Agreement") under which the Operator will provide HSDS to the
residents of the MDU defined therein, on the terms and conditions provided
therein;
WHEREAS, I3S and ARCHSTONE desire to agree on standard terms (the "Standard
Terms") that will be incorporated by reference in each MDU Property Agreement
and be effective to the extent not in conflict with the terms of such MDU
Property Agreement; and
WHEREAS, I3S and ARCHSTONE have agreed that the execution and delivery of an MDU
Property Agreement is good and sufficient consideration to support this
Agreement.
NOW THEREFORE, I3S and ARCHSTONE agree that the capitalized term "Standard
Terms", as used in any MDU Property Agreement, shall mean the following terms:
<PAGE> 2
ARTICLE 1
PROPERTY, REPRESENTATIONS AND WARRANTIES
1.1 PROPERTY
The "Property" shall mean the property identified in an MDU Property Agreement,
in substantially the form as attached as Exhibit A hereto, to which these
Standard Terms are attached, made a party of and apply pursuant to the
provisions of that MDU Property Agreement. The parties shall enter into an MDU
Property Agreement for each ARCHSTONE's property that the parties mutually agree
shall have HSDS provided to such property by I3S. Neither party shall be under
any obligation to enter into an MDU Property Agreement for any ARCHSTONE
property.
1.2 REPRESENTATIONS AND WARRANTIES OF ARCHSTONE.
AUTHORITY. This Agreement has been duly authorized, executed and
delivered by ARCHSTONE and constitutes a valid and legally binding Agreement of
ARCHSTONE, and neither the execution and delivery of nor the performance of the
provisions of this Agreement shall conflict with or result in a breach,
violation or default under the organizational documents of ARCHSTONE, if
applicable; or any material agreement binding on ARCHSTONE that would affect its
obligations hereunder.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of ARCHSTONE shall survive the execution and
delivery of this Agreement, and any investigation at any time made by or on
behalf of I3S shall not diminish its rights to rely thereon.
1.3 REPRESENTATIONS AND WARRANTIES OF I3S.
AUTHORITY. This Agreement has been duly authorized, executed and
delivered by I3S and constitutes a valid and legally binding Agreement of I3S,
and neither the execution and delivery of nor the performance of the provisions
of this Agreement shall conflict with or result in a breach, violation or
default under the Certificate of Incorporation and Bylaws of I3S, if applicable;
or any material agreement binding on 13S that would affect its obligations
hereunder.
PERMITS, LICENSES, ETC. I3S possesses all material permits, licenses,
franchises rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, and all other intellectual property rights which are required to
conduct its business and provide HSDS in accordance with this Agreement.
I3S LICENSES. I3S possesses all requisite licenses from third parties
necessary to provide HSDS to ARCHSTONE's Properties and their residents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of I3S shall survive the execution and delivery
of this
2
<PAGE> 3
Agreement, and any investigation at any time made by or on behalf of ARCHSTONE
shall not diminish its rights to rely thereon.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall have a term of seven (7) years from the Effective
Date; provided, however, that with respect to any Property initially presented
to and declined to be served by I3S hereunder within twenty-four (24) months of
the Effective Date, and subsequently re-presented to and accepted by I3S
thereafter, then the term of any such MDU Property Agreement pertaining to such
Property shall be five (5) years; further provided, however, that this Agreement
shall be extended thereafter on a month to month basis unless either Party
notifies the other Party in writing of its intent to terminate this Agreement;
and further provided, however, that with respect to each executed MDU Property
Agreement, the term set forth therein shall govern the term of each such MDU
Property Agreement.
ARTICLE 3
EXCLUSIVITY
3.1 EXCLUSIVITY. For Properties covered by this Agreement, ARCHSTONE shall not
agree to or accept commissions or other forms of compensation for the marketing
of other parties' HSDS, except as provided herein, and shall not provide or
support, or allow to be provided or supported, on premise marketing support for
such other parties' HSDS at the Property. Notwithstanding the foregoing,
ARCHSTONE cannot preclude a party from providing U.S. Federal Communications
Commission tariffed telecommunications or municipal franchise cable television
services to the Properties to deliver high speed Internet access or data
services to a Property subject to this Agreement in the event that said party
possesses a specific federal or state statutory or regulatory right, or
municipal cable television franchise obligation to do so or other pre-existing
agreement with ARCHSTONE. Subject to these limitations, I3S shall have the
exclusive right to market, promote and sell HSDS at each Property covered hereby
during the term of this Agreement.
ARTICLE 4
ARCHSTONE'S OBLIGATIONS
4.1 ACCESS RIGHTS. In consideration of the mutual agreements of the parties
contained herein, ARCHSTONE agrees to do and perform, or cause to be done and
performed, the following:
(a) ARCHSTONE will assist, or cause to be assisted, I3S in gaining
access to apartment units at the Properties as necessary in furtherance of this
Agreement subject to the terms and conditions set forth herein, particularly
Section 6.4 below.
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<PAGE> 4
(b) ARCHSTONE hereby grants I3S, or shall cause to be granted to I3S,
access and a right of entry to the Property and the cable distribution or other
data distribution plant as provided in each executed MDU Property Agreement.
(c) ARCHSTONE will permit, or cause to be permitted, employees,
permitted agents, or contractors of I3S reasonable access, at no charge, to the
Property, in connection with any and all work hereunder for installation,
inspection, maintenance, repair or removal of Equipment (as defined in Section
6.2 below), or to provide or market HSDS to I3S customers as set forth herein.
Each party's employees, contractors, or agents will, while on the premises of
any other party, comply with this Agreement (including, but not limited to the
requirement in Section 6.4 below to check in with the Property community manager
whenever on the Property) and all stated or published rules and regulations.
4.2 MAINTENANCE PROBLEMS/CUSTOMER COMPLAINTS. ARCHSTONE shall use reasonable
efforts to request residents to coordinate directly with the point of contact
designated in writing by I3S to ARCHSTONE regarding any complaints or technical
problems. ARCHSTONE will use reasonable efforts to inform, or cause to be
informed, I3S of any material or recurring maintenance problems regarding the
HSDS of which ARCHSTONE is aware.
4.3 EQUIPMENT SPACE. ARCHSTONE shall provide, or cause to be provided, a
lockable space, at no charge, to I3S at each Property for the storage of
Equipment in connection with the performance of its obligations hereunder, to
the extent such space is reasonably available.
4.4 ADDITIONAL PROVISIONS. The MDU Property Agreement shall set forth additional
terms, if any, governing the maintenance of cable television inside wiring and
distribution plant at any Property subject to this Agreement at which ARCHSTONE
owns such inside wiring and distribution plant.
ARTICLE 5
AFFIRMATIVE AGREEMENTS OF I3S
5.1 GENERAL OBLIGATIONS. In consideration of the mutual agreements of the
parties contained herein, I3S agrees to do and perform, or cause to be done and
performed, the following:
(a) I3S shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to HSDS, and all such
property shall remain free and clear of any adverse claims, interests and liens,
except as has been heretofore disclosed in writing to ARCHSTONE.
(b) I3S shall maintain in full force and effect all material permits,
licenses, franchise rights, trademarks, trademark rights, trade names, trade
name rights and
4
<PAGE> 5
copyrights which are required to conduct its business and provide HSDS in
accordance with this Agreement.
(c) During the term of this Agreement, I3S agrees to procure and
maintain the following insurance policies and require its contractors to carry
the following insurance policies in no less than the following minimum amounts
(or such other minimum amounts, if higher, as are required by law):
(i) All risk property insurance covering the full replacement
cost of the Equipment and all other personal property and
improvements installed or placed in or on the Properties by I3S.
(ii) Insurance to protect I3S and ARCHSTONE from and against any
and all claims for injury or damage to persons or property, both
real and personal, caused by the construction, erection,
operation or maintenance of any structure, equipment, appliance
or products authorized or used by I3S pursuant to the authority
of I3S in performance of this Agreement, and the amount of such
insurance against liability due to damage or injury to property
shall not be less than One Hundred Thousand and No/100 Dollars
($100,000.00) and against liability due to injury or death or
persons shall not be less than Five Hundred Thousand and No/100
Dollars ($500,000.00) as to any one person and One Million and
No/100 Dollars ($1,000,000.00) as to two or more persons in any
one accident.
(iii) Workman's compensation insurance with limits in compliance
with the laws of the State in which the Property is located.
(iv) Vehicular liability insurance with personal injury limits of
not less than Five Hundred Thousand and No/100 Dollars
($500,000.00) for one person and One Million and No/100 Dollars
($1,000,000.00) for two or more persons and vehicular liability
property damage insurance with a limit of not less than Fifty
Thousand and No/100 Dollars ($50,000.00) to cover all vehicle
accidents.
(v) Umbrella excess liability insurance with limits of not less
than and One Million and No/100 Dollars ($1,000,000.00) for
bodily injury and property damage in excess of the minimum
amounts stated above.
(vi) Employer's liability insurance with no less than the minimum
limits required by law.
Copies of all insurance policies referenced above, to be obtained by I3S in
compliance with this Section shall be furnished to ARCHSTONE upon written
request.
The liability policies shall name ARCHSTONE as an additional insured,
insure on an occurrence and not a claims made basis, be issued by companies
licensed to do
5
<PAGE> 6
business in the State in which the Property is located, not be cancelable unless
thirty (30) days prior written notice shall have been given to ARCHSTONE, and
contain a cross liability/severability of interests clause and a contractual
liability endorsement (any policy issued to ARCHSTONE providing duplicate or
similar coverage shall be deemed excess over I3S's policies). Such policies or
certificates thereof shall be delivered to ARCHSTONE by I3S upon commencement of
this Agreement and upon each renewal of said insurance. The all risk property
insurance obtained by ARCHSTONE and I3S shall include a waiver of subrogation by
the insurers and all rights based upon an assignment from its insured against
ARCHSTONE or I3S, their officers, trustees, directors, employees, agents,
invitees and contractors in connection with any loss or damage thereby insured
against. I3S warrants that it meets or exceeds all insurance requirements stated
herein and those that are required by the laws in the State in which each
Property is located.
(d) I3S shall assume and pay all operating and capital costs and
expenses associated with the HSDS and the Equipment, including, without
limitation any and all:
Monthly recurring private Internet exchange points
Monthly recurring switch maintenance
Monthly recurring POP transport
Monthly recurring Dallas network operations center costs (including
installation costs)
Customer support IP technicians and engineers (NOC, Help Desk and
field personnel)
I3S specific training
Insurance on I3S capital equipment
I3S-specific travel and entertainment
Switch site equipment (including installation costs)
Peering point routers
Private Internet exchange point hardware (including installation
costs)
I3S network infrastructure equipment
Transport facilities
Backbone transport facilities
Monthly recurring local loop costs
Monthly recurring property maintenance (Lce, Router, DSU/CSR)
Monthly recurring IP headed maintenance
CSR platform and services
Internet browse platform user license
MDU property IP equipment (Lce, Router, DSU/CSR)
IP master headed equipment
Nonrecurring local loop transport costs
Customer billing and collections
6
<PAGE> 7
Unless otherwise agreed to in advance and in writing, ARCHSTONE shall not be
responsible for any installation, upgrade, local loop circuits, or maintenance
costs for the I3S HSDS distribution system and components thereof.
ARTICLE 6
HIGH SPEED DATA SERVICES AND EQUIPMENT
6.1 HSDS. During the term of this Agreement, I3S shall provide the HSDS more
particularly described and set forth in Exhibit D attached hereto and
incorporated herein by reference to each resident of the Property requesting
HSDS. Any decrease to the HSDS (as defined in Exhibit D, in particular the
section titled "Definition of High Speed Data Services (HSDS)") shall be
mutually agreed upon by the parties and shall only become applicable when an
amendment covering such change, addition or decrease is executed by the parties.
Further, and in accordance with specific terms and conditions to be
negotiated in good faith between Archstone and I3S, I3S shall provide Archstone
with (i) one (1) high speed data services connection to the leasing office of
each Property covered by the Agreement for use by Archstone's employees at said
Property, (ii) a dedicated Internet connection at Archstone's Denver corporate
office for the purpose of connecting each Property to said corporate office, and
(iii) web-based development and applications services, together with associated
web hosting services, for Archstone's general corporate purposes and operations.
6.2 EQUIPMENT. I3S, at its sole cost and expense, shall construct, install,
operate and maintain on-site equipment as allocated to I3S in Section 5.l(iv)
above (the "Equipment") on and through the Property, necessary for I3S to
provide HSDS to the Property pursuant to this Agreement. I3S shall not install
any other equipment on the Property. To the extent future enhancements of the
HSDS and/or I3S's obligations herein may require additional, different or new
Equipment that require additional HVAC or other additional costs to ARCHSTONE,
I3S and ARCHSTONE shall mutually agree thereon (and shall be deemed part of the
Equipment once installed). All Equipment will be installed at mutually agreed
upon location(s). Prior to the commencement of any construction and/or
installation work, I3S shall, at its sole cost and expense, prepare and deliver
to ARCHSTONE complete working drawings, plans and specifications (the "Plans"),
detailing the location and size of the Equipment and specifically describing all
proposed work. No work shall commence until ARCHSTONE has approved the plans
(including, but not limited to, the location and size of the Equipment), which
approval will not be unreasonably withheld, conditioned or delayed. The
Equipment, and any personal property on the Property belonging to I3S shall be
there at the sole risk of I3S, and ARCHSTONE shall not be liable for damage
thereto or theft, misappropriation or loss thereof, except due to ARCHSTONE's
gross negligence or willful misconduct. I3S shall, at its sole cost and expense:
(1) perform all such construction in a safe, good and workmanlike manner;
7
<PAGE> 8
(2) perform all such construction and work in such a way as to minimize
interference with the operation of the Property;
(3) maintain workmen's compensation insurance in form and amount as is
required by law during all such periods of construction and work;
(4) obtain, prior to the commencement of any construction and work, all
necessary federal, state and municipal permits, licenses and
approvals.
6.3 OPERATION, MAINTENANCE AND REPAIR.
(a) I3S shall provide the Equipment and the HSDS and otherwise
perform hereunder in accordance with, in all material respects, federal, state
and local laws, if any, which may be applicable thereto. I3S, at its sole cost
and expense, shall promptly repair all damage to the Property and all
improvements thereon caused by I3S and its agents, employees and contractors
to substantially original condition (to the reasonable satisfaction of
ARCHSTONE).
(b) I3S agrees to keep the Equipment in good working order, repair
and condition throughout the term of the Agreement, and not to materially
disrupt or interfere with other providers of services in the Property or with
any resident's use and enjoyment of their leased premises or the common areas of
the Property or with ARCHSTONE's operation of the Property except to the extent
I3S is in compliance, and subject to, the provisions of Exhibit E.
6.4 RESIDENT SUPPORT AND INSTALLATION. Support and installation services
provided by I3S shall at all times conform with the service levels specified
in Exhibit E. All such responses and support provided by I3S shall be in
material compliance with governmental laws and/or regulations and within general
industry standards. Requests for individual installations of HSDS shall be
completed within a reasonable timeframe. I3S shall not enter a resident's
apartment unit without resident's express approval. Further, I3S shall not
enter a resident's unit unless resident or an adult representative of the
resident is present. I3S will use all reasonable efforts to check in with
ARCHSTONE's on-site community manager (or that manager's designated
representative) prior to entering the Property. I3S will have its employees,
agents and contractors carry identification badges when on the Property, in
order that on-site management and residents of the Property may confirm that
such persons are on the Property on behalf of I3S pursuant to this Agreement.
6.5 REMOVAL OF EQUIPMENT UPON TERMINATION. Upon expiration or earlier
termination of this Agreement, I3S shall have the right (subject to I3S's
obligation to repair damage to the Property that is set forth in Section 6.3(a)
above), at its expense, to remove the Equipment, if any, from the Property
within sixty (60) days from the date of such expiration or termination.
Thereafter, ownership and all right, title and interest to and of the Equipment
shall automatically transfer to ARCHSTONE (and I3S shall deliver good, valid and
marketable title to ARCHSTONE free and clear of all liens,
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<PAGE> 9
encumbrances, pledges and/or charges of any kind, and I3S shall promptly execute
a bill of sale for the Equipment as reasonably prepared by ARCHSTONE, provided
that the absence of such a bill of sale shall in no way limit the transfer of
ARCHSTONE set forth herein). Notwithstanding the foregoing, I3S shall remain
liable for (shall indemnify ARCHSTONE from, and shall promptly satisfy) any
liens, encumbrances, pledges and/or charges of any kind on such Equipment and/or
personal property that were placed thereon due to actions or omissions of I3S,
its employees, agents (other than ARCHSTONE) or contractors.
ARTICLE 7
SERVICE LEVEL STANDARDS
7.1 HSDS SERVICE LEVEL STANDARDS. During the term of this Agreement, I3S shall
maintain the service level standards pertaining to various aspects of the HSDS,
as more particularly described and set forth in Exhibit E attached hereto and
incorporated herein by reference. Failure to do so shall constitute a material
breach of this Agreement.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING
8.1 REVENUE ALLOCATION. Monthly recurring Internet access revenue generated by
customers at Properties subject to this Agreement will be paid to I3S; provided,
however, that, by the twenty-fifth day of each month of the term of this
Agreement, I3S shall pay ARCHSTONE a revenue sharing fee calculated on the basis
of such monthly recurring Internet access revenue, prepaid or not, (exclusive of
one-time charges, such as: installation charges, customer equipment sales or
leases, other charges passed through on a no-markup basis collected by I(3)S,
and comparable charges such as customer service charges or maintenance charges)
actually collected by or on behalf of I3S for the immediately preceding month
from residents of the Properties ("Revenues") in accordance with following
tables and the individual the table set forth in the applicable MDU Property
Agreement:
In all instances where ARCHSTONE through itself or a third party
provides the on-Property access distribution system ("Access Distribution"), the
Archstone revenue share shall be in accordance with Table II; and in all other
cases where Table II does not apply, the Archstone revenue share shall be in
accordance with Table I. Subscriber penetration shall be calculated as the
percent of the residential units at the applicable Property that have a
subscriber to HSDS against the total residential units under lease at the
Property. The single column in the Tables below that shall be used to determine
the applicable revenue share for each monthly payment period shall be determined
according to the subscriber penetration percent calculated as of the first day
of that month.
<TABLE>
<CAPTION>
ARCHSTONE REVENUE SHARE TABLE I
- -------------------------------------------------------------------------------
Subscriber
Penetration
<S> <C> <C> <C> <C> <C> <C>
Access Option Network 0-10% 11- 16- 21- Above
- -------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Access Investment 15% 20% 30% 30%
Distribution
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I. Cable I3S I3S * * * * *
Modem
- --------------------------------------------------------------------------------------------------
II. Copper I3S I3S * * * * *
- --------------------------------------------------------------------------------------------------
III. Switched I3S I3S * * * * *
Ethernet
- --------------------------------------------------------------------------------------------------
IV. FITL I3S I3S * * * * *
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ARCHSTONE REVENUE SHARE TABLE II
- --------------------------------------------------------------------------------------------------
Subscriber
Penetration
- --------------------------------------------------------------------------------------------------
Access Option Network 0-10% 11- 16- 21- Above
Access Investment 15% 20% 30% 30%
Distribution
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
V. Cable Archstone I3S * * * * *
Modem
- --------------------------------------------------------------------------------------------------
VI. Copper Archstone I3S * * * * *
- --------------------------------------------------------------------------------------------------
VII. Switched Archstone I3S * * * * *
Ethernet
- --------------------------------------------------------------------------------------------------
VIII. FITL Archstone I3S * * * * *
- --------------------------------------------------------------------------------------------------
</TABLE>
I3S shall pay to ARCHSTONE a late fee of 1.5% per month for any amount not
timely paid (which shall be in addition to, and not in place of, any other
remedies available in this Agreement, at law or in equity to ARCHSTONE).
Notwithstanding anything to the contrary in this Agreement, ARCHSTONE shall not
be entitled to or considered to have earned any payment for the HSDS under this
Article 8.1 unless ARCHSTONE directs I3S to make such payments to ARCHSTONE by
means of a written notice to I3S. I3S shall, however, provide reports of the
payments that would have been made in the absence of the foregoing sentence,
which reports shall be provided to ARCHSTONE pursuant to the payment schedule
otherwise set forth herein. ARCHSTONE will not so direct I3S unless and until
either (x) ARCHSTONE receives a letter from ARCHSTONE's counsel indicating that
ARCHSTONE received a ruling from the IRS that the receipt by ARCHSTONE of
amounts with respect to the provision of HSDS would not cause rents received
from such tenants to fail to qualify as "rents from
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<PAGE> 11
real property" within the meaning of Section 856(c) of the Code or (y) ARCHSTONE
receives a letter from ARCHSTONE's public accountants indicating that the
receipt of such payments for HSDS would not cause ARCHSTONE to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code. If ARCHSTONE directs I3S
to make the payments for HSDS, the payments shall be calculated from the
effective date of this Agreement.
8.2 CUSTOMER ACCESS PRICING. With the intent to increase HSDS penetration at
each Property served under this Agreement, the initial price at which access to
the HSDS is set forth in Exhibit D; provided, however, that I3S shall obtain
ARCHSTONE's prior written approval for any price increase or decrease in excess
of a twenty-five percent (25%) variation from the then-current price. Such
access shall be provided at a price, service quality and content comparable to
the services of other companies which utilize comparable high-speed data access
technologies to deliver HSDS. Prior to the provision of HSDS and the execution
of any MDU Property Agreement, I3S shall provide to ARCHSTONE for ARCHSTONE's
review the proposed pricing structure and service quality and content standards
for HSDS to each Property that may become subject to this Agreement. Residents
will be charged and billed individually by I3S for HSDS they receive, and I3S
shall be solely responsible for all billing and collection therefor.
8.3 MFN PRICING COMMITMENT. During the term of this Agreement, I3S shall offer
Archstone the most favored terms (including, but not limited to, revenue share
to Archstone) that I3S has then contracted for with another residential Real
Estate Investment Trust ("REIT") possessing a comparable portfolio of Class A
and B apartments that are owned by Archstone and that are contractually
committed to I3S by said REIT pertaining to HSDS in the MDU market under
substantially the same terms and conditions that Archstone and I3S have entered
into under this Agreement for all future Properties that become subject to this
Agreement thereafter.
8.4 RECORDS AND AUDIT. I3S shall keep complete and accurate books and records
and related documentation in accordance with generally accepted accounting
principles to support and document all amounts becoming payable to ARCHSTONE
hereunder and concerning revenues received for the HSDS. I3S shall promptly,
upon written request from ARCHSTONE, notify ARCHSTONE of the location at which
such records are currently located. I3S shall maintain its books and records for
such period or periods of time as may be required by the rules and regulations
of the Internal Revenue Service applicable to the retention of business records.
From time to time during the term of this Agreement, ARCHSTONE shall have the
right, to be exercised by ARCHSTONE or its designee upon seven (7) days notice
to I3S, to audit the books and records of I3S as necessary to verify amounts
payable to ARCHSTONE under this Agreement. I3S shall make available to ARCHSTONE
or its designee such books and records as are relevant to the payments due
ARCHSTONE under this Agreement as may be requested by ARCHSTONE to perform such
audit and shall pay to ARCHSTONE immediately any unpaid amounts due to ARCHSTONE
disclosed by such audit. If the unpaid amounts for a calendar quarter comprise
more than two percent (2%) of the total amount payable to ARCHSTONE in that
calendar quarter, as verified by an independent auditing firm, I3S
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<PAGE> 12
shall pay all reasonable costs and expenses of such independent auditor that
relate to such audit.
8.5 REPORTS. I3S, at its sole cost and expense, shall provide ARCHSTONE, within
twenty (20) days of the end of each calendar quarter of the term of this
Agreement, with a report with the following information clearly identified (and
in a format reasonably acceptable to ARCHSTONE):
(a) Total number of subscribers to the HSDS who are residents of the
Properties;
(b) A billing summary, for the preceding quarterly period, describing the
total amount billed to those subscribers (disaggregating by major
categories of service), the total amount received from those
subscribers; and
(c) such other information as the parties shall mutually agree upon from
time-to-time.
ARTICLE 9
SPECIFIC HSDS WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I3S represents and warrants that all Equipment and
software utilized hereunder (collectively, the "Products") are free and clear of
all liens and encumbrances (unless otherwise disclosed to ARCHSTONE in writing),
and that it has full power and authority to utilize the rights granted to it
with respect to such Products without the consent of any other person or that
such consent has been obtained, and that to the knowledge of I3S the Products
utilized hereunder will not infringe or violate any copyright, trade secret,
trademark, patent or other intellectual property rights of any third party.
9.2 COMPLIANCE WITH APPLICABLE LAWS. I3S represents and warrants that the HSDS
performed by I3S, its employees, agents, subcontractors and assignees pursuant
to this Agreement shall be in compliance with all applicable federal, state and
local laws, rules and regulations.
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I3S shall defend, indemnify
and hold harmless ARCHSTONE, its directors, trustees, officers, shareholders,
employees and agents and its successors and assigns, from and against any and
all claims, demands, actions, liabilities, losses, damages and expenses,
including, without limitation, settlement costs and reasonable attorneys' fees,
arising out of or relating to any actual or alleged infringement of any third
party's trade secrets, trademark, service mark, copyright, patent or other
intellectual property rights (the "Intellectual Property Rights") in connection
with the use of said Intellectual Property Rights hereunder. I3S's obligation
12
<PAGE> 13
pursuant to the immediately preceding sentence is subject to the following
conditions: (i) ARCHSTONE shall give I3S prompt written notice of all actions,
claims or threats against ARCHSTONE of infringement or violation of Intellectual
Property Rights (provided, however, that failure to give such notice shall not
limit I3S's indemnification obligations hereunder); (ii) ARCHSTONE shall permit
I3S to elect to assume complete control of such claims at I3S's sole discretion
and expense; and (iii) ARCHSTONE shall cooperate fully with I3S, at I3S's sole
cost and expense, in defending against claims, including making known or
available to the indemnifying party, upon reimbursement of all costs associated
with provision or reproduction of, all records and document pertaining to
claims. I3S shall not enter into a settlement that imposes liability on
ARCHSTONE without ARCHSTONE's consent, which consent shall not be unreasonably
withheld, delayed or conditioned.
10.2. INDEMNIFICATION. Each party shall indemnify the other against all
liability, loss, damage, and expense resulting from injury to or death of any
person (including injury to or death of their employees) or loss of or damage to
tangible real or tangible personal property (including damage to their property)
or the environment, but only to the extent that such liability, loss, damage or
expense was proximately caused by its breach of this Agreement or by any
negligent or grossly negligent act or omission or willful misconduct on the part
of the party from whom indemnity is sought ("the indemnitor"), its agents,
employees, subcontractors or assignees. Indemnitor shall have the right to
assume defense of the claim with counsel reasonably acceptable to indemnitee.
Indemnitee shall be entitled to participate in the defense of the claim with its
own counsel at its sole expense. Neither party shall enter into a settlement
that imposes liability on the other without the other party's consent, which
consent shall not be unreasonably withheld, delayed or conditioned.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 CONFIDENTIAL INFORMATION. Confidential Information shall be held in
confidence by the receiving party. "Confidential Information" shall mean (a) any
information clearly marked "Proprietary" or "Confidential"; and (b) any
information regarding ARCHSTONE's residents. Information which is conveyed
orally shall be deemed confidential only if prior to disclosure it is indicated
as being confidential and written confirmation identifying the confidential or
proprietary information is provided to the receiving party within ten (10)
business days after it was discussed orally.
11.2 RESTRICTIONS. Each party shall use its reasonable best efforts to maintain
the confidentiality of such Confidential Information and not show or otherwise
disclose such Confidential Information to any third parties, including, but not
limited to, independent contractors and consultants, without the prior written
consent of the disclosing party. Each party shall use the Confidential
Information solely for purpose of performing its obligations under this
Agreement. Unless approved in advanced by the non-disclosing party, except for
the existence of this Agreement, the terms and provisions of this Agreement
shall remain strictly confidential and shall not be disclosed to any third party
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<PAGE> 14
other than a party's attorneys, accountants, other professional advisers,
potential purchasers of the Properties, and unless otherwise required by law.
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described in
Section 11.2 above, neither party shall have any obligation to maintain the
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving party;
(ii) is independently developed by the receiving party; or (iii) is received
from a third party who has lawfully obtained such Confidential Information
without a confidentiality restriction. If required by any court of competent
jurisdiction or other governmental authority, the receiving party may disclose
to such authority, data, information or material involving or pertaining to
Confidential Information to the extent required by such order, provided that the
receiving party shall first have used its reasonable efforts to notify the
disclosing party so that the disclosing party may seek to maintain the
confidentiality of such data, information or materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of Confidential
Information to such party's bonafide employees or agents who have a need to know
such information for purposes of conducting the receiving party's business
solely in furtherance of its obligations hereunder. Each party shall notify all
employees and agents who have access to Confidential Information or to whom
disclosure is made that the Confidential Information is the confidential,
proprietary property of the disclosing party and shall instruct such employees
and agents to maintain the Confidential Information in confidence.
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this Article 11
shall survive the termination of this Agreement for two (2) years thereafter.
ARTICLE 12
DEFAULT; TERMINATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a party shall
be deemed to be in default under this Agreement:
(a) Material breach of any warranty or representation by the defaulting
party;
(b) Material failure to perform the defaulting party's obligations
hereunder, including but not limited to, I3S's failure to (i) maintain the
service standards set forth in Section 7.1 hereof, and (ii) make the payments to
ARCHSTONE set forth in Section 8.1 hereof;
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the benefit of its
creditors, suffering or permitting the appointment of a receiver or similar
officer for its business or assets or availing itself of, or becoming subject
to, any proceeding under the United States Federal Bankruptcy Laws or any
federal or state statute relating to solvency or the protection of the rights of
creditors; or
14
<PAGE> 15
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material respect on the
date it was made by the defaulting party.
12.2 REMEDIES. In the event the defaulting party fails to cure any default set
forth hereunder within thirty (30) days, except for (a) defaults under Section
12.1(c) which shall have a cure period of ninety (90) days, and (b) defaults
under Section 12.1(b)(ii) which shall have a cure period of five (5) days, and
after written notice of such default by the nondefaulting party, the
nondefaulting party may terminate this Agreement without further obligation on
the part of the nondefaulting party, and pursue any claims at law or in equity
permitted under this Agreement against the defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are cumulative,
but the nondefaulting party is under no obligation to exercise any such remedy.
The exercise of, or failure to exercise, any such remedies shall not prevent any
future exercise of the same or any other remedies or release the defaulting
party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Termination of this Agreement shall not impair
either party's then accrued rights, obligations, liabilities or remedies
hereunder.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE.
All notices pursuant to this Agreement shall be in writing and may be
personally delivered or sent by a nationally-recognized overnight courier or by
Certified mail return receipt requested, postage pre-paid. All notices
personally delivered shall be deemed delivered at the time of such delivery. All
notices sent by Certified mail shall be deemed delivered five (5) days after
deposited in the US mail. All notices sent by overnight courier shall be deemed
made one (1) business day after delivery to such courier service. Any party may
designate a change of address upon ten (10) days written notice.
If to I3S, to: I3S, INC.
1440 Corporate Drive
Irving, Texas 75038
Attn: Mr. Jim Price, CEO
with a copy to: I3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matt Hutchins, President
15
<PAGE> 16
If to ARCHSTONE, to: Archstone Communities Trust
7670 South Chester Street, Suite 100
Denver, Colorado 80112
Attn: Kathleen A. Keating, Vice President
with a copy to: Mayer, Brown & Platt
141 East Palace Avenue
Santa Fe, NM 87501
Attn: George Ruhlen
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and public
disclosures by either party of its employees, agents or representatives relating
to this Agreement or the subject matter hereof, excluding any announcement
beyond the control of this disclosing party, must be approved by the
nondisclosing party in writing prior to release, or no release can be made.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the schedules, attachments
and exhibits attached hereto or referred to herein, constitutes the entire
Agreement and understanding among the parties hereto and is the final expression
of their Agreement and no evidence of oral or other written promises shall be
binding. All other prior agreements or understandings related to the subject
hereof among the parties, whether written or oral, shall be null and void and of
no further force and effect upon the execution of this Agreement. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
14.2 INCORPORATION BY REFERENCE. The schedules, exhibits and attachments
referred to herein or attached hereto are hereby incorporated in and to this
Agreement and made a part hereof by this reference. These additional documents
are:
EXHIBIT A: Sample MDU Property Agreement
EXHIBIT B: Sample Memorandum of Existence of High Speed Data Services
Access and Right of Entry Agreement
EXHIBIT C: [intentionally omitted]
EXHIBIT D: Description of High Speed Data Services Provided by I3S
EXHIBIT E: Service Level Agreement
EXHIBIT F: Sample Quitclaim Deed
14.3 AMENDMENT; MODIFICATION. The Agreement may not be supplemented, amended,
modified or otherwise altered except by written instrument executed by all the
parties
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<PAGE> 17
hereto and no course of dealing or trade usage among or between the parties
shall be effective to supplement, amend, modify or alter this Agreement.
14.4 WAIVER. The failure to enforce or to require the performance at any time of
any of the provisions of this Agreement herein shall in no way be construed to
be a waiver of such provisions, and shall not affect either the validity of this
Agreement, any part hereof or the right of any party thereafter to enforce each
and every provision in accordance with the terms of this Agreement.
14.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS
OR CHOICE OF LAWS, PROVIDED, HOWEVER, THAT THE GOVERNING LAW CLAUSE IN EACH MDU
AGREEMENT SHALL GOVERN OVER THIS SECTION 14.5.
14.6 CONTINUITY OF CONTRACT. If any severable provision of this Agreement is
deemed invalid or unenforceable by any judgment of a court of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent, unless to do so would substantially
impair the underlying purposes of this Agreement.
14.7 CAPTIONS. The captions appearing in this Agreement are included solely for
convenience of reference and shall not be construed or interpreted to affect the
meaning or interpretation of this Agreement.
14.8 FORCE MAJEURE. If a party's performance of any of its obligations under
this Agreement is interfered with by any reason or any circumstances beyond its
control, including, without limitation, fire, explosion, power failure or power
surge, acts of God, war, revolution, civil commotion, or requirement of any
government or legal body or any representative of any such government or legal
body, labor unrest, including without limitation, strikes, slowdowns, picketing
or boycotts, then that party shall be excused from performance on a day-by-day
basis to the extent of such interference. If such a force majeure event prevents
I3S from performing for more than one (1) year, the exclusivity portion of this
Agreement shall terminate at ARCHSTONE's option and ARCHSTONE shall have the
right to seek alternate service providers to operate the Equipment, install new
facilities and provide alternate sources for the HSDS for the residents of the
Property.
14.9 HIRING PROHIBITED. During the term of this Agreement and for a period of
one (1) year thereafter, no personnel of either party who was directly involved
in the performance of this Agreement shall solicit for hire or hire any employee
of the other party who was directly involved in the performance of this
Agreement.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy between the
parties of any kind or nature, except in circumstances where equitable relief is
deemed necessary by either party in its sole discretion, upon the written
request of either party, each of the parties will appoint a designated officer
whose task it will be to meet for the
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<PAGE> 18
purpose of resolving such dispute or controversy or to negotiate for an
adjustment to any provision of this Agreement needed to resolve such dispute or
controversy. Such officers will discuss the dispute or controversy and negotiate
in good faith in an effort to resolve the dispute or controversy or renegotiate
the applicable section or provision of this Agreement without the necessity of
any formal proceeding relating thereto. No formal proceedings for the judicial
or arbitrational resolution of such dispute or controversy may be commenced
until either or both of the designated officers conclude in good faith that an
amicable resolution through continued negotiation of the matter at issue is not
likely to occur.
14.11 BINDING NATURE; ASSIGNMENT. This agreement will be binding on the parties
hereto, and their respective successors and assigns. Upon prior written approval
of ARCHSTONE, which approval shall not be unreasonably withheld, delayed or
conditioned, I3S may assign its rights and delegate its duties under this
Agreement, provided, however, that such approval shall not be required in the
event that (i) the assignee party has at least the same financial strength and
technical competence as I3S measured as of the assignment date, (ii) I3S is not
otherwise in default hereunder as of the date of the assignment, (iii) I3S shall
provide Archstone with not less than thirty (30) days' advance written notice of
the proposed assignment, and (iv) the assignee party must unconditionally assume
in writing, and agree to be bound by, the right, duties and obligations of the
assignor under this Agreement.
14.12 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the contrary in
this Agreement, under no circumstances will either party be deemed to be in any
relationship with the other party carrying with it fiduciary or trust
responsibilities. The parties do not intend for this Agreement or the
relationship established thereby to be considered anything other than one
between independent contractors, and shall not be construed as the formation of
a joint venture or partnership between the parties for any purpose. Each party
has the sole right to supervise, manage, contract, direct, procure, perform or
cause to be performed the day to day work to be performed by its employees under
this Agreement unless otherwise expressly provided herein or agreed to by the
parties in writing. Each party will conduct its business at its own initiative,
responsibility, and expense. Individuals employed by each party are not
employees of the other(s), and the employing party assumes full responsibility
for the acts and omissions of its own employees acting in the course and scope
of employment. Each party has and retains the right to exercise full control of
and supervision over employment, compensation, and discharge of its employees,
including compliance with Social Security, withholding, Workers' Compensation,
unemployment, payroll taxes, and all other taxes and regulations governing such
matters.
14.13 COUNTERPARTS. This Agreement may be signed in counterparts with the same
effect as if the signature on each counterpart were upon the same instrument.
14.14 MEMORANDUM OF UNDERSTANDING. The parties stipulate and agree that a
Memorandum describing the existence of this Agreement with respect to each
Property subject to this Agreement (attached hereto as Exhibit B) will be
recorded with the Title
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<PAGE> 19
for such Property and all liens thereto, and the party requesting the recording
shall pay all costs associated with such recording. Upon termination or
expiration of this Agreement, I3S will execute and deliver to ARCHSTONE such
documents (as prepared by ARCHSTONE), in a form appropriate for recording in the
real estate records of the county where the Property is located, as are
necessary to effect a release of this Agreement and the access rights granted
herein. In the event that I3S fails, upon ARCHSTONE's written request, promptly
to execute and deliver such documents, then this Agreement shall be deemed to
have effected such release.
Concurrently with the execution of this Agreement, ARCHSTONE and I3S
shall execute and acknowledge a Quitclaim Deed in the form of Exhibit F attached
hereto (the "Quit Claim Deed"). Upon termination or expiration of this
Agreement, and no sooner, ARCHSTONE may, but only in good faith and concurrently
with giving written notice to I3S, (1) file the executed Quit Claim Deed in the
appropriate recorder's office, or (2) file any other document in such recorder's
office, which states, among other things, that this Agreement is terminated and
the easement and rights of access, and any other interests in the Property,
granted to I3S, are terminated.
14.15 SUBORDINATION. This Agreement is subject and subordinate to all leases,
mortgages, and/or deed of trust which may now or hereafter affect the Property,
to all renewals, modifications, consolidations, replacements and extensions
thereof. This clause shall be selfoperative and no further instrument or
subordination shall be required by any mortgage, trustee, lessor or lessee. In
confirmation of such subordination, I3S shall execute promptly any certificate
that ARCHSTONE may request. Notwithstanding the foregoing, the party secured by
any deed of trust shall have the right to recognize this Agreement. In the event
of any foreclosure sale under such deed of trust, this Agreement shall continue
in full force and effect at the option of the party secured by such deed of
trust or the purchaser under any such foreclosure sale. I3S covenants that it
will, at the written request of the party secured by any such deed of trust,
execute, acknowledge and deliver any instrument that has for its purpose and
effect the subordination to said deed of trust of the lien of this Agreement.
14.16 MULTIPLE PROPERTIES. The parties agree that multiple Properties may become
subject to this Agreement on a per MDU Property Agreement basis. Any default or
termination (whether voluntary or involuntary) by any party with respect to a
particular Property shall operate as a default or termination only with respect
to the parties' responsibilities and obligations as they relate to the specific
Property or Properties, as the case may be. Unless otherwise agreed to by the
parties with respect to the particular default, a default shall be construed,
where possible, to exclude unaffected Properties. In the event that at ten
percent (10%) or more of the Properties during any six (6) month period there
are defaults that materially adversely affect HSDS and that remain uncured after
the applicable cure period for such defaults, ARCHSTONE has the right to
terminate this Agreement for any or all Properties.
14.17 LIMITATION ON RECOURSE. Any obligation or liability whatsoever of either
ARCHSTONE or I3S which may arise at any time under this Agreement or any
19
<PAGE> 20
obligation or liability which may be incurred by either of them pursuant to any
other instrument, transaction, or undertaking contemplated hereby shall not be
personally binding upon, nor shall resort for the enforcement thereof be had to
the property of, ARCHSTONE's or I3S's trustees, directors, shareholders,
officers, employees or agents, regardless of whether such obligation or
liability is in the nature of contract, tort or otherwise.
14.18 LIMITATION OF REMEDIES. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, NEITHER I3S NOR ARCHSTONE SHALL BE LIABLE FOR ANY REASON FOR
INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO LOST PROFITS OF ANY NATURE WHATSOEVER.
14.19 CERTAIN PROPRIETARY RIGHTS. All trade names, trademarks and service marks
(and photographs or other likenesses of the Property) owned or employed by
either party or any subsidiary or affiliate of either party, used or employed in
either party's business operation, shall remain the sole and exclusive property
of such party, or such subsidiary or affiliate, and such trade names, trademarks
and service marks and such photographs or other likenesses shall not be used by
the one party without the prior written consent of the other party (subject to
ARCHSTONE's rights to perform its obligations hereunder). Each party shall
immediately discontinue any use of such marks and names upon termination hereof.
14.20 TIME OF THE ESSENCE. Time is of the essence for this Agreement.
14.21 SURVIVAL. The second sentence of Section 6.3(a), Section 6.5, and Articles
10, 11 and 14 will survive the termination or expiration of this Agreement. In
addition, (a) after the date of termination, I3S shall pay ARCHSTONE any fees
that became due ARCHSTONE through the date of termination, and (b) the audit
right set forth herein shall survive termination for a period of one (1) year
after termination.
14.22 OTHER SERVICES.
(a) I3S shall not offer any services to the Property or Properties other
than HSDS.
(b) I3S shall cause the HSDS to remain competitive with comparable high
speed data services of other providers of such services to the extent such other
high speed data services are generally provided in the metropolitan area in
which the Property is located.
(c) Subject to I3S's marketing exclusivity set forth in Article 3 above,
I3S agrees that ARCHSTONE cannot preclude residents from procuring individual
communications services where a resident may obtain those services through
equipment or systems that do not require permanent installation to the Property.
I3S shall permit
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<PAGE> 21
other service providers to use the Equipment to the extent required by law, at
no interconnection charge to ARCHSTONE or residents.
14.23 SUBCONTRACTORS. I3S shall remove any of its subcontractor(s) performing
services on the Property at the reasonable request of ARCHSTONE. Any
subcontractors engaged by I3S must agree in writing to be bound by the terms of
this Agreement.
14.24 CERTAIN TAX MATTERS. If ARCHSTONE, in its sole discretion, based on a
ruling by the United States Internal Revenue Service (the "IRS") or otherwise,
determines that this Agreement can be reformed in a way that avoids an adverse
effect on ARCHSTONE of receiving any Compensation under any section of the
Internal Revenue Code of 1986, as amended (the "Code") without adversely
affecting the economic benefits of this Agreement to I3S, I3S shall agree to so
reform this Agreement and shall execute and deliver any amendments or other
documents reasonably requested by ARCHSTONE to effect such reformation.
14.25 LIENS. I3S will promptly satisfy any liens placed or filed for any work
performed or materials used in the provision of services under this Agreement.
ARCHSTONE may satisfy any of those liens that are not promptly satisfied by I3S.
I3S will reimburse ARCHSTONE all of ARCHSTONE's costs and expenses incurred in
satisfying those liens and releasing them of record.
14.26 NO THIRD PARTY BENEFICIARIES. The parties do not intend to create, and
this Agreement does not create, any rights in any entities or individuals who
are not parties to this Agreement.
14.27 SEVERABILITY. In the event that any part of this Agreement shall be held
to be indefinite, invalid or otherwise unenforceable, the entire Agreement shall
not fail on account thereof, and the balance of the Agreement shall continue in
full force and effect.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
I3S, INC., A TEXAS CORPORATION [STAMP]
BY: /s/ J.R. PRICE
-------------------------------
NAME: J.R. Price
-----------------------------
TITLE: Chairman/CEO
----------------------------
ARCHSTONE COMMUNITIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST
BY: /s/ PATRICK R. WHELAN
-------------------------------
NAME: Patrick R. Whelan
-----------------------------
TITLE: Chief Operating Officer
----------------------------
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<PAGE> 23
LIST OF EXHIBITS
EXHIBIT A: Sample MDU Property Agreement
EXHIBIT B: Sample Memorandum of Existence of High Speed Data Services
Access and Right of Entry Agreement
EXHIBIT C: [intentionally omitted]
EXHIBIT D: Description of High Speed Data Services Provided by I3S
EXHIBIT E: Service Level Agreement
EXHIBIT F: Sample Quit Claim Deed
23
<PAGE> 24
EXHIBIT A
SAMPLE MDU PROPERTY AGREEMENT
THIS MDU PROPERTY AGREEMENT (THE "MDU AGREEMENT") IS ENTERED INTO BY
AND BETWEEN I3S, INC., A TEXAS CORPORATION WITH A PLACE OF BUSINESS AT 1440
CORPORATE DRIVE, IRVING, TEXAS 75038 ("I3S") AND ARCHSTONE COMMUNITIES TRUST, A
MARYLAND REAL ESTATE INVESTMENT TRUST WITH A PLACE OF BUSINESS AT 7670 SOUTH
CHESTER STREET, SUITE 100, ENGLEWOOD, COLORADO 80112 ("ARCHSTONE"), THIS _____
DAY OF________________, _______.
RECITALS
WHEREAS, ARCHSTONE owns the _____________________located at
__________________________ (the "Property"). A legal description of the Property
is attached hereto as Attachment 1.
AND WHEREAS, I3S owns and operates a high speed data network capable of
servicing the Property as set forth herein.
AND WHEREAS, ARCHSTONE and I3S desire that I3S provide HSDS to the
Property, on the terms and conditions provided herein.
AND WHEREAS, ARCHSTONE and I3S are parties to a Master High Speed Data
Services Access and Right of Entry Agreement dated ________________, 19__ as
amended (the "Master Agreement").
NOW, THEREFORE, in consideration of the mutual promises and conditions herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, ARCHSTONE and I3S agree as follows:
AGREEMENTS
(1) STANDARD TERMS. The Standard Terms, as that term is used in the Master
Agreement, are incorporated into this MDU Agreement by reference. If ARCHSTONE
and I3S have or at any time do amend the Master Agreement to change any of the
Standard Terms, the Standard Terms as so amended shall be deemed incorporated
into this MDU Agreement. If any of the Standard Terms conflict with any terms
set forth in this MDU Agreement, the terms set forth in this MDU Agreement shall
prevail. The defined terms that are used herein shall have the meaning assigned
them in the Master Agreement, unless otherwise expressly defined herein.
(2) PROPERTY IDENTIFICATION INFORMATION.
(a) Address and Name of the Property:
------------------
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<PAGE> 25
------------------
Zip Code
---------, -------
(b) Full Legal Description of the Property:
See Attachment 1.
(c) Contact Person/Leasing Agent:
------------------------------
Telephone No:
---------------------------------------
(d) CATV/MATV Site Survey Information:
(e) Other Information:
Number of Units:
-----------------------
Number of Buildings:
-------------------
Current Occupancy:
---------------------
Existing Property (including age) or New Build:
-----------------
PC Ownership Survey (if any):
------------------------
Existing/Proposed Local Loop Trunking:
--------------------------
I3S Node Type: POP: ATM:
-------------------------- ---------
Cable television or telecommunications provider interconnection
agreement is executed and acceptable to I3S and ARCHSTONE:
Yes: No:
------- -------
(3) OTHER PROPERTY-SPECIFIC PROVISIONS:
(a) Maintenance of Distribution Plant
[specify]
(b) Access to the Property
No rights or conditions in addition to those specified in the Master
Agreement are granted.
(c) Term
This MDU Agreement shall be effective from the Service Start Dates (as
hereinafter defined) hereof and shall continue for a period of seven (7) years,
unless earlier terminated in accordance with its provisions.
(d) Service Start Date.
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<PAGE> 26
I3S shall provide HSDS to the Property no later than ______________ ,
________________________ .
(e) Contingencies.
[The parties may choose to insert contingencies here if they want to
enter into a specific MDU Agreement, but need to make it contingent on certain
events, such as finalization of interconnection rights, installation of an I3S
POP, etc.]
(f) Effect of Termination/Expiration.
Notwithstanding anything to the contrary herein, the benefits,
obligations and grants of rights in this MDU Agreement given to I3S shall
terminate on the date of termination of this MDU Agreement, for whatever reason.
(g) Interconnection fees and charges.
I3S shall be solely responsible for all interconnection fees and
charges.
(h) Interconnection Rights/Responsibilities
[specify]
(4) REVENUE SHARE.
The following revenue share shall be applicable: line ___ (specify one
of: (I), (II), (III), (IV), (V), (VI), (VII) or (VIII)) of the tables in Section
8.1 of the Agreement.
(5) COUNTERPARTS.
This MDU Property Agreement may be signed in counterparts with the same
effect as if the signature on each counterpart were upon the same instrument.
(6) MISCELLANEOUS.
This MDU Agreement, including the Standard Terms and the Exhibits
hereto constitutes the entire agreement of the parties relating to the subject
matter hereof and supersedes and replaces all prior agreements between them in
this regard, whether written or verbal. This MDU Agreement may not be amended or
modified except in writing signed by the parties hereto or as provided in
Section (1) above. This MDU Agreement shall be governed by and interpreted in
accordance with the laws of the State in which the Property is located,
excluding that State's conflict of laws rules.
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<PAGE> 27
(7) LIST OF ATTACHMENTS.
(a) Attachment 1 (legal description of the Property);
(b) Standard Terms (i.e., the Master High Speed Data Services Access
and Right of Entry Agreement by and between Archstone and I3S
dated___________________);
(c) Executed Memorandum of Existence of High Speed Data Services
Access and Right of Entry Agreement; and
(d) Executed Quitclaim Deed.
(8) SURVIVAL.
In addition to as specified in the Master Agreement, Sections ____ and
______ of this MDU Agreement shall survive the termination or expiration of this
MDU Agreement.
IN WITNESS WHEREOF, the-parties have executed this MDU Agreement by their
duly-authorized representatives.
I3S, INC., A TEXAS CORPORATION
BY:
---------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
ARCHSTONE COMMUNITIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST
BY:
---------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
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<PAGE> 28
EXHIBIT B
SAMPLE MEMORANDUM OF EXISTENCE OF HIGH SPEED DATA
SERVICES ACCESS AND RIGHT OF ENTRY AGREEMENT
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Matthew Hutchins
President
I3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
MEMORANDUM OF EXISTENCE OF
MASTER HIGH SPEED DATA SERVICES
ACCESS AND RIGHT OF ENTRY AGREEMENT
A license has been granted by ARCHSTONE COMMUNITIES TRUST, on behalf of
itself ("Grantor") to I3S, Inc., a Texas corporation ("Grantee"), under a
certain Master High Speed Data Services Access and Right of Entry Agreement
effective _______________________, 1998 by and between Grantor and Grantee (the
"Agreement"). The license permits Grantee, among other things, to provide High
Speed Data Services, as described in the Agreement, and to engage in any other
act or activity contemplated by the Agreement at the Property described herein.
This Agreement runs with the land and automatically terminates upon the earlier
to occur of (i) ___________________ 200__, or (ii) any termination of the
Agreement. Such earlier termination may be evidenced by the recordation of an
Affidavit executed by Grantor stating that such termination has occurred, or as
otherwise permitted in the Agreement. As used in the Agreement, the term
"Property" means that the real property consisting of approximately ______
apartment units located in the city of ________, County of _______, State
of ______, at the address commonly known as [Name and Address of Apartment
Community]. Whose legal description is as follows:
In the event of any conflict between the terms and conditions of this
Memorandum of Existence of Master High Speed Data Services Access and Right of
Entry Agreement and the terms and conditions of the Agreement, the Agreement
shall control. The parties agree that the sole purpose of this Memorandum of
Existence of Master High Speed Data Services Access and Right of Entry Agreement
is to provide notice of the Agreement.
Executed this ______ day of ,199__.
GRANTOR: ARCHSTONE COMMUNITIES TRUST,
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<PAGE> 29
a Maryland real estate investment trust
BY:
---------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
STATE OF
--------------
COUNTY OF
--------------
On ____________, 199, before me, _______________________,personally
appeared __________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument and the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: (seal)
------------------------
GRANTEE: I3S, Inc.
a Texas corporation
BY:
---------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
STATE OF
--------------
COUNTY OF
--------------
On ___________,199, before me, ____________________,personally appeared
_________________________, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by his/her/their signature(s)
on the instrument and the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
29
<PAGE> 30
WITNESS my hand and official seal.
Signature: (seal)
-----------------------
30
<PAGE> 31
EXHIBIT C
[INTENTIONALLY OMITTED]
31
<PAGE> 32
EXHIBIT D
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I3S
The I3S HSDS is a data network service that provide transport and peering
functions of Internet Protocol (IP) data traffic, including, without limitation:
o Broadband access networks on MDU properties composed of one or more
broadband access technologies including but not limited to coaxial or
hybrid fiber coaxial (HFC) cable television distribution systems,
twisted-pair copper-wire-based telephone distribution systems, twisted-pair
copper-wire-based local area network distribution systems and
fiber-optic-based local area network distribution systems;
o Local loop networks that connects the broadband access networks on each MDU
property to the I3S regional points of presence (POPs) in each metropolitan
area served by I3S;
o Regional point of presence networks that connects the POPs to the i3s.net
national IP backbone;
o A national IP backbone consisting of broadband communication facilities for
the transport of data among I3S POPs and public and private Exchange Points
where data and Internet routing information will be exchanged with other
networks peered with i3s.net as part of the global Internet;
o A national Network Operations Center (NOC).
o Certain computer services that include:
Membership system for user authentication and authorities;
Personalization services for customizing content to user preferences;
Internet mail (SMTP and POP3);
Internet newsgroups (NNTP) composed of approximately 25,000 or more
newsgroups;
Internet World Wide Web (HTTP) services;
Internet chat (IRC and MIRC);
Conferencing and collaboration bridges;
Streaming multimedia services such as Microsoft's NetShow
and Progressive Network's RealMedia;
o A branded suite of client software that include:
Web browse;
Mail reader;
News reader;
Chat client;
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<PAGE> 33
Conferencing and collaboration client;
Appropriate plugins and ActiveX controls.
o Certain customer service functions that include:
A National Customer Care Center;
A telephone and network-based customer help desk;
A Trouble Reporting facility;
A customer billing system.
o Certain multimedia rich content that showcases the capabilities of HSDS
that includes:
o Original content created by I3S;
o Aggregated content created by others but licensed by I3S and improved for
uses in a HSDS system;
o Aggregated content created by others but licensed by I3S and used
unimproved.
33
<PAGE> 34
Requirements
Related to Broadband Access Networks
Utilizing Multiple Broadband Access Technologies (mBAT)
ARCHSTONE'S RESPONSIBILITIES
Provide, or cause to be provided, as mutually agreed between the parties,
suitable physical-layer coaxial-cable, twisted-pair copper-wire, or
fiber-optic distribution plant on each ARCHSTONE property that will meet or
exceed I3S specifications;
I3S Responsibilities:
Provide technical specifications for suitable physical-layer distribution
plants for I3S's HSDS;
Inspect and accept or reject, according to the mutually agreed
specifications, physical-layer distribution plants proposed by ARCHSTONE as
suitable for I3S's HSDS;
Maintain, or cause to be maintained, physical layer distribution plants
built and owned by ARCHSTONE that are used for I3S's HSDS;
Install, maintain and operate data delivery equipment for each property
offering HSDS. Installation and maintenance will meet or exceed
manufacturer's specifications and the requirements set forth in the
Agreement. Through itself or its agents, ARCHSTONE will assist I3S with
preinstallation engineering planning and site survey questionnaires;
Integrate all data delivery equipment for each property into the I3S
Element Management System portion of its Network Management Platform using
SNMP and/or RMON. I3S will monitor all data delivery equipment twenty-four
hours per day, seven day per week (24x7);
Assume the cost of the acquisition of all data communication equipment
necessary to provide HSDS and to provide termination and delivery of HSDS
between the Subscriber and the I3S POP in each Market;
Without limitation on the foregoing or the attached SLA, both parties
acknowledge that the end to end performance of HSDS is probabilistic and
subject to anomalous short lived usage patterns by Subscribers which will
affect both the utilization of the local loop circuits and the I3s.net
national backbone from time to time;
Configure and operate all data delivery equipment to efficiently integrate
with the rest of the I3s.net network;
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<PAGE> 35
Subscribers will not be required by I3S to install or operate a custom web
browser; and
Subject to all applicable laws and regulations, Subscribers will have
voluntary access to all public Internet sites and services.
35
<PAGE> 36
Additional Requirements
Related to Broadband Access Networks
Utilizing Cable Television Distribution Systems
ARCHSTONE's Responsibilities (These responsibilities apply only to the extent
HSDS is to be provided by I3S by means of an interconnection to a third party's
CATV distribution plant on an applicable property. Archstone shall use
commercially reasonable efforts to perform these responsibilities.):
Cause CATV infrastructure to comply with FCC requirements;
Upgrade, or cause to be upgraded, property CATV infrastructure to provide
bidirectional cable delivery to all subscribers;
Cause the upgraded bidirectional CATV infrastructure to exceed the minimal
operational requirements of the I3S cable modem system, which are:
- --------------------------------------------------------------------------------
MINIMUM CABLE TELEVISION NETWORK VALUE
REQUIREMENTS FOR i3s.net HSDS
- --------------------------------------------------------------------------------
Amplitude variations inband
Forward channel 5 dB total
Return channel 5 dB total
- --------------------------------------------------------------------------------
Group delay variation inband
Forward channel 60 nsec/MHz, 240 nsec total
Return channel 200 nsec/MHz, 800 nsec total
- --------------------------------------------------------------------------------
Maximum tap to tap variation 27 dB
- --------------------------------------------------------------------------------
Dynamic range on receiver 15 dBmV to +15 dBmV
- --------------------------------------------------------------------------------
Maximum return/upstream loss 49 dB
- --------------------------------------------------------------------------------
Minimum carrier to noise 22 dB
- --------------------------------------------------------------------------------
Minimum carrier to interference 25 dB
- --------------------------------------------------------------------------------
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<PAGE> 37
Provide, or cause to be provided, two (2) six MHz video channels within the
CATV infrastructure bandwidth on Internet served properties; one (1) in the
spectrum from 54 MHz to 750 MHz and one (1) in the 5MHz to 50 MHz spectrum;
and reserve another two (2) additional video channels, in the same
spectrums for future expansion as Subscriber penetration on the property
increases; and
Designate, or cause to be designated, an engineering point of contact for
each cable company operating the cable television distribution system for
I3S Network Operations Center (NOC) to report problems or failures related
to the cable television distribution system twenty-four hours per day,
seven days per week (24x7).
I3S Responsibilities:
Use the cable modem system, and certain network management features that it
provides, to monitor the availability and quality of ARCHSTONE's property
network (its CATV plant) and the Equipment;
Report to ARCHSTONE's designated engineering point of contact any problems
observed by the I3S NOC in the course of operating the cable modem system
network management features; and
Report to ARCHSTONE's designated engineering point of contact any problems
determined by Subscriber contact in the course of operating the Subscriber
Help Desk.
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<PAGE> 38
LOCAL LOOP CHARACTERISTICS
ARCHSTONE'S RESPONSIBILITIES
Provide, or cause to be provided, proper space, security and power for
Local Loop termination and transmission equipment necessary to provide
Internet delivery and other data services on the property.
I3S RESPONSIBILITIES:
Install, maintain and operate local loop termination and transmission
equipment necessary for each property offering HSDS. Installation and
maintenance will meet or exceed manufacturer's specifications and the
requirements set forth in the Agreement. Through itself or its agents,
ARCHSTONE will assist I3S with preinstallation engineering planning and
site survey questionnaires;
Integrate all local loop termination and transmission equipment for each
property into the I3S Element Management System portion of its Network
Management Platform using SNMP and/or RMON. I3S will monitor all local loop
termination and transmission equipment twenty-four hours per day, seven day
per week (24x7);
Assume the cost of the acquisition of all local loop termination and
transmission equipment necessary to provide HSDS and to provide termination
and delivery of HSDS between the Property and the I3S POP in each Market;
Order, provision, install and maintain local loop communications links
between each property and I3S POP in each Market with a bandwidth of not
less than 1.544 mb/s (T1). In addition, as the number of Subscribers on
each property increases, scale the local loop bandwidth so that each
simultaneously active user averages approximately 1 mb/s ninety eight
percent (98%) of the time;
Without limitation on the foregoing or the attached SLA, both parties
acknowledge that the end to end performance of HSDS is probabilistic and
subject to anomalous short lived usage patterns by Subscribers which will
affect both the utilization of the local loop circuits and the I3s.net
national backbone from time to time; and
Configure and operate all local loop termination and transmission equipment
to efficiently integrate with the rest of the I3s.net network.
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<PAGE> 39
POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I3S RESPONSIBILITIES:
Acquire, install and maintain data communication equipment at each POP for
the termination and transmission of HSDS from properties to the i3s.net
national network backbone;
I3S will determine the location of its main presence in each Market to be
consistent with its own operational practices (which currently include
colocating within its carrier's central offices in each Market);
Acquire, install, maintain and operate Internet peering relationships at
public and private Internet Exchange Points (EP) with other Tier 1 Internet
backbone networks throughout the United States;
Acquire, install, maintain and operate computers and software to provide
Network Management and provide Internet services for Subscribers. To
provide these functions, I3S will employ a combination of locally
distributed to the POP servers as well as globally centralized servers
consistent with its overall network design and operational practices; and
Order, provision, install, maintain and operate data transport/carriage
pathways from each POP, EP and/or NOC with a bandwidth not less than 45
mb/s (DS3) interconnection. In addition, as the number of Subscribers on
Market increases, scale the bandwidth so that each simultaneously active
user averages approximately 1 mb/s ninety eight percent (98%) of the time.
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<PAGE> 40
I3S INFORMATION OPERATIONS
CONTENT PRODUCTION; ARCHSTONE/BROADBAND NOW!(TM) LAUNCH PAGE
I3S operates, and shall operate for the term of this Agreement, an information
content operation for creating original content or aggregating content created
by others and licensed to I3S for inclusion in the I3S body of content. This
material will consist of but not limited to informational, educational,
recreational, entertainment and business content. This body of content will be
offered to Subscribers of the HSDS product.
Without limitation on paragraph 1 above, I3S will create content as creative
and/or business opportunities present themselves. The I3S content will be
updated as I3S, using its editorial judgment, sees fit, but in no event less
frequently than good industry practice.
Certain portions of this content will be offered to all HSDS Subscribers free of
charge (Basic Content). Other portions of the content may be offered to HSDS
Subscribers on an optional fee basis for unlimited access to a fixed package of
content (Premium Content). Another certain portion of the content may be offered
to HSDS Subscribers on an optional fee basis for access to a specific
time-limited event (Pay-Per-View Content).
In addition to the fees charged customers for content, I3S may solicit and sell
advertising and other revenue-producing transaction opportunities that will
appear on certain portions of the content.
All fees for premium content, pay-per-view content, advertising and
revenue-producing transactions shall be determined solely by I3S.
The potential revenue set forth here for content shall not be subject to other
provisions in the Agreement (including attachments) regarding revenue sharing,
fees and pricing.
I3S, or its content partners, will design, produce and update, as necessary, all
content and be responsible for all such costs.
I3S shall design, produce and update, as necessary, a customized launch page
(the "Launch Page") for HSDS Subscribers, which can be used to market and
promote the HSDS, and, on I3S's standard time and materials rates (or as
otherwise agreed by the parties), Archstone's other services. I3S shall from
time to time update the Launch Page throughout the Term in accordance with the
terms of this Agreement. I3S may offer Archstone Launch Pages that are
personalized (by property) and that, in addition to the features described
above, may promote the I3S content offerings and provide direct hyperlinks to
the I3S content.
The Launch Page will include banners for and hyperlinks to Archstone's corporate
web sites as directed by Archstone. I3S shall establish a default introductory
Launch Page that shall be co-branded with Archstone and Broadband Now! names,
marks and logos. The Launch Page shall meet the technical and functional
requirements specified by I3S. The design, lay-out, functionality and appearance
of and all aspects of the co-branding on
40
<PAGE> 41
the Launch Page (including, but not limited to, the use of Archstone's names,
marks and logos) shall be mutually agreed to by the parties. Archstone shall at
all times have approval rights over the use and presentation of Archstone's
names, marks and logos.
In no event, at any time during the term of this Agreement, shall I3S knowingly
permit or use any (i) content in the ARCHSTONE/Broadband Now! web site or within
its information content operations which contains obscene material, sexually
explicit adult programming, or indecent material as defined in Section
47 C.F.R. 76.701(g); (ii) material in the ARCHSTONE Broadband Now! web site
soliciting or promoting unlawful conduct; or (iii) programming in the
ARCHSTONE/Broadband Now! web site that may or could have been subject to the
Telecommunications Act of 1996, Section 641, relating to the scrambling of
sexually-explicit adult video service programming.
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CUSTOMER CARE CENTER FEATURES
I3S RESPONSIBILITIES
Provide a toll free number for:
Inquiries about the HSDS supplied by I3S
Ordering and scheduling installation of HSDS products
Billing inquiries
Initial technical support inquires
Technical support for all HSDS issues
Technical support for Subscriber CPE issues related to HSDS
Answer toll free line consistent with the ARCHSTONE/I3S service cobrand.
Operate 24x7 customer care call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 1 minutes of call entering processing
operation.
Develop and publish escalation procedure for Customer Service
Representatives related to network issues.
Resolve billing issues within 24 hours 95% of time, on a monthly basis.
Resolve property network issues within 24 hours 95% of time, on a monthly
basis.
Resolve technical issues within 24 hours if a phone call is required 95% of
time, on a monthly basis.
Resolve technical issues within 48 hours if a truck roll is required 95% of
time, on a monthly basis.
Develop and publish escalation procedures for ARCHSTONE to contact
regarding technical issues related to the network.
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SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
I3S SHALL:
Verify that potential Subscribers' personal computers meet the I3S
established minimum requirements for the supplied software and the HSDS
service;
Make an appointment with each new Subscriber to meet the installation
personnel for the installation of the HSDS in the Subscriber's unit;
Collect the Subscriber information required to install, provision and
complete the set up of Subscribers' HSDS service. I3S will develop an
appropriate paper form-based system or automated system to facilitate this
process;
Provide, or cause to be provided, coaxial connection to the Subscriber's
specified location;
Verify, or cause to be verified, that the coaxial connection completed to
the Subscriber's specified location exceeds the minimum operational
requirements for the I3S supplied CPE and the I3S HSDS service;
Verify, or cause to be verified, and if necessary, promptly (but not more
than a reasonable time frame set by ARCHSTONE) perform repairs such that
all access network services function properly (and to not less than the
standards pre-existing I3S HSDS operations) after I3S completes
installation and throughout the provision of HSDS;
Maintain a sufficient inventory of CPE for each Market and develop
procedures to restock CPE as used in Subscriber installations;
Issue and install the required CPE for the service requested by the
Subscriber;
Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I3S Service Level
Agreement;
Install the required cable modems(s) and have HSDS operational in the
Subscriber's unit within the number of days of a Subscriber's request set
forth in Section 6.4 of the Agreement;
Install any required network interface cards (NICs), TCP/IP protocols and
Internet software suite in the Subscriber's personal computer;
Offer the Subscriber a brief introduction to the HSDS to be performed at
the time of installation. This introduction will include how to launch the
service, how to find the training material on the i3s.net Web site, how to
find the Subscriber
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<PAGE> 44
Support Section on the i3s.net Web site and how to call for technical
assistance or support;
Obtain signatures required to verify that each Subscriber installation was
executed properly and to the satisfaction of the Subscriber; and
Provide ARCHSTONE with a copy of the installation transaction documentation
verifying that the completed installation is ready for billing. This
documentation will include the CPE delivery receipt, the ISP contract and
the completed work order.
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<PAGE> 45
HSDS INITIAL SUBSCRIBER RATES, SERVICE LEVELS
AND INSTALLATION AND EQUIPMENT CHARGES
I. RECURRING INTERNET ACCESS REVENUE
The following table outlines the various levels of service available to Personal
Service subscribers:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Personal Service Price per Downstream Upstream % of Time Subscriber is
Level Month Transmission Transmission Guaranteed Downstream
Speed Speed and Upstream Speeds
- ---------------------------------------------------------------------------------------------------
BBNow!(TM) Lite $29.95 64 Kbps 64 Kbps 98%
- ---------------------------------------------------------------------------------------------------
BBNow!(TM) Standard $49.95 1.0 Mbps 1.0 Mbps 98%
- ---------------------------------------------------------------------------------------------------
BBNow!(TM) Max $79.95 1.5 Mbps 1.5 Mbps 98%
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following table outlines the various levels of service available to Home
Office Service subscribers:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Home Office Service Level Price per Minimum Downstream Minimum Upstream
Month Transmission Speed Transmission Speed
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home Office - Level 1 $199 1.5 Mbps 128 Kbps
- ---------------------------------------------------------------------------------------------------
Home Office - Level 2 $299 1.5 Mbps 512 Kbps
- ---------------------------------------------------------------------------------------------------
Home Office - Level 3 $499 1.5 Mbps 1.0 Mbps
- ---------------------------------------------------------------------------------------------------
Home Office - Level 4 $699 1.5 Mbps 1.5 Mbps
- ---------------------------------------------------------------------------------------------------
</TABLE>
Vanity DNS hosting $100.00 per month
II. ONE-TIME CHARGES AND/OR PASS-THROUGH CHARGES
Installation fee $49.95 nonrecurring
Network interface card (NIC) market price (not to exceed $60)
CPE (cable modem, xDSL modem or other
broadband access device) purchase market price
Monthly rental of CPE market price*
*The decision to purchase or rent the CPE necessary for the provision of HSDS
shall be at the sole discretion of each resident subscribing to HSDS.
45
<PAGE> 46
EXHIBIT E
SERVICE LEVEL AGREEMENT
This Service Level Agreement is attached and made a part of the Master High
Speed Data Services Access and Right of Entry Agreement by and between I3S, Inc.
and Archstone Communities Trust (the "Agreement").
INTRODUCTION
This Exhibit entitled "Service Level Agreement" ("SLA") sets out operation
specifications and requirements for HSDS provided by I3S for the residents or
customers of applicable Archstone Properties. The SLA shall encompass data
services originating and terminating within the I3S internetwork ("i3s.net").
The HSDS provided by I3S shall meet the operations specification and
requirements stated herein, which are generally stated in terms of events or
outcomes, rather than terms of specific hardware, software or procedural
requirements. For the purposes of the SLA, i3s.net shall relate to that portion
of the global Internet operated by I3S, originating within end users' customer
premises and terminating within I3S computers or transported and peered at a
public or private Internet Exchange Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall relate to
i3s.net or I3S provided services (or resold services) and the Equipment and I3S-
maintained facilities, but shall exclude customer error, defects in Customer
Premises Equipment ("CPE"), defects in customers' computers, defects in property
cable or wiring plants, defects in fiber optic distribution systems, defects in
cable television distribution systems and network problems experienced by
destination networks at or beyond Internet Exchange Points.
The terms and conditions of this SLA do not limit I3S's obligations set forth
elsewhere in the Agreement, but if there is a conflict with respect to service
obligations between this SLA and the Agreement, this SLA shall control.
PERFORMANCE REQUIREMENTS
PERCENT CUSTOMER SERVICE ORDER BEGINNING COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely beginning of work on
orders from customers for new service or orders to make changes in their
existing service.
The timely beginning parameter is calculated by dividing the total Customer
Service Orders begun on or before the date and clock hour promised to the
customer that the service order would be started by the total number of
service orders initiated in each calendar month and multiplying by 100.
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<PAGE> 47
I3S shall exhibit greater than 90% Customer Service Order Beginning
Commitment Dates Timely Met per month.
PERCENT CUSTOMER SERVICE ORDER COMPLETION COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely completion of work on
orders from customers for new service or orders to make changes in their
existing service and the timely completion of those service orders.
The timely completion parameter is calculated by dividing the total
Customer Service Orders completed on or before the date and clock hour
promised to the customer that the service order would be completed by the
total number of service orders initiated in each calendar month and
multiplying by 100.
I3S shall exhibit greater than 90% Customer Service Order Completion
Commitment Dates Timely Met per month.
PERCENT OF NETWORK AVAILABILITY
This parameter is generally indicative of the availability of the network
to transport and peer customer data at an Internet Exchange Point, or, in
the event that the customer data is to be fulfilled by computers within
i3s.net, generally indicative of the availability of to transport data to
the I3S servers and the availability of the servers.
This parameter is calculated by dividing the number of seconds that the
network is available for each customer by the total number of
customer-seconds in each calendar month and multiplying by 100.
Specifically excluded from the Network Availability calculation shall be
regularly scheduled maintenance windows or ad hoc maintenance windows
scheduled and announced 24 hours in advance in the i3s.net Customer Support
Web Site.
Specifically excluded from the Network Availability calculation shall be
periods of time where the access distribution plant (operated by Archstone
or its designated third party operator) exceed the operational standards
set by I3S for each type of broadband access technology.
I3S shall exhibit greater than 98% Network Availability per month.
47
<PAGE> 48
PERCENT CUSTOMER CALLS ANSWERED WITHIN 45 SECONDS BY I3S PERSONNEL
This parameter is based upon the number of customers calls answered within
15 seconds by a human operator or by an ACD queue greeting during the hours
of operation of the I3S National Customer Care Center and thereafter to be
answered by a human customer representative within 30 seconds. At a
minimum, the I3S National Customer Care Center shall operate from 8:00 a.m.
to 5:00 p.m. Central Time, Monday through Friday exclusive of holidays.
This parameter is calculated by dividing the number of calls answered with
45 seconds by the total number of Customer Care Center calls answered in
each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% of Customer Calls Answered within 45
Seconds per month.
PERCENT OF TROUBLE REPORTS RESOLVED TIMELY
This parameter is related to the number of Trouble Reports resolved within
the following windows:
For Trouble Reports received by I3S at the I3S National Customer Care
Center prior to 2:00 p.m. Central Time, Monday through Friday,
excepting holidays, will be cleared by the end of the next business
day.
For Trouble Reports received by I3S at the I3S National Customer Care
Center after 2:00 p.m. Central Time, Monday through Friday, excepting
holidays, will be cleared by noon of the second business day
thereafter.
This parameter is calculated by dividing the total trouble reports cleared
on or before the date and clock hour promised to the customer the total
number of Trouble Tickets cleared in each calendar month and multiplying by
100.
I3S shall exhibit greater than 90% Trouble Reports Cleared Timely per
month, according to the terms of this section for trouble that can be
resolved by I3S alone.
PERCENT CUSTOMER REPAIR VISIT APPOINTMENTS MET
This parameter is related to the customer commitments made by the I3S
National Customer Care Center for repairs that require a repair visit to
customers' sites or premises.
This parameter is calculated by dividing the total Customer Repair Visits
Appointments met on or before the date and clock hour promised to the
customer
48
<PAGE> 49
by the total number of Customer Repair Visit Appointments initiated in each
calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Customer Repair Commitment Met per
month.
PERCENT OF CUSTOMER BILLS PREPARED TIMELY
This parameter is related to the generation of Customer Bills for delivery
to customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated and sent to customers within twenty (20) business days of the end
of the billing cycle by the total number Customer Bills generated in each
calendar month and multiplying by 100.
I3S shall exhibit greater than 95% Customer Bills Prepared Timely per
month.
PERCENT OF CUSTOMER BILLS PREPARED ACCURATELY
This parameter is related to the accuracy of Customer Bills for delivery to
customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated that do not require an adjustment due to a billing error caused
I3S by the total number Customer Bills generated in each calendar month and
multiplying by 100.
I3S shall exhibit greater than 95% Customer Bills Prepared Accurately per
month.
REPORTS
I3S shall provide to Archstone reports within twenty (20) business days of
the end of each calendar month, the reports listed below in this section,
each of which may be provided separately or provided on a consolidated
basis:
A report depicting total subscribers, gross new customers and gross
customers terminated separated by product tier and property.
New service orders, Trouble Reports opened and closed or cleared as
appropriate separated by date and property.
Aggregate I3S National Customer Care Center data depicting the distribution
of call waiting time in general and the percent calls answered and calls
abandoned respectively.
Billing summaries describing the date(s) bills were sent to customers, and
the billed revenue disaggregating major categories of service.
49
<PAGE> 50
HOLIDAYS
New Years Day
Memorial Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
Any other national or state holiday recognized by I3S
50
<PAGE> 51
EXHIBIT F
QUITCLAIM DEED
When recorded return to:
Archstone Communities Incorporated
Suite 100
7670 South Chester St.
Englewood, CO 80112
ATTENTION: Kathleen Keating
QUIT-CLAIM DEED
FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, the undersigned hereby quit-claims to Archstone Communities Trust,
a real estate investment trust, without representation or warranty, its entire
right, title and interest in the property described on Attachment 1 attached
hereto and incorporated by this reference (the "Property").
By this Quit-Claim Deed, the undersigned further agrees (i) the Master
High Speed Data Services Access and Right of Entry Agreement (the "Property
Agreement"), dated as of ________________________ 19__,between the undersigned
and Archstone Communities Trust, as evidenced by the Memorandum of Easement
recorded on _________________. 199__,as Instrument No. _________________, in
__________, __________ has expired or been terminated, and (ii) the easement and
rights of access, and any other interests in the Property granted to the
undersigned therein have expired or been terminated.
DATED this day of ,199__
I3S, INC.,
a Texas corporation
----------------------------------
its Authorized Representative
STATE OF )
--------------
)ss.
COUNTY OF )
--------------
On this, the ___ day of ______, 199__ ,before me, the undersigned
Notary Public, personally appeared ________________,known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he/she executed the same in such capacity on behalf of the corporation for the
purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
----------------------------
Notary Public
My Commission Expires:
------------------------
51
<PAGE> 1
EXHIBIT 10.10
CONFIDENTIAL TREATMENT REQUESTED
HIGH SPEED DATA SERVICES
MARKETING AGREEMENT
THIS HIGH SPEED DATA SERVICES MARKETING AGREEMENT (this
"Agreement") is entered into as of the 9th day of July, 1999 (the "Effective
Date"), by and between I3S, Inc., a Texas corporation, with a place of business
at 1440 Corporate Drive, Irving Texas 75038 ("I3S"); and AvalonBay Communities,
Inc., a Maryland corporation, with a place of business at 2900 Eisenhower
Avenue, Third Floor, Alexandria, Virginia 22314, Attn: Ms. Lyn Lansdale, Vice
President-Ancillary Services ("AVALONBAY"). I3S and AVALONBAY are hereinafter
sometimes individually referred to as a "party", and collectively as the
"parties."
RECITALS:
WHEREAS, AVALONBAY currently owns and manages a multiple
dwelling unit community (an "MDU") known as the Toscana Apartments located at
1257 Lakeside Drive, Sunnyvale, California ("Toscana Apartments");
WHEREAS, I3S provides broadband Internet protocol network
services, including, without limitation, high speed data services, and related
support services, as more specifically described below in this Agreement and in
Exhibits D and E attached hereto and incorporated herein by reference
(collectively, the "Service"), to multiple system franchise cable operators
("MSO's"), private cable operators ("PCO's"), and real estate investment trusts
("REIT's"), nationwide; and
WHEREAS, AVALONBAY desires that I3S provide the Service to
Toscana Apartments and the residents thereof, subject to and upon the terms and
conditions set forth below in this Agreement;
NOW, THEREFORE, the parties hereto hereby covenant and agree
as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
1.1 Representations and Warranties of AVALONBAY.
Authority. To AVALONBAY's actual knowledge, (a) this Agreement
has been duly authorized, executed and delivered by AVALONBAY and constitutes a
valid
<PAGE> 2
and legally binding Agreement of AVALONBAY, and (b) neither the execution and
delivery of nor the performance of the provisions of this Agreement shall
conflict with or result in (i) a breach, violation or default under the
Certificate of Incorporation and Bylaws of AVALONBAY, or any material agreement
that is currently binding on AVALONBAY that would affect its obligations
hereunder, or (ii) the breach or violation of any law, order, rule, ordinance,
regulation, judgement or decree of an governmental authority having jurisdiction
over the Toscana Apartments or AVALONBAY.
Survival of Representations and Warranties. All
representations and warranties made by or on behalf of AVALONBAY shall survive
the execution and delivery of this Agreement, and any investigation at any time
made by or on behalf of I3S shall not diminish its rights to rely thereon.
1.2 Representations; Warranties and Covenants of I3S.
Authority. To I3S' actual knowledge, (a) this Agreement has
been duly authorized, executed and delivered by I3S and constitutes a valid and
legally binding Agreement of I3S, and (b) neither the execution and delivery of
nor the performance of the provisions of this Agreement shall conflict with or
result in (i) a breach, violation or default under the Certificate of
Incorporation and Bylaws of I3S, if applicable; or any material agreement
binding on I3S that would affect its obligations hereunder; or (ii) the breach
or violation of any law, order, rule, ordinance, regulation, judgement or decree
of an governmental authority having jurisdiction over the Toscana Apartments or
I3S.
Permits, Licenses, Etc. I3S possesses all material permits,
licenses, franchises rights, trademarks, trademark rights, trade names, trade
name rights and copyrights and all other rights, approvals and consents which
are required to conduct the business of the Service at the Toscana Apartments in
conformity with the terms and provisions of this Agreement. Prior to the
performance of any installation work for the System or any component thereof at
the Toscana Apartments, I3S shall, at its sole cost and expense, obtain all
applicable permits, approvals and licenses therefor, if any, and provide copies
of the same to AVALONBAY.
I3S Licenses. I3S possesses all material permits, approvals,
consents and licenses from third parties necessary to provide the Service to the
Toscana Apartments and its residents in conformity with the terms and provisions
of this Agreement.
Survival of Representations and Warranties. All
representations and warranties made by or on behalf of I3S shall survive the
execution and delivery of this Agreement, and any investigation at any time made
by or on behalf of AVALONBAY shall not diminish its rights to rely thereon.
I3S Agreement - PVR New Draft
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<PAGE> 3
ARTICLE 2
TERM
2.1 Term. This Agreement shall have a term of three (3) years from
the Effective Date (the "Initial Term"). The Initial Term shall automatically be
extended for additional one (1) year periods following the expiration thereof
(the "Extension Terms"); provided that, at any time during the Extension Terms,
either party may terminate this Agreement upon no less than one hundred twenty
(120) days' written notice to the other party hereto.
2.2 Termination. In addition to (but not in limitation of) any
other termination rights that may be specified in this Agreement, AVALONBAY
shall have the right to terminate this Agreement (the "AVALONBAY Termination
Right") in the event that AVALONBAY shall elect to sell the Toscana Apartments
and the prospective purchaser thereof requests that AVALONBAY exercise the
AVALONBAY Termination Right, or in the event that AVALONBAY shall undergo a
"Change in Control." The AVALONBAY Termination Right shall be exercisable by
AVALONBAY upon 30 days prior written notice to I3S, which written notice shall
be accompanied by a termination payment in an amount equal to the product of (a)
the number of months then remaining in the Initial Term or any applicable
Extension Term; multiplied by (b) the monthly Subscriber revenues reflected in
the most recent monthly collections report that is provided by I3S to AVALONBAY
in accordance with Exhibit E attached (exclusive of all "Miscellaneous Charges"
(as defined below in Section 8.1) discounted back to the date of termination at
a discount rate of three percent (3%).
As used in this Agreement, the term "Change of Control" shall
mean (a) if any person shall become the beneficial owner, directly or
indirectly, of securities of AVALONBAY representing 50% or more of either the
combined voting power of AVALONBAY's then outstanding securities having the
right to vote in an election of AVALONBAY's directors or of the then outstanding
shares of common stock of AVALONBAY; or (b) if persons who, as of the date of
this Agreement, constitute AVALONBAY's Board of Directors (the "Incumbent
Directors") cease for any reason to constitute at least a majority of
AVALONBAY's Board of Directors, provided that, any person becoming a director of
AVALONBAY subsequent to the date of this Agreement whose election or nomination
for election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Agreement, be considered an Incumbent
Director; or (c) if the stockholders of AVALONBAY shall approve any (1)
consolidation or merger of AVALONBAY or any of its subsidiaries where the
stockholders of AVALONBAY, immediately prior to the consolidation or merger,
would not, immediately after the consolidation or merger, beneficially own,
directly or indirectly, shares representing in the aggregate fifty percent (50%)
of the voting shares of the corporation or other entity issuing cash or
securities in the consolidation or merger (or of its ultimate parent corporation
or other entity, if any); (2) any sale, lease, exchange or other transfer (in
one transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of AVALONBAY;
or (3) any plan or proposal for the liquidation or dissolution of AVALONBAY.
I3S Agreement - PVR New Draft
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<PAGE> 4
ARTICLE 3
EXCLUSIVITY
3.1 Exclusivity. I3S expressly acknowledges and agrees that
AVALONBAY may not, pursuant to the terms of this Agreement, be precluded from
allowing parties providing U.S. Federal Communications Commission tariffed
telecommunications or municipal franchise cable television services to the
Toscana Apartments to deliver high speed Internet access service to the Toscana
Apartments in the event that said party possesses a specific federal or state
statutory, municipal ordinance, or regulatory right to do so. Notwithstanding
the foregoing, AVALONBAY shall not accept commissions or other forms of
compensation or benefits for the marketing of such other parties' Internet
access service at the Toscana Apartments, except as provided herein for the
Service or as otherwise agreed to in writing between AVALONBAY and I3S, and,
except as otherwise required by applicable law, rules and regulations, as in
effect from time to time during the term of this Agreement (collectively,
"Applicable Laws"), AVALONBAY shall not knowingly provide, allow or support, or
knowingly cause to be provided, allowed or supported, on-premise marketing
support or efforts for such other parties' Internet access service. Further,
except as otherwise required by Applicable Laws, during the term of this
Agreement, neither I3S nor AVALONBAY shall knowingly provide, market or support,
or cause to be provided, marketed or supported, directly or indirectly, to the
Toscana Apartments any service that is competitive with the Service to be
provided by I3S pursuant to the terms hereof. Subject to the terms of this
Agreement and the requirements of Applicable Laws, I3S shall have the sole and
exclusive right to market, promote and sell the Service at the Toscana
Apartments during the term of this Agreement. Notwithstanding anything to the
contrary set forth in this Agreement, AVALONBAY shall have the right to charge
such rentals, utility fees, charges and other fees to the residents of the
Toscana Apartments, as may be determined by AVALONBAY in its sole discretion,
except that AVALONBAY shall not charge residents fees for the Service in
addition to the fees charged therefor by I3S, other than pass through charges
for the Service that may be provided to the common areas of the Toscana
Apartments.
ARTICLE 4
AFFIRMATIVE OBLIGATIONS OF AVALONBAY
4.1 General Obligations. In consideration of the mutual agreements
of the parties contained herein, AVALONBAY covenants and agrees to comply with
the covenants and obligations set forth below in this Section 4.1.
(i) Subject to the terms and provisions of this Agreement,
AVALONBAY hereby grants to I3S access or a right of entry to the Toscana
Apartments to provide the Service to the residents thereof; and
I3S Agreement - PVR New Draft
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<PAGE> 5
(ii) to the extent required for the provision of the Service
by I3S to the Toscana Apartments, AVALONBAY shall, at its own expense, grant I3S
access to the equivalent of at least two (2) video channels worth of bandwidth
on the cable distribution facilities, or sufficient bandwidth on the
telecommunications distribution system (the "System") at the Toscana Apartments
to provide the Service to the residents; and
(iii) subject to the requirements of Applicable Laws and
privacy policies implemented by AVALONBAY, AVALONBAY shall use all commercially
reasonable efforts (excluding the payment of money) to assist I3S in securing
access to all occupied and unoccupied units as necessary to provide the Service
so long as I3S shall not enter an occupied unit without the resident's express
approval and I3S shall not enter any occupied unit unless resident or an adult
representative of the resident is present; and
(iv) subject to the terms of this Agreement and the
requirements of Applicable Laws, the employees, agents, or contractors of I3S
shall have reasonable access, at no charge, to the Toscana Apartments and
facilities of AVALONBAY in connection with and to perform any and all work
reasonably necessary to provide the Service at the Toscana Apartments,
including, but not limited to installation, inspection, maintenance, repair or
removal of equipment, or to facilitate the provision of the Service to I3S
customers; provided that, such access shall be at reasonable times during normal
business hours and, if requested by AVALONBAY, when such employees, agents or
contractors of I3S are accompanied by an AVALONBAY representative; and,
provided, further, that, all work to be performed by such I3S employees, agents
and contractors shall be completed in a manner so as to not unreasonably
interfere with the residents of the Toscana Apartments or the operations of
AVALONBAY thereon; and
(v) any and all maintenance or other problems with respect
to the Service will be reported directly to I3S to the point of contact
designated in writing by I3S (the "Contact"); and
(vi) AVALONBAY will promptly inform the Contact of any
material or recurring maintenance problems about which they may obtain actual
knowledge, together with the name and address of the subscriber, if any, who
made the complaint; and
(vii) AVALONBAY will direct the residents to call the Contact
regarding any complaints or technical problems concerning the Service; and
(viii) AVALONBAY will provide a secure air-conditioned space
(the "Equipment Cabinet"), at no charge, to I3S for the storage of all equipment
reasonably necessary to provide the Service at the Toscana Apartments, which
space shall be of such size, in such location, and served with such equipment,
as may be approved by AVALONBAY in its reasonable discretion; provided that, all
equipment and other items that are installed and/or stored within the Equipment
Cabinet shall be at I3S' sole risk, and AVALONBAY shall have no obligation or
liability whatsoever, if such equipment or other items shall be damaged,
destroyed or stolen (with the exception of damages thereto
I3S Agreement - PVR New Draft
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<PAGE> 6
or loss thereof resulting from AVALONBAY's negligence or intentional
misconduct), I3S shall be responsible, at its sole cost and expense, for the
installation and removal of such equipment and other items into and out of the
Equipment Cabinet; and
(ix) AVALONBAY will, at its cost and expense, arrange for the
provision of electricity necessary to power the I3S equipment located in the
Equipment Cabinet; provided that, (a) all such equipment shall be low voltage,
shall not consume excessive amounts of electricity and the use of electricity by
such equipment shall not at any time exceed the capacity of any of the
electrical conductors and equipment currently serving the Toscana Apartments,
(b) I3S shall pay for the cost of any additional wiring and other work which may
be required for the operation by I3S of any equipment requiring excessive
electricity, (c) I3S shall notify AVALONBAY whenever I3S shall connect any
equipment to the Toscana Apartments electrical distribution system, and (d) if
such equipment shall consume excessive amounts of electricity, as determined by
AVALONBAY, in its reasonable discretion, AVALONBAY shall have the right to
require I3S to pay or reimburse AVALONBAY for the third party costs for such
excessive electricity; and
(x) I3S may record a memorandum of this Agreement that is in
form and substance acceptable to AVALONBAY (the "Memorandum"), provided that
such memorandum shall be subject and subordinate to any and all leases,
mortgages, deeds or trusts that encumber the Toscana Apartments at any time
during the terms hereof, and provided, further, that I3S shall provide such
certificates or other statements as AVALONBAY may request in writing from time
to time to acknowledge the subordination of the Memorandum, and provided,
further, that the Memorandum shall contain provisions specifying that the
Memorandum automatically expires, without the need for any further actions by
AVALONBAY or I3S upon the expiration or sooner termination of this Agreement and
I3S shall be obligated to execute and record at its sole cost and expense any
documents or instruments that may be required to release the Memorandum of
record upon the expiration or earlier termination of this Agreement; and
(xi) AVALONBAY is excused from performance under this
Agreement due to force majeure, as defined below in Section 14.8.
4.2 MDU Survey. Promptly after the full execution of this
Agreement, AVALONBAY shall use all commercially reasonable efforts (excluding
the payment of money) to complete and submit an MDU Survey for the Toscana
Apartments, in the form attached hereto as Exhibit A, (or otherwise provide
substantially the same information described in the MDU Survey) and deliver it
to I3S for review and approval, and I3S and AVALONBAY will use all commercially
reasonable efforts (excluding the payment of money) to establish criteria
pursuant to which I3S will be obligated to provide the Service to AVALONBAY for
the Toscana Apartments based on the information therefor that is contained in
the MDU Survey (the "Toscana Apartments Service Criteria"). The Toscana
Apartments Service Criteria shall be specified in the rider to this Agreement to
be entered into by AVALONBAY and I3S.
I3S Agreement - PVR New Draft
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4.3 Marketing. Attached hereto as Exhibit B is the initial
marketing strategy for the promotion of the Service at the Toscana Apartments
that has been jointly developed and agreed to by AVALONBAY and I3S.
ARTICLE 5
AFFIRMATIVE COVENANTS OF I3S
5.1 General Obligations. In consideration of the mutual agreements
of the parties contained herein, I3S covenants and agrees to do and perform, or
cause to be done and performed, the following:
(i) I3S possesses and shall maintain for the term of this
Agreement any and all property, right, title or interest necessary to lawfully
provide the Service as contemplated in this Agreement and to otherwise perform
I3S' obligations hereunder, and all such property, right, title and interest
shall remain free and clear of any adverse claims, interests and liens, other
than liens incurred by I3S in the ordinary course of business; and
(ii) I3S possesses and shall maintain in full force and
effect for the term of this Agreement, all material permits, licenses, consents,
approvals, franchise rights, trademarks, trademark rights, trade names, trade
name rights and copyrights which are required to provide the Service and to
otherwise perform I3S' obligations hereunder; and
(iii) With respect to performance hereunder, I3S agrees to
maintain, at all times during the term of this Agreement, as a minimum,
commercial general liability insurance with minimum limits of $1,000,000 per
occurrence for bodily injury (or death) and property damage liability with
limits of at least $1,000,000 per occurrence [Personal Injury and $1,000,000
General Policy Aggregate (applicable to Commercial General Liability Policies)]
and any additional insurance and/or bonds required by law. Prior to providing
the Service to the Toscana Apartments, I3S shall agrees to furnish certificates
or other acceptable proof of the foregoing insurance coverage for the same and
I3S shall cause AVALONBAY to be named as an additional insured on such insurance
policies. AVALONBAY shall be provided with at least thirty (30) days' prior
notice of the cancellation of any insurance coverage that is required hereunder.
I3S warrants that it meets or exceeds all insurance requirements stated herein
and those that are required by the laws in the state where the applicable
Property is located; and
(iv) I3S's employees, contractors, and agents will, while on
the Toscana Apartments, comply with all Applicable Laws and any reasonable
written rules or regulations of AVALONBAY applicable to the Toscana Apartments
and provided in advance to I3S; and
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(v) I3S shall provide the Service to the residents of the
Toscana Apartments and I3S shall collect revenues directly from its subscribers;
and
(vi) As more specifically described in Exhibits D and E
attached hereto and incorporated herein by reference, I3S shall assume and pay
all operating and capital costs and expenses associated with the provision of
the Service to the Toscana Apartments, including, but not limited to, any and
all:
Monthly recurring private Internet exchange points
Monthly recurring switch maintenance
Monthly recurring POP transport
Monthly recurring Dallas network operations center costs
(including installation costs)
Customer support IP technicians and engineers (NOC, Help Desk
and field personnel)
I3S-specific training
Insurance on I3S capital equipment
I3S-specific travel and entertainment
Switch site equipment (including installation costs)
Peering point routers
Private Internet exchange point hardware (including
installation costs)
I3S network infrastructure equipment
Transport facilities
Backbone transport facilities
Monthly recurring local loop costs
Monthly recurring property maintenance (Lce, Router, DSU/CSU)
Monthly recurring IP headend maintenance
CSR platform and services
Internet browser platform user license
MDU property IP equipment (Lce, Router, DSU/CSU)
IP master headend equipment
Non-recurring local loop transport costs
Customer billing and collections; and
(vii) All revenue sharing, commissions, compensation or other
payments to be paid to AVALONBAY for granting I3S access to the Toscana
Apartments in conformity with the terms of this Agreement shall be the sole and
exclusive responsibility of I3S; and
(viii) I3S shall remove the existing fire wall located at the
Toscana Apartments; and
(ix) I3S is excused from performance under this Agreement
due to force majeure, as defined below in Section 14.8.
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ARTICLE 6
DESCRIPTION OF THE SERVICE
6.1 Description of the Service. During the term of this
Agreement, I3S shall provide, or cause to be provided to the residents of the
Toscana Apartments, the Service, more particularly described and set forth in
Exhibits D and E attached hereto and incorporated herein by reference.
Notwithstanding anything to the contrary set forth in this Agreement, (a) I3S
shall have no rights under or pursuant to this Agreement (whether exclusive or
non-exclusive) to provide analog cable television, digital cable television or
circuit switched telephony service of any nature to the Toscana Apartments
without AVALONBAY's prior written consent; and (b) at all times during the term
of this Agreement, the Service that is required to be provided by I3S to the
Toscana Apartments and its residents shall conform to and be consistent with the
highest comparable standards and capabilities for the Service that are then
generally prevailing throughout the high speed data services industry as the
same may be modified, improved and upgraded from time to time.
ARTICLE 7
DEFINITION OF SERVICE LEVEL STANDARDS
7.1 Definition of Service Level Standards. Subject to the
conditions, qualifications and limitations set forth herein, including, without
limitation, those set forth in Exhibit D and E attached hereto and incorporated
herein by reference, during the term of this Agreement, I3S shall offer, or
cause to be offered, the service level standards pertaining to various aspects
of the Service, as more particularly described and set forth in Exhibits D and E
attached hereto and incorporated herein by reference.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING
8.1 Revenue Allocation. Internet access revenue (the "Revenue")
generated by I3S subscribers at the Toscana Apartments will be paid directly to
I3S and AVALONBAY shall have no responsibility or liabilities for the failure of
any subscriber to pay such internet access fees; provided, however, that, by the
twenty-fifth day of each month I3S shall pay AVALONBAY a revenue sharing fee
(the "Revenue Sharing Fee") calculated as a percentage of Revenue for the
Toscana Apartments, prepaid or not, (exclusive of installation charges, customer
service charges, customer equipment sales or leases, other reasonable and
customary charges that are "passed through" on a no-markup basis and collected
by I3S, and comparable charges [collectively, the "Miscellaneous Charges"])
actually collected by or on behalf of I3S during the immediately preceding month
("Commissionable Revenues") in accordance with the following tables:
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Penetration Revenue Share
----------- -------------
10% or below *
15% or below *
20% or below *
30% or below *
40% or below *
50% or below *
Greater than 50% *
"Penetration" means the total number of I3S subscribers at the
Toscana Apartments divided by the total number of units available for rent at
the Toscana Apartments. Under no circumstances shall I3S increase any of the
Miscellaneous Charges above a level that is usual and customary in the industry
or for the purpose of enabling I3S to reduce the Commissionable Revenues for the
Toscana Apartments. At the option of AVALONBAY, exercisable by at least ten (10)
days prior written notice to I3S, on or after the dates that are twenty-four
(24) months and forty-eight (48) months after the date of execution of this
Agreement, the parties agree to renegotiate the Revenue Sharing Fee and the
definition of Commissionable Revenues in good faith in accordance with the then
current market standards, such that the Revenue Sharing Fee shall be increased
or decreased, and the scope and type of revenue to be included within the
definition of Commissionable Revenues shall be expanded, to be consistent with
then-prevailing market standards. I3S shall obtain AVALONBAY's prior written
approval for any increase or decrease in internet access fees in excess of a
twenty-five percent (25%) variation from the then-current fees for internet
access.
8.2 Restructuring of Payments to AVALONBAY. Each of AVALONBAY and
I3S acknowledge that I3S is the party solely responsible for providing the
Service to the Toscana Apartments pursuant to this Agreement. Notwithstanding
the foregoing, in the event that a determination ("Determination") is made by
either tax counsel to AVALONBAY, or the Internal Revenue Service, with respect
to any taxable year of AVALONBAY that:
(a) with respect to the Toscana Apartments, the payments to
AVALONBAY pursuant to Section 8.1 of this Agreement exceed one percent (1%) of
the gross revenues received by AVALONBAY from all sources with respect to the
Toscana Apartments,
(b) such payments are characterized as income described in
Section 856(d)(7) of the Internal Revenue Code of 1986, as amended, (the "Code")
and,
(c) the sum of(l) the amounts described in (a) above, plus (2)
all other amounts which fail to qualify as income described in Section 856(c)(2)
of the Code exceed ninety-five percent (95%) of the AVALONBAY's gross income
from all sources for such taxable year, then, an amount equal the difference
between (X) the amount described in (a) above and (Y) the maximum amount which
could have been received from I3S pursuant to Section 8.1 above which would not
have exceeded one percent (1%) of AVALONBAY's
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gross revenues with respect to the Toscana Apartments for such taxable year (the
"Excess") shall be treated as having been advanced to AVALONBAY by I3S as a loan
pursuant to a binding agreement that such Excess be repaid to I3S, with interest
at the rate of 6%, compounded semi-annually, within 30 days of the date of such
Determination.
8.3 Customer Access Pricing. With the intent to increase Service
penetration at the Toscana Apartments, I3S, in consultation with AVALONBAY shall
establish the price at which access to the Service is made available to
subscribers. Prior to the provision of the Service, I3S shall provide to
AVALONBAY for AVALONBAY's review the proposed pricing structure and service
quality and content standards for the Service to the Toscana Apartments, which
Service shall be consistent with the requirements therefor, as specified in this
Agreement.
8.4 Branding. With respect to the Service, and the promotion
thereof, I3S shall establish the brand names, logos, labels, trademarks, service
marks and other such identifying promotional characteristics pertaining to the
same throughout the term of this Agreement. At AVALONBAY's request, I3S agrees
to "co-brand" with AVALONBAY's trademarks and service marks; provided that, in
such event, AVALONBAY, shall agree to indemnify I3S from and against losses
incurred by I3S resulting from any trademark or service mark infringement claims
arising in connection therewith, the terms and provisions of such indemnity to
be mutually and reasonably agreed upon by AVALONBAY and I3S.
ARTICLE 9
SPECIFIC SOFTWARE WARRANTIES
9.1 Ownership; Authority. I3S represents and warrants that the
software and other programs, products and items utilized by I3S to provide the
Service and perform its obligations hereunder (collectively, the "Products") are
free and clear of all liens and encumbrances, other than those incurred in the
ordinary course of business, and that it has full power, license and authority
to utilize the rights granted to it with respect to such Products without the
consent of any other person or that such consent has been obtained, and that, to
the knowledge of I3S, the Products utilized hereunder will not infringe or
violate any copyright, trade secret, trademark, patent or other intellectual
property rights of any third party.
9.2 Compliance With Applicable Laws. I3S represents and warrants
that the provision of the Service pursuant to this Agreement shall be in
compliance with all applicable federal and state laws, rules and regulations.
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ARTICLE 10
INDEMNIFICATION
10.1 Intellectual Property Rights Indemnification. I3S shall
defend, indemnify and hold harmless AVALONBAY, its directors, officers,
shareholders, employees and agents and its successors and assigns, from and
against any and all claims, demands, actions, liabilities, losses, damages and
expenses, including, without limitation, settlement costs and reasonable
attorneys' fees, disbursements and litigation costs, arising out of or relating
to any actual or alleged infringement of any third party's trade secrets,
trademark, service mark, copyright, patent or other intellectual property rights
(the "Intellectual Property Rights") in connection with the use of said
Intellectual Property Rights hereunder. I3S's obligation pursuant to the
immediately preceding sentence is subject to the following conditions: (i)
AVALONBAY shall give I3S prompt written notice of all actions, claims or threats
against AVALONBAY, about which AVALONBAY obtains actual knowledge, of
infringement or violation of Intellectual Property Rights; (ii) AVALONBAY shall
permit I3S to elect to assume complete control of such claims at its sole
discretion and expense; and (iii) AVALONBAY shall reasonably cooperate with I3S
in defending against claims, including making known or available to the
indemnifying party, upon reimbursement of all costs associated with provision or
reproduction of, all records and document pertaining to claims, excluding
information, records and documents that are confidential or proprietary to
AVALONBAY. Notwithstanding the foregoing, (a) AVALONBAY's failure to promptly
notify about any such actions, claims or threats shall not impair I3S's
indemnification obligations under this Section 10.1 unless I3S is materially
prejudiced thereby; (b) under no circumstances shall I3S have the right to enter
into any settlement of any such action, claim or threat against AVALONBAY
without AVALONBAY's prior consent thereto unless pursuant to such settlement,
AVALONBAY shall be fully and completely released from any and all liabilities
associated with the subject of such action, claim or threat, AVALONBAY does not
have any ongoing obligations with respect thereto, and AVALONBAY has no
obligations to pay any sums to any party in connection therewith; and (c)
AVALONBAY shall have the right to participate in the defense of such action,
claim or threat with its own counsel at its own expense.
10.2. Indemnification. In addition to the indemnification specified
above in Section 10.1, each party shall indemnify the other (and its directors,
officers, shareholders, employees and agents and its successors and assigns)
against all claims, demands, actions, liabilities, losses, damages, and
expenses, including, without limitation, settlement costs and reasonable
attorneys' fees, disbursements and litigation costs resulting from injury to or
death of any person (including injury to or death of their employees), loss of
or damage to tangible real or tangible personal property (including damage to
their property) or the environment, or other loss, cost or expense, but only to
the extent that such claims, demands, actions, liabilities, losses, damages or
expenses were proximately caused by its breach of this Agreement or by any
negligent act or omission, willful misconduct or violation of law on the part of
the party from whom indemnity is sought (the "Indemnitor"), its agents,
employees, subcontractors or assignees. Indemnitor shall have the right to
assume defense of the claim with counsel
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reasonably acceptable to the indemnitee. The indemnitee shall be entitled to
participate in the defense of the claim with its own counsel at its sole
expense. The obligations of the Indemnitor pursuant to the immediately preceding
sentence are subject to the following conditions: (i) the indemnitee shall give
the Indemnitor prompt written notice of all actions, claims or threats against
the indemnitee that are covered by the foregoing indemnitee; (ii) the indemnitee
shall permit the Indemnitor to elect to assume complete control of such claims
at its sole discretion and expense; and (iii) the indemnitee shall reasonably
cooperate with the Indemnitor in defending against claims, including making
known or available to the indemnifying party, upon reimbursement of all costs
associated with provision or reproduction of, all records and document
pertaining to claims, excluding information, records and documents that are
confidential or proprietary to the indemnitee. Notwithstanding the foregoing,
(a) the indemnitee's failure to promptly notify about any such actions, claims
or threats shall not impair the Indemnitor's indemnification obligations under
this Section 10.2 unless the Indemnitor is materially prejudiced thereby; (b)
under no circumstances shall the Indemnitor have the right to enter into any
settlement of any such action, claim or threat against the indemnitee without
the indemnitee's prior consent thereto unless pursuant to such settlement, the
indemnitee shall be fully and completely released from any and all liabilities
associated with the subject of such action, claim or threat, the indemnitee does
not have any ongoing obligations with respect thereto, and the indemnitee has no
obligations to pay any sums to any party in connection therewith; and (c) the
indemnitee shall have the right to participate in the defense of such action,
claim or threat with its own counsel at its own expense.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 Confidential Information. Information to be held in confidence
shall be clearly marked "Proprietary" or "Confidential." Information which is
conveyed orally shall be deemed confidential only if prior to disclosure it is
indicated as being confidential and written confirmation identifying the
confidential or proprietary information is provided to the receiving party
within ten (10) business days after it was discussed orally. I3S expressly
acknowledges that all information concerning the residents at the Toscana
Apartments shall be deemed confidential and proprietary to AVALONBAY, unless
AVALONBAY otherwise so specifies in writing.
11.2 Restrictions. Each party shall use all commercially reasonable
efforts to maintain the confidentiality of such Confidential Information and not
show or otherwise disclose such Confidential Information to any third parties,
including, but not limited to, independent contractors and consultants, without
the prior written consent of the disclosing party.
11.3 Authorized Disclosures. Notwithstanding the obligations
described in Section 11.2 above, neither party shall have any obligation to
maintain the confidentiality of any Confidential Information which: (i) is or
becomes publicly available by other than
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unauthorized disclosure by the receiving party; (ii) is independently developed
by the receiving party; or (iii) is received from a third party who has lawfully
obtained such Confidential Information without a confidentiality restriction and
except that each party shall have the right to disclose the Confidential
Information (a) to the extent required by Applicable Laws (including, without
limitation, securities laws or the rules of the exchange where AVALONBAY's
securities are listed or traded), (b) to the extent required in connection with
the performance by any party of its obligations under this Agreement or to
pursue its rights and remedies under this Agreement, (c) to any party's lenders,
investors, principals, officers, directors, underwriters, placement agents or
third party consultants(and any person who is being furnished Confidential
Information because he or she may prospectively secure a transaction),
including, without limitation, attorneys and accountants; or (d) by AVALONBAY,
to any prospective purchaser of the Toscana Apartments. Except as otherwise
permitted by this Section 11.3, each party shall use the Confidential
Information solely for purpose of performing its obligations under this
Agreement. If required by any court of competent jurisdiction or other
governmental authority, the receiving party may disclose to such authority,
data, information or material involving or pertaining to Confidential
Information to the extent required by such order, provided that the receiving
party shall first have used all commercially reasonable efforts to obtain a
protective order reasonably satisfactory to the disclosing party sufficient to
maintain the confidentiality of such data, information or materials.
11.4 Limited Access. Each party shall use all commercially
reasonable efforts to limit the use and access of Confidential Information to
such party's bona-fide employees or agents (including attorneys and accountants)
who have a need to know such information for purposes of conducting the
receiving party's business. Each party shall notify all employees and agents and
all persons listed in Section 11.3(c) who have access to Confidential
Information or to whom disclosure is made that the Confidential Information is
the confidential, proprietary property of the disclosing party and shall
instruct such employees and agents to maintain the Confidential Information in
confidence.
11.5 Continuing Obligations. Each party's obligations under this
Article 11 shall survive the termination of this Agreement for two (2) years
thereafter.
11.6 Confidentiality of Terms. Unless approved in advance by the
non-disclosing party, except for the existence of this Agreement, the terms and
provisions of this Agreement shall remain strictly confidential and shall not be
disclosed to any third party other than a party's attorneys, accountants, other
professional advisers, potential purchasers of the Toscana Apartments or of
AVALONBAY; provided that, the foregoing limitations shall not apply to
disclosures of the terms of this Agreement that are required by applicable law
or in order for any party hereto to enforce the terms hereof or to pursue its
rights or remedies hereunder.
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ARTICLE 12
DEFAULT; TERMINATION
12.1 Default. Upon the occurrence of any of the following events, a
party shall be deemed to be in default under this Agreement:
(a) Material breach of any warranty or misrepresentation by
the defaulting party;
(b) Material failure to perform the defaulting party's
obligations hereunder, including, but not limited to, with respect to I3S, its
failure to (i) provide the Service in accordance with the requirements hereof
and to maintain the service standards set forth in Section 7.1 hereof, and (ii)
make the payments to AVALONBAY set forth in Section 8.1 hereof.
(c) The defaulting party's ceasing to conduct business in the
normal course, insolvency, the making of a general assignment for the benefit of
its creditors, suffering or permitting the appointment of a receiver or similar
officer for its business or assets or availing itself of, or becoming subject
to, any proceeding under the United States Federal Bankruptcy Laws or any
federal or state statute relating to solvency or the protection of the rights of
creditors; or
(d) Making of any warranty, representation, statement or
response in connection with this Agreement which was untrue in any material
respect on the date it was made by the defaulting party.
12.2 Remedies. In the event the defaulting party fails to cure any
default set forth hereunder within thirty (30) days, except for defaults
pursuant to Section 12.1(b)(ii), which shall have a cure period of ten (10)
business days and defaults pursuant to Section 12.1(c), which shall have a cure
period of thirty (30) days, after written notice of such default by the
non-defaulting party specifying the acts or omissions constituting the default
with reference to the sections of this Agreement which have allegedly been
breached, the non-defaulting party may terminate this Agreement without further
obligation on the part of the non-defaulting party (except for I3S' obligations
to pay to AVALONBAY all sums that are due from I3S pursuant to Section 8.1),
and/or pursue claims at law or in equity against the defaulting party, including
without limitation, the remedy of specific performance, the parties hereby
agreeing that the remedy of specific performance is appropriate hereunder
because the remedies available at law may be inadequate to fully and effectively
make the non-defaulting party hereunder whole.
12.3 Failure to Exercise Remedy. The remedies set forth above are
cumulative, but the non-defaulting party is under no obligation to exercise any
such remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or release the
defaulting party from its obligations under this Agreement.
12.4 Effect of Termination. Termination of this Agreement shall not
impair either party's then accrued rights, obligations, liabilities or remedies
hereunder.
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ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 Notice. All notices pursuant to this Agreement shall be in
writing and may be personally delivered or sent by overnight courier or by
Certified or Registered mail. All notices personally delivered shall be deemed
delivered at the time of such delivery. All notices sent by Certified or
Registered mail shall be deemed delivered five (5) days after deposited in the
US mail. All notices sent by overnight courier shall be deemed made one (1)
business day after delivery to such courier service. Any party may designate a
change of address upon ten (10) days written notice.
If to I(3)S, to:
I(3)S, Inc.
1440 Corporate Drive
Irving Texas 75038
Attn: Mr. Jim Price, CEO
with a copy to:
I(3)S, Inc.
1440 Corporate Drive
Irving Texas 75038
Attn: Matt Hutchins, President
If to AVALONBAY, to:
AvalonBay Communities
2900 Eisenhower Avenue
Third Floor
Alexandria, Virginia 22314
Attn: Ms. Lyn Lansdale,
Vice President-Ancillary Services
with a copy to:
AvalonBay Communities
2900 Eisenhower Avenue
Third Floor
Alexandria, Virginia 22314
Attn: Edward M. Schulman, Esq.,
General Counsel
13.2 Public Disclosures. All media releases, public announcements,
and public disclosures by either party of its employees, agents or
representatives relating to this Agreement or the subject matter hereof,
excluding any announcement beyond the control of this disclosing party, will be
subject to the reasonable approval by the non-disclosing party in writing prior
to release.
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ARTICLE 14
MISCELLANEOUS
14.1 Entire Agreement. This Agreement, together with the recitals,
schedules, attachments and exhibits attached hereto or referred to herein,
constitutes the entire Agreement and understanding among the parties hereto with
respect to the provision of the Service at the Toscana Apartments and is the
final expression of their Agreement on that subject and no evidence of oral or
other prior written promises shall be binding. All other prior agreements or
understandings related to the subject hereof among the parties, whether written
or oral, shall be null and void and of no further force and effect upon the
execution of this Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
14.2 Incorporation by Reference. The recitals, schedules, exhibits
and attachments referred to herein or attached hereto are hereby incorporated in
and to this Agreement and made a part hereof by this reference.
14.3 Amendment; Modification. This Agreement may not be
supplemented, amended, modified or otherwise altered except by written
instrument executed by all the parties hereto and no course of dealing or trade
usage among or between the parties shall be effective to supplement, amend,
modify or alter this Agreement.
14.4 Waiver. The failure to enforce or to require the performance
at any time of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either the
validity of this Agreement, any part hereof or the right of any party thereafter
to enforce each and every provision in accordance with the terms of this
Agreement.
14.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITh THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO ITS CONFLICTS OR CHOICE OF LAWS.
14.6 Continuity of Contract. If any severable provision of this
Agreement is deemed invalid or unenforceable by any judgment of a court of
competent jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent, unless to do so would substantially
impair the underlying purposes of this Agreement.
14.7 Captions. The captions appearing in this Agreement are
included solely for convenience of reference and shall not be construed or
interpreted to affect the meaning or interpretation of this Agreement.
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14.8 Force Majeure. Neither party shall be responsible for any
failure to comply with or for any delay in performance of the terms of this
Agreement, including, but not limited to, delays in delivery, where such failure
or delay is directly or indirectly caused by or results from events of force
majeure beyond the control of either party. These events shall include, but not
be limited to, fire, flood, earthquake, accident, civil disturbance, war, acts
of God, or acts or government.
14.9 Hiring Prohibited. During the term of this Agreement and for a
period of one (1) year thereafter, neither party shall solicit for hire any
employee of the other party who has performed services under this Agreement.
14.10 Dispute Resolution Procedures. Except for disputes, claims or
controversies pertaining to Article 11, in the event of any dispute, claim or
controversy arising out of or relating to the provisions of this Agreement and
their interpretation or implementation (a "Dispute"), the following procedures
(the "Dispute Resolution Procedures") shall be the exclusive procedures used by
the parties to resolve such Dispute:
(a) Negotiations. The parties will attempt in good faith to
resolve the Dispute through negotiation. Any party may initiate negotiations
with regard to a Dispute by providing Notice (an "Initiation Notice") in letter
form to the other party, setting forth in reasonable detail the subject of the
Dispute and the relief requested. The party receiving such notice shall respond
within five (5) business days with a written statement of such party's position
on, and recommended solution to, the Dispute. If the Dispute is not resolved by
this exchange of correspondence, then representatives of each party (who shall
be senior officers of the parties, and who shall have either full settlement
authority or full authority to negotiate the terms of a settlement and to
present such terms to such party's Board of Directors for approval), will meet
at a mutually agreeable time and place within five (5) business days of the date
of the Initiation Notice in order to exchange relevant information and
perspectives, and to attempt to resolve the Dispute.
(b) Mediation. In the event that any Dispute is not resolved
within fifteen (15) days from the date an Initiation Notice with respect thereto
is first given, then any party may thereafter commence mediation with respect to
such Dispute and any related Disputes that have become the subject of such
negotiations by providing to J.A.M.S/ENDISPUTE and the other party a written
request for mediation, setting forth the subject of the Dispute(s) and the
relief requested. The parties will cooperate with J.A.M.S/DISPUTE and with one
another in selecting a mediator from J.A.M.S/ENDISPUTE's panel of neutrals, and
in scheduling the mediation proceedings. The parties covenant that they will
participate in the mediation in good faith, and that the parties will share
equally in its costs (exclusive of such party's own legal fees and other costs).
(c) Confidential and Privileged Information. All offers,
promises, and statements, whether oral or written, by any of the parties, their
agents, employees, experts and attorneys, and by the mediator and any
J.A.M.S/ENDISPUTE employees, made in
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the course of the negotiations initiated pursuant to Section 14.10(a) above or
the mediation provided in Section 14.10(b) above, are confidential, privileged
and inadmissible for any purpose, including impeachment, in any arbitration,
litigation or other proceeding involving the parties, provided that evidence
that is otherwise admissible or discoverable shall not be rendered inadmissible
or non-discoverable as a result of its use in such negotiations or mediation.
(d) Binding Arbitration.
(i) The parties shall have the right, following the
initial mediation session initiated pursuant to Section 14.10(b) above, to
submit to J.A.M.S/ENDISPUTE, or its successor, for final and binding arbitration
pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq., any
Dispute that has been submitted for mediation pursuant to Section 14.10(b)
above, and that has not been resolved by the 45th day after the date of the
Initiation Notice giving rise to negotiations or mediation with respect to such
Dispute. The mediation proceedings may continue after the commencement of
arbitration if the parties so desire. Unless otherwise agreed by the parties,
the mediator shall be disqualified from serving as an arbitrator in the case.
(ii) A demand for arbitration pursuant to Section
14.10(d)(i) shall be made by a party by filing a written demand with
J.A.M.S/ENDISPUTE with a copy to the other parties. The arbitration will be
conducted in accordance with the provisions of J.A.M.S/ENDISPUTE's Comprehensive
Arbitration Rules and Procedures in effect at the time of filing of the demand
for arbitration. The parties will cooperate with J.A.M.S/ENDISPUTE and with one
another in selecting an arbitrator from J.A.M.S/ENDISPUTE's panel of neutrals,
and in scheduling the arbitration proceedings. Each party covenants that it will
participate in the arbitration in good faith, and that it will share equally in
the costs of arbitration (exclusive of such party's own legal fees and other
costs).
(iii) The award of the arbitrator shall upon
application of any party, with Notice thereof to the party, be entered as a
final and conclusive judgment in any state or federal court with jurisdiction.
The provisions of this Section 14.10(d) may be enforced by any court of
competent jurisdiction, and the party seeking enforcement shall be entitled to
an award of all costs, fees and expenses, including attorneys fees, to be paid
by the party against whom enforcement is ordered.
(iv) By executing this Agreement, the parties have
expressly agreed to (A) have all Disputes that cannot be resolved pursuant to
Sections 14.10(a) and/or 14.10(b) above decided by neutral arbitration; (B)
waive any rights they might possess to have those matters litigated in a court
or jury trial; (C) waive their judicial rights to discovery and appeal, except
to the extent that they are specifically provided for under this Agreement. Any
party that refuses to submit to arbitration in conformity with this Section
14.10(d) may be compelled to arbitrate under federal or state law. Each party
hereby acknowledges and agrees that they are voluntarily, and with advice of
counsel, agreeing to the arbitration provisions set forth in this Section
14.10(d).
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Notwithstanding the foregoing, the party secured by any deed of trust shall have
the right to recognize this Agreement. In the event of any foreclosure sale
under such deed of trust, this Agreement shall continue in full force and effect
at the option of the party secured by such deed of trust or the purchaser under
any such foreclosure sale. I3S covenants that it will, at the written request of
the party secured by any such deed of trust, execute, acknowledge and deliver
any instrument that has for its purpose and effect the subordination to said
deed of trust of the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
I3S, Inc. AvalonBay Communities, Inc.
By: /s/ MATTHEW HUTCHINS By: /s/ LYN LANSDALE
-------------------------- ----------------------------------
Matthew Hutchins Lyn Landsdale
President Vice President Ancillary Services
Date: 6/26/99 Date: July 9, 1999
------------------------ --------------------------------
LIST OF EXHIBITS
EXHIBIT A: MDU Survey
EXHIBIT B. Marketing Strategy
EXHIBIT C: Sample Memorandum of this Agreement
EXHIBIT D: Description of High Speed Data Services Provided by I3S
EXHIBIT E: Service Level Agreement
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EXHIBIT A - MDU SURVEY
OPERATOR
NAME
--------------------------------------------------------------------------
CONTACT PERSON
----------------------------------------------------------------
ADDRESS
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TELEPHONE NO.
------------------------------------------------------------------
FAX NO.
------------------------------------------------------------------------
E-MAIL ADDRESS
-----------------------------------------------------------------
OWNER
NAME
--------------------------------------------------------------------------
CONTACT PERSON
----------------------------------------------------------------
ADDRESS
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TELEPHONE NO.
------------------------------------------------------------------
FAX NO.
-----------------------------------------------------------------------
E-MAIL ADDRESS
----------------------------------------------------------------
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EXHIBIT A - MDU SURVEY
PROPERTY
CONTACT PERSON
----------------------------------------------------------------
ADDRESS
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TELEPHONE NO.
------------------------------------------------------------------
FAX NO.
-----------------------------------------------------------------------
E-MAIL ADDRESS
----------------------------------------------------------------
NUMBER OF UNITS
----------------------------------------------------------------
NUMBER OF BUILDINGS
-----------------------------------------------------------
AGE OF BUILDINGS
-------------------------------------------------------------
CURRENT OCCUPANCY
-------------------------------------------------------------
MONTHLY RENTAL FOR ONE BEDROOM
------------------------------------------------
MONTHLY RENTAL FOR TWO BEDROOM
------------------------------------------------
MONTHLY RENTAL FOR THREE BEDROOM
----------------------------------------------
FULL LEGAL DESCRIPTION OF THE PROPERTY SUFFICIENT TO RECORD MEMORANDUM OF RIGHT
OF ENTRY AGREEMENT:
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EXHIBIT A - MDU SURVEY
CATV/MATV SITE SURVEY INFORMATION
HOW LONG HAVE YOU BEEN PROVIDING SERVICE AT THIS LOCATION
-------------------------------------------------
CHANNEL LINE UP AND PRICING
-------------------------------------------------
BASIC PENETRATION
-------------------------------------------------
PAY PENETRATION
-------------------------------------------------
AGE OF CABLE DISTRIBUTION PLANT
-------------------------------------------------
MANUFACTURER AND TYPE OF CABLE
-------------------------------------------------
MANUFACTURER AND TYPE OF SPLITTERS AND OTHER CONNECTORS
-------------------------------------------------
LOOP THROUGH OR HOME RUN WIRING
-------------------------------------------------
REMAINING TERM ON CONTRACT TO SERVE THE PROPERTY
-------------------------------------------------
ANY CLAIMS OF BREACH OR DEFAULT ON THE CONTRACT
-------------------------------------------------
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EXHIBIT A - MDU SURVEY
Certification
I certify that, to my actual knowledge (without duty of
inquiry), the statements made in this survey are true and correct in all
material respects.
------------------------------------------
Name:
Title:
Company:
Date:
------------------------------------
Certification
I3S certifies that prior to making any investment at the
above-described Property, I3S shall conduct such investigations and due
diligence studies at the Toscana Apartments (subject to the Owner's prior
approval thereof) as I3S shall deem necessary or appropriate to satisfy itself
that such investment is prudent for I3S, and I3S is not relying on the foregoing
survey information in making such determination to invest at the referenced
Property.
I3S, Inc.
By:
----------------------------------------
Matthew Hutchins
President
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EXHIBIT B - INITIAL MARKETING STRATEGY
a) I3S shall be allowed limited access to the Toscana
Apartments, including the multipurpose room and lobby on the Toscana Apartments,
to solicit residents in order to market Services subject to all applicable laws
and ordinances regarding solicitation, subject to approval by Owner. AVALONBAY's
representatives shall reasonably cooperate with I3S in its advertising and
promotional efforts including Main Lobby demonstrations, displays, and
distribution of materials. I3S shall receive permission from AVALONBAY's
representative prior to all solicitation in the multi-purpose room or lobby.
Direct solicitation, including door to door, will not be allowed.
b) AVALONBAY agrees to display I3S collateral material
(provided that I3S provides such material to AVALONBAY and such material does
not violate any of AVALONBAY's applicable laws and ordinances regarding
collateral material) in high-visibility locations on the Toscana Apartments,
including the leasing and management office as reasonably approved by
AVALONBAY.
c) AVALONBAY agrees to include I3S marketing materials in
literature provided to all new Residents (provided that I3S provides such
material to AVALONBAY and such material does not violate any of AVALONBAY's
applicable laws and ordinances regarding marketing material). Such material to
include programming guides, available services, user guides and customer service
information.
d) Subject to limitations of applicable laws or regulations:
upon request by I3S, AVALONBAY will provide via facsimile to I3S's sales and
installation specialist referenced described below), the addresses of new
move-ins on a monthly basis. If AVALONBAY requests, I3S will provide a list of
those units that have subscribed for services with I3S via facsimile or regular
mail.
e) I3S will provide the staff of the Toscana Apartments with
marketing materials to promote Services to current residents and to prospective
residents. I3S will assign a sales and installation specialist from its staff to
assist AVALONBAY in the marketing of I3S's Services to residents of the Toscana
Apartments.
f) AVALONBAY will provide an on-site leasing staff to
introduce I3S's services to all new Residents, using marketing and enrollment
material (provided such material does not violate any of AVALONBAY's applicable
laws and ordinances regarding marketing and enrollment material) provided by
I3S. Training of the leasing staff is to be conducted by I3S during normal
business hours.
g) If AVALONBAY becomes aware of any illegal access of I3S's
services, AVALONBAY agrees to advise I3S about residents who are illegally
obtaining Service. If access to an individual unit is needed to confirm such
illegal use, AVALONBAY will shall cooperate to the extent permitted by State,
Federal or any Landlord Laws governing the access to an individual unit.
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h) I3S shall provide Service at no cost or expense to one
employee per every 100 apartments located at the Toscana Apartments to the
extent such employees live and work on-site to help promote the Service
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EXHIBIT C - MEMORANDUM OF AGREEMENT
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Matthew Hutchins
President
I3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
MEMORANDUM OF EXISTENCE OF AGREEMENT
A revocable license has been granted by Avalon Bay Communities,
("Grantor"), the owner of record of the premises located at 1257 Lakeside Drive,
Sunnyvale, CA 94086 to I3S ("Grantee") under a certain Master High Speed Data
Services Marketing Agreement dated July 9th, 1999 by and between Grantor and
Grantee (the "Agreement"). Subject to the terms and provisions of the
Agreement, the license permits Grantee, among other things, to provide high
speed data services, as described in the Agreement, and to engage in other
activities contemplated by the Agreement at the Property described herein. This
Agreement runs with the land and terminates on the earlier of (i) three (3)
years after the above date, or (ii) any termination of the Agreement in
conformity with the terms and provisions thereof. Such earlier termination may
be evidenced by the recording of an Affidavit executed by Grantor stating that
such termination has occurred. Which Affidavit shall have the effect of
vacating this Memorandum of record without the need for any further action by
the Grantor or the Grantee. As used in the Agreement, the term "Property" means
that the real property consisting of approximately 709 units located in the
city/town/village of Sunnyvale, County of__________, State of California, at the
address commonly known as the Toscana Apartments, 1257 Lakeside Drive,
Sunnyvale, California. Whose legal description is as follows:
In the event of any conflict between the terms and conditions of this Memorandum
of Existence and the terms and conditions of the Agreement, the Agreement shall
govern and control. The parties agree that the sole purpose of this Memorandum
is to provide notice of the Agreement.
The undersigned personally warrants and represents that he/she has the authority
to execute this Memorandum on behalf of the Grantor and the information stated
in this Memorandum is true and accurate in all material respects.
Executed this ______ day of _______________,199__.
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GRANTOR:
--------------------------------------------
A
----------------------------------------------
BY:
-------------------------------------------------
NAME:
------------------------------------------------
TITLE:
----------------------------------------------
STATE OF
---------------
COUNTY OF
---------------
On ___________, 199 , before me, ________________, personally appeared
________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by his/her/their signature(s)
on the instrument and the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
------------------------------------(seal)
GRANTEE: I3S, Inc.
A Texas corporation
BY:
---------------------------
NAME:
------------------------------------
TITLE:
------------------------------------
STATE OF
---------------
COUNTY OF
---------------
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On _________________ 199 , before me, ____________, personally
appeared ________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by his/her/their signature(s)
on the instrument and the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
------------------------(seal)
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EXHIBIT B
MARKETING STRATEGY
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EXHIBIT D
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I3S
The I3S HSDS is a data network service that provides transport and peering
functions of Internet Protocol (IP) data traffic, including, without limitation:
Broadband access networks on MDU properties composed of one or more
broadband access technologies including but not limited to coaxial or hybrid
fiber coaxial (HFC) cable television distribution systems, twisted-pair
copper-wire-based telephone distribution systems, twisted-pair copper-wire-based
local area network distribution systems and fiber-optic-based local area network
distribution systems;
Local loop networks that connects the broadband access networks on each MDU
property to the I3S regional points-of-presence (POPs) in each metropolitan area
served by I3S;
Regional point-of-presence networks that connects the POPs to the I3S.net
national IP backbone;
A national IP backbone consisting of broadband communication facilities for
the transport of data among I3S POPs and public and private Exchange Points
where data and Internet routing information will be exchanged with other
networks peered with I3S.net as part of the global Internet;
A national Network Operations Center (NOC).
Computer services to be agreed to by AVALONBAY and I3S that include, without
limitation:
Membership system for user authentication and authorities;
Personalization services for customizing content to user preferences;
Internet mail (SMTP and POP3);
Internet newsgroups (NNTP) composed of approximately 25,000 or more
newsgroups;
Internet World Wide Web (HTTP) services;
Internet chat (IRC and MIRC);
Conferencing and collaboration bridges;
Streaming multimedia services such as Microsoft's NetShow and Progressive
Network's RealMedia;
A branded suite of client software that include:
Web browse;
Mail reader;
News reader;
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Chat client;
Conferencing and collaboration client;
Appropriate plug-ins and ActiveX controls.
Customer service functions to be agreed upon by AVALONBAY and I3S that
include, without limitation:
A National Customer Care Center;
A telephone and network-based customer help desk;
A Trouble Reporting facility;
A customer billing system.
Multimedia-rich content that showcases the capabilities of HSDS to be agreed
upon by AVALONBAY and I3S that include, without limitation:
Original content created by I3S;
Aggregated content created by others but licensed by I3S and improved for
uses in a HSDS system;
Aggregated content created by others but licensed by I3S and used
unimproved.
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Requirements
Related to Broadband Access Networks
Utilizing Multiple Broadband Access Technologies (mBAT)
AVALONBAY's Responsibilities (AVALONBAY shall use all commercially reasonable
efforts to perform these responsibilities.)
Provide, or cause to be provided, as mutually agreed between the parties,
suitable physical-layer coaxial-cable, twisted-pair copper-wire, or fiber-optic
distribution plant on each AVALONBAY property that will meet or exceed I3S
specifications;
I3S Responsibilities:
Provide technical specifications for suitable physical-layer distribution plants
for I3S's HSDS;
Inspect and accept or reject, according to the mutually agreed specifications,
physical-layer distribution plants proposed by AVALONBAY as suitable for I3S's
HSDS;
Maintain, or cause to be maintained, physical layer distribution plants built
and owned by AVALONBAY that are used for I3S's HSDS;
Install, maintain and operate data delivery equipment for each property offering
HSDS (including, without limitation, replacement of existing equipment, should
the same cease to function or require repair). Installation and maintenance will
meet or exceed manufacturer's specifications and the requirements set forth in
the Agreement. Through itself or its agents, AVALONBAY will assist I3S with
pre-installation engineering planning and site survey questionnaires;
Integrate all data delivery equipment for each property into the I3S Element
Management System portion of its Network Management Platform using SNMP and/or
RMON. I3S will monitor all data delivery equipment twenty-four hours per day,
seven day per week (24x7);
Assume the cost (or replacement cost) of the acquisition of all data
communication equipment necessary to provide HSDS and to provide termination and
delivery of HSDS between the Subscriber and the I3S POP in each Market;
Without limitation on the foregoing or the attached SLA, both parties
acknowledge that the end to end performance of HSDS is probabilistic and subject
to anomalous short lived usage patterns by Subscribers which will affect both
the utilization of the local loop circuits and the I3s.net national backbone
from time to time;
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Configure and operate all data delivery equipment to efficiently integrate with
the rest of the I3s.net network;
Subscribers will not be required by I3S to install or operate a custom web
browser; and
Subject to all applicable laws and regulations, Subscribers will have voluntary
access to all public Internet sites and services.
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ADDITIONAL REQUIREMENTS
RELATED TO BROADBAND ACCESS NETWORKS
UTILIZING CABLE TELEVISION DISTRIBUTION SYSTEMS
AVALONBAY's Responsibilities (These responsibilities apply only to the extent
HSDS is to be provided by I3S by means of an interconnection to a third party's
CATV distribution plant on an applicable property. AVALONBAY shall use all
commercially reasonable efforts to perform these responsibilities.):
Cause CATV infrastructure to comply with FCC requirements;
Upgrade, or cause to be upgraded, property CATV infrastructure to provide
bi-directional cable delivery to all subscribers;
Cause the upgraded bi-directional CATV infrastructure to exceed the minimal
operational requirements of the I3S cable modem system, which are:
Minimum Cable Television Network Requirements for i3s.net HSDS
Value
Amplitude variations inband
Forward channel
Return channel
5 dB total
5 dB total
Group delay variation inband
Forward channel
Return channel
60 nsec/MHz, 240 nsec total
200 nsec/MHz, 800 nsec total
Maximum tap to tap variation
27dB
Dynamic range on receiver
- -15 dBmV to +15 dBmV
Maximum return/upstream loss
49 DB
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Minimum carrier to noise
22 dB
Minimum carrier to interference
25 dB
Provide, or cause to be provided, two (2) six MHz video channels within the CATV
infrastructure bandwidth on Internet served properties; one (1) in the spectrum
from 54 MHz to 750 MHz and one (1) in the 5MHz to 50 MHz spectrum; and
reserve another two (2) additional video channels, in the same spectrums for
future expansion as Subscriber penetration on the property increases; and
Designate, or cause to be designated, an engineering point of contact for each
cable company operating the cable television distribution system for I3S Network
Operations Center (NOC) to report problems or failures related to the cable
television distribution system twenty-four hours per day, seven days per week
(24x7).
I3S Responsibilities:
Use the cable modem system, and certain network management features that it
provides, to monitor the availability and quality of AVALONBAY's property
network (its CATV plant) and the Equipment;
Report to AVALONBAY's designated engineering point of contact any problems
observed by the I3S NOC in the course of operating the cable modem system
network management features; and
Report to AVALONBAY's designated engineering point of contact any problems
determined by Subscriber contact in the course of operating the Subscriber Help
Desk.
Local Loop Characteristics
AVALONBAY's Responsibilities
Provide, or cause to be provided, proper space, security and power for Local
Loop termination and transmission equipment necessary to provide Internet
delivery and other data services on the property.
I3S Responsibilities:
Install, maintain and operate local loop termination and transmission equipment
necessary for each property offering HSDS. Installation and maintenance will
meet or exceed manufacturer's specifications and the requirements set forth in
the Agreement.
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Through itself or its agents, AVALONBAY will assist I3S with pre-installation
engineering planning and site survey questionnaires;
Integrate all local loop termination and transmission equipment equipment for
each property into the I3S Element Management System portion of its Network
Management Platform using SNMP and/or RMON. I3S will monitor all local loop
termination and transmission equipment twenty-four hours per day, seven day per
week (24x7);
Assume the cost of the acquisition of all local loop termination and
transmission equipment necessary to provide HSDS and to provide termination and
delivery of HSDS between the Property and the I3S POP in each Market;
Order, provision, install and maintain local loop communications links between
each property and I3S POP in each Market with a bandwidth of not less than 1.544
mb/s (T1). In addition, as the number of Subscribers on each property increases,
scale the local loop bandwidth so that each simultaneously active user averages
approximately 1 mb/s ninety eight percent (98%) of the time;
Without limitation on the foregoing or the attached SLA, both parties
acknowledge that the end to end performance of HSDS is probabilistic and subject
to anomalous short lived usage patterns by Subscribers which will affect both
the utilization of the local loop circuits and the I3S.net national backbone
from time to time; and
Configure and operate all local loop termination and transmission equipment to
efficiently integrate with the rest of the I3s.net network.
Point of Presence
Features and Establishment Requirements
I3S Responsibilities:
Acquire, install and maintain data communication equipment at each POP for the
termination and transmission of HSDS from properties to the i3s.net national
network backbone;
I3S will determine the location of its main presence in each Market to be
consistent with its own operational practices (which currently include
co-locating within its carrier's central offices in each Market);
Acquire, install, maintain and operate Internet peering relationships at public
and private Internet Exchange Points (EP) with other Tier 1 Internet backbone
networks throughout the United States;
Acquire, install, maintain and operate computers and software to provide Network
Management and provide Internet services for Subscribers. To provide these
functions,
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I3S will employ a combination of locally-distributed-to-the-POP servers as well
as globally centralized servers consistent with its overall network design and
operational practices; and
Order, provision, install, maintain and operate data transport/carriage pathways
from each POP, EP and/or NOC with a bandwidth not less than 45 mb/s (DS-3)
interconnection. In addition, as the number of Subscribers on Market increases,
scale the bandwidth so that each simultaneously active user averages
approximately 1 mb/s ninety eight percent (98%) of the time.
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I3S INFORMATION OPERATIONS
CONTENT PRODUCTION; AVALONBAY/BROADBAND NOW!TM LAUNCH PAGE
I3S operates, and shall operate for the term of this Agreement, an information
content operation for creating original content or aggregating content created
by others and licensed to I3S for inclusion in the I3S body of content. This
material will consist of but not limited to informational, educational,
recreational, entertainment and business content. This body of content will be
offered to Subscribers of the HSDS product. AVALONBAY shall have the right to
create original content or provide content created by others which also will be
offered to Subscribers of the HSDS product.
Without limitation on paragraph 1 above, I3S will create content as creative
and/or business opportunities present themselves. The I3S content will be
updated as I3S, using its editorial judgment, sees fit, but in no event less
frequently than the highest industry practice.
Certain portions of this content will be offered to all HSDS Subscribers free of
charge (Basic Content). Other portions of the content may be offered to HSDS
Subscribers on an optional fee basis for unlimited access to a fixed package of
content (Premium Content). Another certain portion of the content may be offered
to HSDS Subscribers on an optional fee basis for access to a specific
time-limited event (Pay-Per-View Content).
In addition to the fees charged customers for content (which shall be subject to
the limitations set forth in the Master Agreement), I3S may solicit and sell
advertising and other revenue-producing transaction opportunities that will
appear on certain portions of the content.
All fees for premium content, pay-per-view content, advertising and
revenue-producing transactions shall be determined by I3S, subject to the terms
and provisions of the Master Agreement.
The potential revenue set forth here for content shall not be subject to other
provisions in the Agreement (including attachments) regarding revenue sharing,
fees and pricing, except as otherwise set forth herein.
I3S, or its content partners, will design, produce and update, as necessary, all
content and be responsible for all such costs.
I3S shall initially design, produce and update, as necessary, a customized
launch page (the "Launch Page") for HSDS Subscribers, which can be used to
market and promote the HSDS, and, on I3S's standard time and materials rates (or
as otherwise agreed by the parties), AVALONBAY's other services. In addition,
the Launch Page will include hyperlinks to AVALONBAY's corporate web sites as
directed by AVALONBAY, which web sites will be separately established and
maintained by AVALONBAY, except as
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otherwise agreed to in writing between I3S and AVALONBAY. The Launch Page shall
meet the technical, functional and appearance requirements specified by I3S. I3S
shall from time to time update the Launch Page throughout the Term in accordance
with the terms of this Agreement. I3S may offer HSDS Subscribers Launch Pages
that are personalized (by property) and that, in addition to the features
described above, may promote the I3S content offerings and provide direct
hyperlinks to the I3S content.
In no event, at any time during the term of this Agreement, shall I3S knowingly
permit or use any (i) content in the AVALONBAY/Broadband Now! web site or within
its information content operations which contains obscene material, sexually
explicit adult programming, or indecent material as defined in Section 47 C.F.R.
76.701(g); (ii) material in the AVALONBAY Broadband Now! web site soliciting or
promoting unlawful conduct; or (iii) programming in the AVALONBAY/Broadband Now!
web site that may or could have been subject to the Telecommunications Act of
1996, Section 641, relating to the scrambling of sexually-explicit adult video
service programming.
Customer Care Center Features
I3S Responsibilities
Provide a toll free number for:
Inquiries about the HSDS supplied by I3S
Ordering and scheduling installation of HSDS products
Billing inquiries
Initial technical support inquires
Technical support for all HSDS issues
Technical support for Subscriber CPE issues related to HSDS
Answer toll free line consistent with the AVALONBAY/I3S service co-brand.
Operate 24x7 customer care call center operation.
Maintain sufficient customer service staff and call center capacity to connect
to Subscribers within 1 minutes of call entering processing operation.
Develop and publish escalation procedure for Customer Service Representatives
related to network issues.
Resolve billing issues within 24 hours 95% of time, on a monthly basis.
Resolve property network issues within 24 hours 95% of time, on a monthly basis.
Resolve technical issues within 24 hours if a phone call is required 95% of
time, on a monthly basis.
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Resolve technical issues within 48 hours if a truck roll is required 95% of
time, on a monthly basis.
Develop and publish escalation procedures for AVALONBAY to contact regarding
technical issues related to the network.
Subscribers' Hardware and Software Installation
Specifications and Installation Requirements
I3S shall:
Verify that potential Subscribers' personal computers meet the I3S-established
minimum requirements for the supplied software and the HSDS service;
Make an appointment with each new Subscriber to meet the installation personnel
for the installation of the HSDS in the Subscriber's unit;
Collect the Subscriber information required to install, provision and complete
the set up of Subscribers' HSDS service. I3S will develop an appropriate
paper-form-based system or automated system to facilitate this process;
Provide, or cause to be provided, coaxial connection to the Subscriber's
specified location;
Verify, or cause to be verified, that the coaxial connection completed to the
Subscriber's specified location exceeds the minimum operational requirements for
the I3S-supplied CPE and the I3S HSDS service;
Verify, or cause to be verified, and if necessary, promptly (but not more than a
reasonable time frame set by AVALONBAY) perform repairs such that all access
network services function properly (and to not less than the standards
pre-existing I3S HSDS operations) after I3S completes installation and
throughout the provision of HSDS;
Maintain a sufficient inventory of CPE for each Market and develop procedures
to restock CPE as used in Subscriber installations;
Issue and install the required CPE for the service requested by the Subscriber;
Meet the Subscriber at the Subscribers location at the scheduled time within the
tolerances and limits as defined in the I3S Service Level Agreement;
Install the required cable modems(s) and have HSDS operational in the
Subscriber's unit within the number of days of a Subscriber's request set forth
in Section 6.4 of the Agreement;
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Install any required network interface cards (NICs), TCP/IP protocols and
Internet software suite in the Subscriber's personal computer;
Offer the Subscriber a brief introduction to the HSDS to be performed at the
time of installation. This introduction will include how to launch the service,
how to find the training material on the i3S.net Web site, how to find the
Subscriber Support Section on the i3S.net Web site and how to call for technical
assistance or support;
Obtain signatures required to verify that each Subscriber installation was
executed properly and to the satisfaction of the Subscriber; and
Provide AVALONBAY with a copy of the installation transaction documentation
verifying that the completed installation is ready for billing. This
documentation will include the CPE delivery receipt, the ISP contract and the
completed work order.
HSDS Initial Subscriber Rates, Service Levels
And Installation and Equipment Charges
The following table outlines the various levels of service available to Personal
Service subscribers:
Personal Service Level Price per
Month Downstream Transmission Speed Upstream Transmission Speed % of
Time Subscriber is Guaranteed Downstream and
Upstream Speeds
BBNow!(TM) Lite $29.95 64 Kbps 64 Kbps 98%
BBNow!(TM) Standard $49.95 1.0 Mbps 1.0 Mbps 98%
BBNow!(TM) Max $79.95 1.5 Mbps 1.5 Mbps 98%
The following table outlines the various levels of service available to Home
Office Service subscribers:
Home Office Service Level Price per
Month Minimum Downstream Transmission Speed Minimum Upstream
Transmission Speed
Home Office - Level 1 $199 1.5 Mbps 128 Kbps
Home Office - Level 2 $299 1.5 Mbps 512 Kbps
Home Office - Level 3 $499 1.5 Mbps 1.0 Mbps
Home Office - Level 4 $699 1.5 Mbps 1.5 Mbps
Vanity DNS hosting $100.00 per month
Installation fee $49.95 non-recurring
Network interface card (NIC) market price (not to exceed $60)
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CPE (cable modem, xDSL modem or other
broadband access device) purchase market price
Monthly rental of CPE market price*
*The decision to purchase or rent the CPE necessary for the provision of HSDS
shall be at the sole discretion of each resident subscribing to HSDS.
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EXHIBIT E
Service Level Agreement
This Service Level Agreement is attached and made a part of the Master High
Speed Data Services Access and Right of Entry Agreement by and between I3S, Inc.
and AVALONBAY (the "Agreement").
Introduction
This Exhibit entitled "Service Level Agreement" ("SLA") sets out operation
specifications and requirements for HSDS provided by I3S for the residents or
customers of the Toscana Apartments (as defined in the Agreement). The SLA shall
encompass data services originating and terminating within the I3S internetwork
("i3s.net").
Subject to the terms and provisions of the Agreement, the HSDS provided by I3S
shall meet the operations specification and requirements stated herein, which
are generally stated in terms of events or outcomes, rather than terms of
specific hardware, software or procedural requirements. For the purposes of the
SLA, i3s.net shall relate to that portion of the global Internet operated by
I3S, originating within end users' customer premises and terminating within I3S
computers or transported and peered at a public or private Internet Exchange
Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall relate to
i3s.net or I3S provided services (or resold services) and the Equipment and
I3S-maintained facilities, but shall exclude customer error, defects in Customer
Premises Equipment ("CPE"), defects in customers' computers, defects in property
cable or wiring plants, defects in fiber optic distribution systems, defects in
cable television distribution systems and network problems experienced by
destination networks at or beyond Internet Exchange Points.
The terms and conditions of this SLA do not limit I3S's obligations set forth
elsewhere in the Agreement, but if there is a conflict with respect to service
obligations between this SLA and the Agreement, the Agreement shall govern and
control.
Performance Requirements
Percent Customer Service Order Beginning Commitment Dates Timely Met
This parameter is generally indicative of the timely beginning of work on orders
from customers for new service or orders to make changes in their existing
service.
The timely beginning parameter is calculated by dividing the total Customer
Service Orders begun on or before the date and clock hour promised to the
customer that the
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service order would be started by the total number of service orders initiated
in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Customer Service Order Beginning Commitment
Dates Timely Met per month.
Percent Customer Service Order Completion Commitment Dates Timely Met
This parameter is generally indicative of the timely completion of work on
orders from customers for new service or orders to make changes in their
existing service and the timely completion of those service orders.
The timely completion parameter is calculated by dividing the total Customer
Service Orders completed on or before the date and clock hour promised to the
customer that the service order would be completed by the total number of
service orders initiated in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Customer Service Order Completion Commitment
Dates Timely Met per month.
Percent of Network Availability
This parameter is generally indicative of the availability of the network to
transport and peer customer data at an Internet Exchange Point, or, in the event
that the customer data is to be fulfilled by computers within i3s.net, generally
indicative of the availability of to transport data to the I3S servers and the
availability of the servers.
This parameter is calculated by dividing the number of seconds that the network
is available for each customer by the total number of customer-seconds in each
calendar month and multiplying by 100.
Specifically excluded from the Network Availability calculation shall be
regularly scheduled maintenance windows or ad hoc maintenance windows scheduled
and announced 24 hours in advance in the i3s.net Customer Support Web Site.
Specifically excluded from the Network Availability calculation shall be periods
of time where the access distribution plant (operated by AVALONBAY or its
designated third party operator) exceed the operational standards set by I3S for
each type of broadband access technology.
I3S shall exhibit greater than 98% Network Availability per month.
Percent Customer Calls Answered within 45 Seconds by I3S Personnel
This parameter is based upon the number of customers calls answered within 15
seconds by a human operator or by an ACD queue greeting during the hours of
operation of the
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I3S National Customer Care Center and thereafter to be answered by a human
customer representative within 30 seconds. At a minimum, the I3S National
Customer Care Center shall operate from 8:00 a.m. to 5:00 p.m. Central Time,
Monday through Friday exclusive of holidays.
This parameter is calculated by dividing the number of calls answered with 45
seconds by the total number of Customer Care Center calls answered in each
calendar month and multiplying by 100.
I3S shall exhibit greater than 90% of Customer Calls Answered within 45 Seconds
per month.
Percent of Trouble Reports Resolved Timely
This parameter is related to the number of Trouble Reports resolved within the
following windows:
For Trouble Reports received by I3S at the I3S National Customer Care Center
prior to 2:00 p.m. Central Time, Monday through Friday, excepting holidays, will
be cleared by the end of the next business day.
This parameter is calculated by dividing the total trouble reports cleared on or
before the date and clock hour promised to the customer the total number of
Trouble Tickets cleared in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Trouble Reports Cleared Timely per month,
according to the terms of this section for trouble that can be resolved by I3S
alone.
Percent Customer Repair Visit Appointments Met
This parameter is related to the customer commitments made by the I3S National
Customer Care Center for repairs that require a repair visit to customers' sites
or premises.
This parameter is calculated by dividing the total Customer Repair Visits
Appointments met on or before the date and clock hour promised to the customer
by the total number of Customer Repair Visit Appointments initiated in each
calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Customer Repair Commitment Met per month.
Percent of Customer Bills Prepared Timely
This parameter is related to the generation of Customer Bills for delivery to
customers by mail, electronic mail or credit card billing.
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This parameter is calculated by dividing the number of Customer Bills generated
and sent to customers within twenty (20) business days of the end of the billing
cycle by the total number Customer Bills generated in each calendar month and
multiplying by 100.
I3S shall exhibit greater than 95% Customer Bills Prepared Timely per month.
Percent of Customer Bills Prepared Accurately
This parameter is related to the accuracy of Customer Bills for delivery to
customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills generated
that do not require an adjustment due to a billing error caused I3S by the total
number Customer Bills generated in each calendar month and multiplying by 100.
I3S shall exhibit greater than 95% Customer Bills Prepared Accurately per month.
Reports
I3S shall provide to AVALONBAY reports within twenty (20) business days of the
end of each calendar month, the reports listed below in this section, each of
which may be provided separately or provided on a consolidated basis:
A report depicting total subscribers, gross new customers and gross customers
terminated separated by product tier and property.
New service orders, Trouble Reports opened and closed or cleared as appropriate
separated by date and property.
Aggregate I3S National Customer Care Center data depicting the distribution of
call waiting time in general and the percent calls answered and calls abandoned
respectively.
Billing summaries describing the date(s) bills were sent to customers, and the
billed revenue disaggregating major categories of service.
Holidays
New Years Day
Memorial Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
Any other national or state holiday recognized by I3S
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EXHIBIT 10.11
CONFIDENTIAL TREATMENT REQUESTED
BROADBAND CONTENT TEAMING AGREEMENT
This Broadband Content Teaming Agreement (the "Agreement") is entered into by
and between broadcast.com, a Delaware corporation ("broadcast.com") and I(3)S
Inc., a Texas corporation ("I3S"), known jointly as the "Parties," this 19th
day of February, 1999 (the "Effective Date").
1. DEFINITIONS:
1.1 "Co-Branded Page(s)" shall mean a web page(s) created by I3S that
contains equally prominent branding of broadcast.com and I3S for
placement on I3S's website.
1.2 "Confidential Information" shall mean any information of a Disclosing
Party that the Receiving Party knows or reasonably should know to be
confidential or proprietary information of the Disclosing Party,
whether of a technical, business or other nature.
1.3 "Disclosing Party" shall mean a party who discloses Confidential
Information to a Receiving Party.
1.4 "Events" shall mean broadcast.com multicast and unicast live and
on-demand or archived events available to users from the Co-Branded
Page and which broadcast.com possesses the copyright or license to
distribute over the Internet, which Events are set forth on EXHIBIT A
attached hereto and made a part hereof for all purposes, as such
Exhibit may be amended from time to time.
1.5 "Marks" shall mean a party's logos, trade names, trademarks and
service marks, collectively.
1.6 "Multicast" shall mean any system, procedure or technology, as
updated from time to time, which distributes data (including, without
limitation, audio or video) over the System which causes or allows
such data to be accessed, duplicated, or replicated as and when
needed by routers, switches, terminal servers, or other equipment,
including, without limitation, the single transmission of data which
can simultaneously service numerous, multiple receivers.
1.7 "Multicasting" is the utilization of Multicast.
1.8 Except for content independently developed or acquired by I3S,
"Multicast Privilege" is the right of first reservation and access to
act as a distributor of each Event made accessible from the
Co-Branded Page(s) on the System and for which broadcast.com
possesses the exclusive right or license to distribute said Event
over the Internet.
1.9 "Receiving Party" shall mean a party who receives Confidential
Information from a Disclosing Party.
1.l0 "Sponsorship" shall mean gateway, banner, button, and/or interstitial
advertising that is sold to an advertiser on the premise that it will
appear in connection specifically with the Multicast Events on the
Co-Branded Page(s) and not as part of a general rotation of
advertising on the broadcast.com Web site (e.g. a rotation on all
sports content or a run of site rotation).
1.11 "Sponsorship Revenue" shall mean the aggregate amount of Sponsorship
revenue collected by broadcast.com in connection with the Multicast
Events on the Co-Branded Page(s) after all applicable commissions and
agency fees associated with such sale, if any, have been paid.
l.12 "System" is any wireless network (including, without limitation,
direct broadcast satellites, hand held devices, microwave dish
facilitated data transmission, Vertical Blanking Interval (VBI),
wireless cable and data broadcasting, Teledesic, Iridium and other
satellites, and any and all other wireless networks) or wired network
(including, without limitation, the Internet, the Internet II, or any
other online services network which utilizes computer terminals,
terminal servers, modems, cable modems, HFC, coaxial cable, xDSL,
routers, splitters,
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switches, multicasting technology, power lines, or other high speed
data connections and any and all other wired networks) that
distributes audio, video, or other programming using digital
algorithms, one and/or two-way digital services, or any other means
now existing or hereafter created.
2. MULTICAST PRIVILEGE AND EVENT DISTRIBUTION LICENSE:
2.1 I3S hereby grants to broadcast.com the exclusive Multicast Privilege
for the term of this Agreement. broadcast.com hereby grants I3S,
solely with respect to properties served by the I3S network, the
exclusive right and license to distribute the Events; provided, that
nothing contained in this section 2.1 shall prohibit broadcast.com
from distributing the Events from the broadcast.com Web sites, nor
shall it constitute a violation of this Agreement if I3S customers
are able to access the Events through the broadcast.com Web sites.
Subject to the terms of this Agreement, I3S and broadcast.com may
elect to jointly distribute the Events over systems operated by other
broadband Internet service providers.
2.2 Broadcast.com grants I3S the right to the enjoyment of ancillary
benefits, which include (a) the ability to attract customers by
promoting the extensive and varied content made available by the
alliance between broadcast.com's multicast programming and I3S's
multicast capabilities and its System, and (b) designation as a
broadcast.com IP Multicast affiliate in the form of a multicast
affiliate logo to be provided by broadcast.com.
2.3 I3S shall install at a local loop (DS3 or OC3, as applicable, in the
determination of I3S) to connect to broadcast.com's network in order
to ensure the highest level of service to I3S users. I3S agrees to
absorb any and all expenses associated with the installation and
maintenance of said local loop, and to comply with the Acceptable Use
Policies of broadcast.com.
3. CO-BRANDED PAGES; EDITORIAL REVIEW BOARD:
3.1 I3S shall create a Co-Branded Page(s), which shall be subject to
review and prior approval of the Editorial Board (as hereinafter
defined), to co-promote the Events. The Events to be included on the
Co-Branded Page(s) will be mutually selected by broadcast.com and
I3S, and shall include, without limitation, live television and radio
station feeds, concerts, sporting and business services events, as
well as on-demand movies, music and similar types of content. The
Events will be accessible from such locations on the Internet as
designated by broadcast.com, including, but not limited to, the
Co-Branded Page(s). I3S agrees to update such Co-Branded Page(s) as
soon as reasonably practical, but in no event in excess of 3 business
days after receipt of new Event entries from broadcast.com.
3.2 I3S shall pay broadcast.com a fee equal to *** per month during the
term of this Agreement for the encoding, serving and maintenance of
the Events for placement on the Co-Branded Page(s), due and payable
quarterly within 30 days of receipt of an invoice from broadcast.com.
Except for Sponsorship sales initiated by I3S, Broadcast.com will
have the exclusive right to sell all Sponsorship and all other
advertising in connection with the Co-Branded Page(s). All monthly
Sponsorship or advertising revenue, whether paid in advance or not,
generated by sponsors or advertisers in connection with the Agreement
will be billed and collected by Broadcast.com throughout the term of
the Agreement; provided, however, that, by the fifteenth (15th) day
after the expiration of each calendar quarter hereafter Broadcast.com
shall pay I3S a revenue sharing fee ("I3S Revenue Sharing Fee") in an
amount equal to ****** ** of all such Sponsorship and advertising
revenue generated in the immediately preceding calendar quarter. All
monthly revenue generated by Subscribers for premium pay streaming
content services under this Agreement, whether paid in advance or
not, will be billed and collected by I3S throughout the term of this
Agreement; provided, however, that, by the fifteenth (15th) day after
the expiration of each calendar quarter hereafter I3S shall pay
Broadcast.com a revenue sharing fee ("Broadcast.com Revenue Sharing
Fee") in an amount equal to ***** of all such Subscriber-generated
revenue in the immediately preceding calendar quarter. The I3S
Revenue Sharing Fee and the Broadcast.com Revenue Sharing Fee are
hereinafter collectively referred to as the "Revenue Sharing Fees".
Notwithstanding anything to the contrary contained herein, no Events
shall be offered on a subscription or pay per view basis without the
prior written approval of broadcast.com.
3.3 The revenue derived from the sale of all other advertising on the
broadcast.com Web site (even if such advertising appears on pages,
other than the Co-Branded Pages through which the Events are
accessible), will be retained by broadcast.com in its entirety.
Except for a *** percent ** advertising sales commission
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to be paid to broadcast.com in consideration of advertising sales
sold by broadcast.com on the BroadbandNOW!(TM) Web site, the revenue
derived from the sale of all other advertising and sponsorships on
the BroadbandNOW!(TM) Web site (even if such advertising or
sponsorships appear on pages, other than the Co-Branded Pages,
through which the Events are accessible), will be retained by I3S
in its entirety.
3.4 Subject to the terms and provisions of this Agreement, I3S and
broadcast.com shall jointly market, offer, provide and sell the
Events to other third parties providing broadband or high speed
Internet access services. The parties shall create an Editorial
Board, composed of 2 appointees from each party, to review and
approve the content, layout and structure of the Co-Branded Pages.
The Editorial Board shall meet on a periodic basis as agreed by its
members, but no less than once each calendar quarter hereafter. The
Editorial Board shall create and maintain such procedures and
internal operational processes as it shall deem necessary and prudent
to carry out its intents and purposes hereunder.
4. ACCOUNTS: I3S will cooperate with broadcast.com to ensure that all
accounts and/or ports will be enabled to receive traffic from
broadcast.com. I3S represents and warrants that as of the Effective Date
I3S has exclusive rights to provide high speed data services, including,
without limitation, the distribution of Events, to 1,000,000 apartment
units, nationwide. I3S agrees to inform broadcast.com on a quarterly basis
of any additional accounts and or ports added to the I3S network.
5. PROMOTIONS: I3S shall be entitled to advertise its participation in
broadcast.com's multicast and unicast programming, subject to
broadcast.com's reasonable prior review and approval of such advertising.
I3S shall also provide a hyperlink from its home page to broadcast.com's
home page, or to other pages on the broadcast.com Web site as broadcast.com
may reasonably designate upon consultation with I3S.
6. DEMOGRAPHICS: Broadcast.com and I3S agree to jointly develop a system to
track behavior and demographics information for users who access the Events
on the Co-Branded Page(s) in order to formulate a more desirable menu of
Events, which information shall not be shared with third parties without
each party's prior written approval. Only for purposes of performing
broadcast.com's obligations hereunder, I3S agrees to provide
broadcast.com all reasonable information necessary to determine
listenership for the Events, including, but not limited to, the I3S
subnetwork addresses.
7. TERM: This Agreement shall be effective for a period of three (3) years
commencing on the Effective Date hereof. Thereafter, this Agreement shall
automatically renew for successive one (1) year periods unless either party
delivers thirty (30) days written notice by certified mail, return receipt
requested, to the other party that such party does not agree to such
renewal, or otherwise this Agreement shall be deemed extended for each
additional one (1) year period. All provisions hereof regarding amounts
payable by either party to the other party shall survive the expiration or
earlier termination of this Agreement until such amounts are paid in full
by the obligor party.
8. LIMITATION OF LIABILITY: NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO
THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING
NEGLIGENCE), AND EVEN IF EITHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS,
IMPLIED OR STATUTORY, WITH RESPECT TO THE SERVICES PROVIDED BY IT
HEREUNDER.
9. INTELLECTUAL PROPERTY RIGHTS: Each party acknowledges and agrees that: (i)
the other party's Marks are and shall remain the sole property of the other
party; (ii) nothing in this Agreement shall confer in the party any right
of ownership in the other party's Marks, and (iii) the party shall not now
or in the future contest the validity of the other party's Marks.
broadcast.com shall defend, indemnify and hold harmless I(3)S, its parent,
subsidiaries, affiliates, directors, officers, shareholders, employees and
agents and its successors and assigns, from and against any and all claims,
demands, actions, liabilities, losses, damages and expenses, including,
without limitation, settlement costs and reasonable attorneys' fees,
arising out of or relating to any actual or alleged infringement of any
third party's trade secrets, trademark, service mark, copyright, patent or
other intellectual property rights (the "Intellectual Property Rights") in
connection with the use of said Intellectual Property Rights hereunder.
broadcast.com's obligation pursuant to the immediately preceding sentence
is subject to the following conditions: (i) I(3)S shall give broadcast.com
prompt written notice of all actions, claims or threats against I(3)S of
infringement or
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violation of Intellectual Property Rights; (ii) I(3)S shall permit
broadcast.com to elect to assume complete control of such claims at its
sole discretion and expense; provided, however, that I(3)S may elect, in
such case, to retain its own counsel, at I(3)S's expense, to represent
I(3)S's interest; and further, provided, however, that broadcast.com will
fully cooperate with I(3)S and keep it fully informed and refrain from
entering into any settlement or agreed judgment without I(3)S's prior
written consent, which consent shall not be unreasonably withheld, delayed
or conditioned; and (iii) I(3)S shall cooperate fully with broadcast.com in
defending against claims, including making known or available to the
indemnifying party, upon reimbursement of all costs associated with
provision or reproduction of, all records and document pertaining to
claims.
10. CROSS INDEMNIFICATION FOR OBLIGATIONS UNDER THIS AGREEMENT. Each party
hereby agrees to indemnify, defend and hold harmless the other party from
any and all damages, liabilities, costs and expenses, including, without
limitation, reasonable attorneys' fees and expenses, arising out of, under
or in connection with the indemnitor party's duties, obligations, actions
or performance under this Agreement, or the indemnitor party's gross
negligence or willful misconduct.
11. LIMITATION OF LIABILITY. It is expressly understood that neither party
makes any projection, representation or warranty regarding the amount of
revenue that may be earned by the other party under this Agreement. Neither
party shall be liable to the other party for any indirect, incidental,
special, or consequential damages of any kind whatsoever; provided,
however, that this limitation of liability shall not apply to either
party's indemnification obligations under this Agreement.
12. DEFAULT. Upon the occurrence of any of the following events, a party shall
be deemed to be in default under this Agreement:
(a) Material breach of any warranty or representation by the
defaulting party;
(b) Material failure to perform the defaulting party's obligations
hereunder, including with respect to each Party its failure to make
the payments to the other Party as set forth in Section 3 hereof.
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the
benefit of its creditors, suffering or permitting the appointment of
a receiver or similar officer for its business or assets or availing
itself of, or becoming subject to, any proceeding under the United
States Federal Bankruptcy Laws or any federal or state statute
relating to solvency or the protection of the rights of creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material
respect on the date it was made by the defaulting party.
13. REMEDIES. In the event the defaulting party fails to cure any default set
forth hereunder for a period of thirty (30) days after written notice of
such default by the non-defaulting party, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against the
defaulting party.
14. FAILURE TO EXERCISE REMEDY. The remedies set forth above are cumulative,
but the non-defaulting party is under no obligation to exercise any such
remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or
release the defaulting party from its obligations under this Agreement.
15. EFFECT OF TERMINATION. Early termination or expiration of this Agreement
shall not impair either party's then accrued rights, obligations,
liabilities or remedies hereunder.
16. EXAMINATION; AUDIT RIGHTS. Each Party agrees that the other Party has the
right to audit or otherwise examine, or have audited or otherwise examined,
on an annual basis all applicable books, records, documents, and other data
of the audited Party, including computations and projections, specifically
and only relating to the Revenue Sharing Fees under this Agreement, and the
audited Party's billing and collection of revenues from subscribers,
sponsors and advertisers. If the audited Party's audit reveals that the
auditing Party has been underpaid its applicable Revenue Sharing Fee by a
percentage in excess of five percent (5%) over the period of the audit, the
audited Party shall pay the auditing Party's reasonable costs of the audit,
in addition to paying all past due amounts owed to the auditing Party. The
audited Party shall make available at its principal place of business at
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all reasonable times during normal business hours the materials described
in the first sentence of this Section 16 for examination, audit, or
reproduction. In the event that this Agreement is completely or partially
terminated, the records relating to the Revenue Sharing Fees shall be made
available for two (2) years after any termination of this Agreement.
Records pertaining to appeals or to litigation or the settlement of claims
arising under or relating to either party's performance under this
Agreement shall be made available until disposition of such appeals,
litigation or claims.
17. NOTICE. Any notice, demand or other communication required or permitted by
any provision of this Agreement shall be deemed to have been sufficiently
given or served for all purposes when delivered in person or sent by
registered or certified mail, return receipt requested, all postage and
other charges prepaid, to the respective addresses of the parties first
noted above, or at such other address as may be designated by notice from
such party to the other party pursuant to their terms of this section.
18. PUBLIC DISCLOSURES. All media releases, public announcements, and public
disclosures by either party or its employees, agents or representatives
relating to this Agreement or the subject matter hereof, excluding any
announcement beyond the control of this disclosing party, will be approved
by the non-disclosing party in writing prior to release.
19. PERFORMANCE REVIEW. In the event of any dispute or controversy between
the parties of any kind or nature, upon the written request of either
party, each of the parties will appoint a designated officer whose task it
will be to meet for the purpose of resolving such dispute or controversy or
to negotiate for an adjustment to any provision of this Agreement needed to
resolve such dispute or controversy. Such officers will discuss the dispute
or controversy and negotiate in good faith in an effort to resolve the
dispute or controversy or renegotiate the applicable section or provision
of this Agreement without the necessity of any formal proceeding relating
thereto. No formal proceedings for the judicial or arbitrational resolution
of such dispute or controversy may be commenced until either or both of the
designated officers conclude in good faith that an amicable resolution
through continued negotiation of the matter at issue is not likely to
occur, or until thirty (30) days have elapsed from the date of the written
request, whichever is sooner.
20. ARBITRATION. Except where otherwise expressly provided, the parties hereby
agree to submit to arbitration any and all disputes, controversies,
differences, or claims which may arise between them in relation to or out
of this Agreement, or the breach thereof. If the parties fail to reach an
amicable settlement or earlier resolution by mutual agreement, any
controversy or claim relating to this Agreement shall be submitted to final
and binding arbitration pursuant to the Rules of the American Arbitration
Association then in effect, by three arbitrators knowledgeable of said
rules and as to industry standards, sitting in a location in Dallas County,
State of Texas, designated by the filing party. One arbitrator will be
appointed by each party within ten (10) days of the filing of the
arbitration claim and the two arbitrators shall appoint a third arbitrator
within thirty (30) days. None of the arbitrators shall be related to or
have any direct or indirect interest in I(3)S or broadcast.com. The
arbitrators will be instructed to consider, in making any determination,
the customary practices in the industry to the extent such practices exist.
The arbitration proceeding shall commence within thirty (30) days of the
selection of the arbitrators. Discovery shall be limited so as to allow the
taking of a maximum of five (5) depositions by each party. The arbitrators
shall be authorized to provide for interim and final injunctive relief. The
parties acknowledge and agree that such arbitration shall be the sole forum
for such interim and final injunctive relief and the parties agree to
accept and abide by such injunctive relief. The arbitrators shall have the
right but not the obligation to award to the prevailing party the cost of
resolving any dispute regarding this Agreement or the formation, breach,
enforcement or performance hereof, including any reasonable fees of
attorneys, accountants and expert witnesses incurred by the prevailing
party. Punitive damages shall not be recoverable in any arbitration
initiated pursuant to this Agreement. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Notwithstanding anything to the contrary contained herein, if, at any time
an initiating party can show that it would suffer irreparable harm by
following the above procedures solely because of the time that it would
take to engage the arbitrators and the non-filing party will not agree to
immediately appoint the arbitrators and that money damages would not be
adequate to compensate it for the harm so suffered, the initiating party
may apply to any court of competent jurisdiction for an order or judgment
granting that party a provisional remedy, including, but not limited to, a
temporary restraining order, a preliminary injunction or an attachment.
21. GENERAL PROVISIONS:
21.1 This Agreement shall constitute the entire understanding between the
parties, and supersedes all prior negotiations or understandings
between the parties concerning the subject matter contained herein.
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21.2 Broadcast.com's services and the execution of the Events on the
Co-Branded Page(s) shall be provided in a businesslike, high quality
and professional manner.
21.3 I3S agrees to indemnify and hold harmless broadcast.com and its
officers, directors, employees and agents from and against any and
all losses, claims, damages, liabilities, obligations, penalties,
judgments, awards, costs, expenses and disbursements, including
without limitation, the costs, expenses and disbursements, as and
when incurred, of investigating, preparing or defending any action,
suit, proceeding or investigation, caused by, relating to, based
upon, arising out of or in connection with any breach by I3S of the
representations, warranties or agreements made by it under this
Agreement.
21.4 Each party shall maintain in strict confidence, and not disclose or
distribute to any third person any Confidential Information of the
other party. Confidential Information does not include any
information that: (a) entered the public domain through no fault of
the Receiving Party; (b) is rightfully received by the Receiving
Party from a third party legally entitled to make such disclosure;
(c) is already known to the Receiving Party prior to disclosure by
the Disclosing Party; (d) is required to be disclosed pursuant to
subpoena, applicable law, or SEC rules or regulations; or (e) is
independently developed by the Receiving Party without reference to
any confidential or proprietary information of the Disclosing Party.
21.5 This Agreement shall be governed by the laws of the state of Texas
applicable to contracts entered into and to be performed entirely
within the State of Texas. The parties expressly agree that any
action at law or in equity arising out of or relating to this
Agreement shall be filed only in the state and federal courts located
in Dallas County, Dallas, Texas. The parties hereby consent and
submit to jurisdiction of such courts for the purposes of litigating
any such action.
21.6 Should any part of this Agreement be found to be illegal or otherwise
unenforceable, both Parties shall continue to be bound under the
remaining provisions of this Agreement.
21.7 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors, assigns or purchasers
of the respective companies. In addition, upon prior written notice
to the other party, either party has the right to assign this
Agreement to any entity; provided, however that said assignee shall
unconditionally assume the assignor's obligations hereunder.
21.8 The parties hereto are independent parties, and no partnership, joint
venture, enterprise, or employment relationship shall be created or
inferred by the existence or performance of this Agreement.
21.9 The persons executing this Agreement on behalf of the parties hereto
hereby represent and warrant that: (a) he or she has the authority to
legally bind the respective party; (b) he or she has been duly
authorized to execute this Agreement, and (c) all necessary corporate
actions and requirements for execution, if any, have been taken or
have been satisfied.
21.10 This Agreement may be executed in one or more counterparts, which
when taken together, shall constitute one and the same document. The
parties hereby agree that facsimile signatures are valid and binding
on the parties.
IN WITNESS WHEREOF, the Parties hereto have caused the foregoing agreement to be
signed by a duly authorized agent of each party, the day and year first above
written.
I(3)S, Inc.: BROADCAST.COM:
I(3)S, Inc. broadcast.com inc.
1440 Corporate Drive 2914 Taylor Street
Irving, Texas 75038 Dallas, TX 75226
By: /s/ BILL ANDERTON By: /s/ KEVIN PARKE
------------------------------- --------------------------------
Name: Bill Anderton Name: Kevin Parke
----------------------------- ------------------------------
Title: VP & Chief Scientist Title: VP
---------------------------- -----------------------------
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EXHIBIT A
[DESCRIPTION OF EVENTS TO BE INCLUDED ON CO-BRANDED PAGE(S)]
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<PAGE> 1
EXHIBIT 10.12
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
ACCESS AGREEMENT
This MASTER HIGH SPEED DATA SERVICES ACCESS AGREEMENT (this "Agreement") is
entered into as of the 5th day of August 1998, by and between I(3)S INC., a
Texas corporation, with an address at 1330 River Bend, Suite 600, Dallas, Texas
75247-4953 ("I(3)S"); and CABLE PLUS HOLDING COMPANY, a Washington corporation,
with an address at 11400 S.E. 6th Street, Suite 120, Bellevue, Washington 98004
("Cable Plus"); together with I(3)S being sometimes hereinafter collectively
referred to as the "parties", and individually as a "party".
RECITALS
WHEREAS, Cable Plus currently provides cable television programming and
telephone services to multiple dwelling units ("MDUs") and their residents in
several metropolitan markets throughout the United States;
WHEREAS, I(3)S provides system integration and network services, including,
without limitation, high speed data services, as more specifically described in
Exhibit D attached hereto and incorporated herein by reference ("HSDS"), to
multiple system franchise cable operators ("MSO"), private cable operators
("PCO"), apartment owners, and real estate investment trusts ("REIT"),
nationwide; and
WHEREAS, Cable Plus and I(3)S desire to provide HSDS to MDUs, current and
future, served by Cable Plus in accordance with the terms of this Agreement.
NOW, THEREFORE, the parties hereto hereby covenant and agree as follows:
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF CABLE PLUS. In order to induce I(3)S to
enter into this Agreement, Cable Plus represents and warrants as follows:
(a) ORGANIZATION AND QUALIFICATION. Cable Plus is a corporation duly
organized and validly existing and in good standing under the laws of
the State of Washington; has all requisite power and authority to own
its property and assets and to carry on its business as, and in the
places where, such property and assets are owned or such business is
now conducted; and is duly qualified to do business and is in good
standing in every other jurisdiction in which such qualification is
necessary or desirable.
(b) TITLE. Cable Plus, its subsidiaries or affiliates, have good, valid
and indefeasible title to its personal property and equipment
necessary to the provision of HSDS and all such property is free and
clear of all adverse
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claims, interests and liens, except as has been heretofore disclosed
in writing to I(3)S.
(c) ENFORCEABLE OBLIGATIONS; AUTHORIZATION. This Agreement is a legal,
valid and binding obligation, enforceable in accordance with its
terms; the making and performance of this Agreement have been duly
authorized by all necessary action; are within the power and authority
of Cable Plus; will not contravene or violate any legal requirement,
shareholders agreement of Cable Plus, or charters of Cable Plus; and
will not result in the breach of, or constitute a default under, any
agreement, instrument, judgment, license, order, franchise or permit
to which Cable Plus is a party, or any of its property may be bound or
affected.
(d) PERMITS, LICENSES, ETC. Cable Plus possesses all material permits,
licenses, franchises rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to conduct
the business of HSDS and carry out its responsibilities under this
Agreement.
(e) MDU PROPERTY AND OPERATING AGREEMENTS. All MDU property or operating
agreements to which Cable Plus, or its subsidiaries and affiliates,
are a party and that pertain to this Agreement are in full force and
effect, and to Cable Plus's, its subsidiaries' and affiliates'
knowledge it has not received notice of default with regard to any
such MDU property or operating agreement that would adversely affect
the provision of HSDS at any MDU property.
(f) INSURANCE. Cable Plus carries insurance with reputable insurers in
respect of Cable Plus' property pertaining to HSDS in such amounts and
against such risks as are customarily maintained by other persons of
similar size engaged in similar businesses.
(g) RIGHT OF ACCESS: Subject to the review and approval by I(3)S of the
related Right of Entry agreements in favor of Cable Plus, Cable Plus
possesses the right to grant I(3)S a derivative right of entry for the
provision of HSDS to the MDU properties covered by this Agreement.
(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of Cable Plus shall survive the
execution and delivery of this Agreement, and any investigation at any
time made by or on behalf of I(3)S shall not diminish its rights to
rely thereon.
1.2 REPRESENTATIONS AND WARRANTIES OF I(3)S. In order to induce Cable Plus to
enter into this Agreement, I(3)S represents and warrants as follows:
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<PAGE> 3
(a) ORGANIZATION AND QUALIFICATION. I(3)S is a Texas corporation duly
organized and validly existing and in good standing under the laws of
the State of Texas; has all requisite power and authority to own its
property and assets and to carry on its business as, and in the places
where, such property and assets are owned or such business is now
conducted; and is duly qualified to do business and is in good
standing in the State of Texas and in every other jurisdiction in
which such qualification is necessary or desirable.
(b) NO DEFAULTS. I(3)S is not in default under any instrument or agreement
existing as of the date hereof which I(3)S is bound that may adversely
affect its ability to perform its obligations under this Agreement;
and no default hereunder has occurred and is continuing.
(c) TITLE. I(3)S has good, valid and indefeasible title to its property
that pertains in any way to HSDS, and all such property is free and
clear of all adverse claims, interests and liens, except as has been
heretofore disclosed in writing to Cable Plus.
(d) ENFORCEABLE OBLIGATIONS; AUTHORIZATION. This Agreement is a legal,
valid and binding obligation of I(3)S, enforceable in accordance with
its terms; the making and performance by I(3)S of this Agreement have
been duly authorized by all necessary action; are within the power and
authority of I(3)S; will not contravene or violate any legal
requirement, shareholders agreement of I(3)S, or articles of
incorporation or bylaws of I(3)S; and will not result in the breach
of, or constitute a default under, any agreement, instrument,
judgment, license, order, franchise or permit to which I(3)S, is a
party, or any of its property may be bound or affected.
(e) PERMITS, LICENSES, ETC. I(3)S possesses all material permits,
licenses, franchises rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to conduct
the business of HSDS and carry out its responsibilities under the
Agreement.
(f) INSURANCE. I(3)S carries commercial general liability insurance
(including premises/operations liability, independent contractors
liability, contractual liability, products liability, completed
operations liability, broad form property damage liability, personal
injury liability and extended bodily injury and death coverage) in a
minimum amount of Two Million ($2,000,000) per occurrence and Two
Million ($2,000,000) of the Agreement aggregate combined single limit
for bodily injury or death, personal injury or property damage. I(3)S
shall name Cable Plus as an additional insured under these policies
for claims related to Cable Plus's acts under this Agreement.
(g) I(3)S LICENSES. I(3)S possesses all requisite licenses from third
parties necessary to provide HSDS to Cable Plus MDU properties and
their residents.
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(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of I(3)S shall survive the execution
and delivery of this Agreement, and any investigation at any time made
by or on behalf of Cable Plus shall not diminish its rights to rely
thereon.
ARTICLE 2
TERM
TERM. This Agreement shall have an initial term of three (3) years (the "Initial
Term"). The Initial Term shall begin on the date that this Agreement is signed
by both parties, or such other date as is mutually agreed in writing by the
parties ("Effective Date"). The Initial Term may be automatically extended after
the third anniversary of the Effective Date for additional one (1) year periods
unless one party notifies the other party in writing not less than one hundred
eighty (180) days prior to the then anniversary date of the notifying party's
intent to terminate this Agreement; and further, provided, however, that the
term of this Agreement shall be automatically extended to always be coterminous
with the term (including any extensions thereof) of any and all individual
property agreements between I(3)S and Cable Plus entered into pursuant to
Section 3.2. Notwithstanding the direction and authorization of the immediately
preceding sentence, the Initial Term may be automatically extended, at the
option of Cable Plus upon written notice to I(3)S, for an additional two (2)
year period commencing on the third anniversary date of the Effective Date, and
in such event Cable Plus shall be entitled to receive an increase of *** ** of
the then Cable Plus Revenue Sharing Fee throughout the remaining term of this
Agreement.
ARTICLE 3
EXCLUSIVITY
3.1 EXCLUSIVITY. Except as otherwise precluded herein with respect to
non-disclosure and non-competition, neither Cable Plus nor I(3)S shall be
precluded from entering into agreements with third parties to provide HSDS
to such parties' customers thereunder. Notwithstanding the foregoing, Cable
Plus shall not provide HSDS, in whole or in part, or a competitive service,
directly or indirectly, to MDU properties served by I(3)S under the
terms and provisions of this Agreement.
3.2 EXCLUSIVE RIGHT TO PROVIDE HSDS SERVICE. During the term of this Agreement,
and any extension thereof, Cable Plus shall, subject to the non-disclosure
and non-competition provisions stated herein, present to I(3)S certain
additional MDU properties for consideration by I(3)S with respect to
providing HSDS service to the individual MDU property. Within thirty (30)
days of receipt by I(3)S of the Right Of Entry Agreements pertaining to the
selected MDU properties, I(3)S shall conduct a review of the MDU property
and the associated Right Of Entry Agreement and determine whether it
desires to provide HSDS service. If I(3)S so elects, then unless Cable
Plus, in its sole discretion, determines that it will be required to assume
the cost of significantly upgrading the particular MDU property's master
antennae
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cable television system to allow for the provision of HSDS at said MDU
property, Cable Plus shall grant I(3)S an exclusive right to provide HSDS
to the MDU property in accordance with the terms of this Agreement
beginning on the date that HSDS is available for distribution at the
selected MDU property. As soon as practicable, but no more than within
sixty (60) days of certification by Cable Plus that the master antennae
cable television system at the particular MDU property is capable of
providing HSDS, I3S will install, or cause to be installed, the required
equipment and local loop circuit to provide HSDS at said MDU property.
ARTICLE 4
AFFIRMATIVE COVENANTS OF CABLE PLUS
4.1 Cable Plus unconditionally covenants and agrees to do and perform, or cause
to be done and performed, the following:
(a) Cable Plus shall maintain its corporate existence and remain in good
standing under the laws of and in every other jurisdiction in which
such qualification to do business is necessary or desirable.
(b) Cable Plus shall maintain in full force and effect all material
permits, licenses, franchise rights, trademarks, trademark rights,
trade names, trade name rights and copyrights, if any, which are
required to conduct the business of HSDS.
(c) Cable Plus shall maintain in full force and effect adequate insurance
with reputable insurers in respect of Cable Plus's property pertaining
to HSDS, in such amounts and against such risks as is customarily
maintained by other persons of similar size engaged in similar
businesses.
(d) Cable Plus shall use its best efforts to assist I(3)S in providing
HSDS on MDU properties mutually selected by Cable Plus and I(3)S on
terms and conditions acceptable to I(3)S; which MDU properties shall
be added as Riders to Exhibit A attached hereto and incorporated
herein by reference for all purposes. Further, if permitted by the
owner of the MDU property, Cable Plus shall cooperate in causing a
Memorandum describing the existence of this Agreement (substantially
in the form of Exhibit__, attached to this Agreement) to be recorded
with the title for such MDU properties and all liens thereto.
(e) As more specifically described in Exhibit B attached hereto and
incorporated herein by reference, Cable Plus shall assume and timely
pay (subject to any defenses and rights provided in its agreements
with property owners) all operating and capital costs and expenses, if
any, associated with any and all:
(1) Monthly recurring MDU on site cabling and wiring maintenance;
(2) Property owner revenue sharing, if any;
(3) Insurance on Cable Plus capital equipment related to HSDS;
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(4) Cable Plus-specific training for HSDS;
(5) MDU property cabling and wiring upgrades;
(6) Adequate on-site MDU space for the installation and maintenance
of I(3)S equipment;
(7) Monthly customer service representatives (non-I(3)S personnel),
as necessary, at Cable Plus's discretion; and
(8) Any leasing agent sales commissions, as previously mutually
agreed to in writing between I(3)S and Cable Plus.
ARTICLE 5
AFFIRMATIVE COVENANTS OF I(3)S
5.1 I(3)S covenants and agrees to do and perform, or cause to be done and
performed, the following:
(a) I(3)S shall maintain its corporate existence and remain in good
standing under the laws of the State of Texas and in every other
jurisdiction in which such qualification to do business is necessary
or desirable.
(b) I(3)S shall not become in default under any instrument or agreement
I(3)S is bound that may adversely affected its ability to perform its
obligations under this Agreement.
(c) I(3)S shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to HSDS, and
all such property shall remain free and clear of any adverse claims,
interests and liens, except as has been heretofore disclosed in
writing to Cable Plus.
(d) I(3)S shall maintain in full force and effect all material permits,
licenses, franchise rights, trademarks, trademark rights, trade names,
trade name rights and copyrights which are required to conduct the
business of HSDS.
(e) As more specifically described in Exhibit C attached hereto and
incorporated herein by reference, I(3)S shall assume and pay all
operating and capital costs and expenses associated with any and all:
(1) Non-recurring and monthly recurring private Internet exchange
points;
(2) Non-recurring and monthly recurring switch maintenance;
(3) Non-recurring and monthly recurring POP transport;
(4) Non-recurring and monthly recurring Dallas network operations
center costs (including installation costs);
(5) Customer support IP technicians and engineers (NOC, Help Desk and
field personnel);
(6) I(3)S-specific training;
(7) Insurance on I(3)S capital equipment;
(8) I(3)S-specific travel and entertainment;
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(9) Switch site equipment (including installation costs);
(10) Peering point routers;
(11) Private Internet exchange point hardware (including installation
costs);
(12) I(3)S network infrastructure equipment;
(13) Transport facilities;
(14) Backbone transport facilities;
(15) Peering interconnection facilities;
(16) Non-recurring and monthly recurring local loop costs;
(17) Non-recurring and monthly recurring property maintenance (LCE,
Router, DSU/CSU);
(18) Non-recurring and monthly recurring IP headend maintenance;
(19) CSR platform and services (non-Cable Plus);
(20) Internet browser platform user license;
(21) MDU property IP equipment (LCE, Router, DSU/CSU);
(22) IP master headend equipment;
(23) Non-recurring local loop transport costs;
(24) Customer billing and collections;
(25) HSDS marketing and promotion;
(26) Any leasing agent sales commissions, as mutually agreed to
between I(3)S and Cable Plus; and
(27) Costs associated with operation and maintenance of I(3)S'
equipment at the MDU.
ARTICLE 6
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I(3)S
6.1 DESCRIPTION OF HSDS. During the term of this Agreement, I(3)S shall
provide, to the MDU properties mutually agreed by the parties and
identified in Exhibit A as amended from time to time, the HSDS, in whole or
in part, more particularly described and set forth in Exhibit D. Unless
I(3)S and Cable Plus have theretofore agreed to compensate Cable Plus in
connection with the provision of additional HSDS residential subscriber
access services other than those set forth in Exhibit D attached hereto
("Non-HSDS Subscriber Access Services"), pursuant to good faith
negotiations between the parties, I3S shall not directly provide, market or
promote to any MDU properties identified in Exhibit A Non-HSDS Subscriber
Access Services on a revenue basis, including telephony, cable television
or alarm services in any form, whether transmitted over the Internet or
otherwise without prior written consent of Cable Plus, which consent shall
not be unreasonably withheld.
ARTICLE 7
DEFINITION OF HSDS SERVICE LEVEL STANDARDS
7.1 DEFINITION OF HSDS SERVICE LEVEL STANDARDS. Subject to the conditions,
qualifications and limitations set forth herein, including, without
limitation, those set forth in Exhibit E attached hereto and incorporated
herein by reference, during
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the term of this Agreement, I(3)S shall offer, or cause to be offered, the
more stringent of the service level standards pertaining to various aspects
of HSDS, as more particularly described and set forth in Exhibit E, or
those service level standards required by law or promulgated by applicable
industry standard setting bodies. At all times, the property owner of any
MDU property served by I(3)S pursuant to this Agreement shall be a third
party beneficiary of this Agreement for the purpose of enforcing the
obligations of I(3)S as stated herein.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING
8.1 REVENUE ALLOCATION. All monthly HSDS revenue generated by customers under
the Agreement shall be collected by I(3)S throughout the term of the
Agreement; provided, however, that, by the fifteenth (15th) day of each
month I(3)S shall pay Cable Plus a revenue sharing fee ("Cable Plus Revenue
Sharing Fee") calculated on the basis of total subscriber access revenue
(exclusive of, without limitation, subscriber premise equipment
installation charges, subscriber service charges, and subscriber equipment
sales or leases, provided that any of the above are sums that are "passed
through" at cost by or on behalf of I(3)S,) actually collected by or on
behalf of Cable Plus and I(3)S for the immediately preceding month in
accordance with the following table, unless Cable Plus elects to perform
order taking and billing services to the subscribers, in which case a
revised revenue share shall be agreed between the parties, pursuant to good
faith negotiations, with Cable Plus receiving compensation commensurate
with industry standards.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Penetration on Property Base Monthly Fee Additional Incentive to Drive
Penetration
(Sum of the total number of paying (Percentage of Gross (Percentage of Gross Connectivity
subscribers per day, per month Connectivity Revenue) Revenue)
divided by the number of apartment units
on property)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
0% to 10% * *
- -------------------------------------------------------------------------------------------------------------
Greater than 10% to 15% * *
- -------------------------------------------------------------------------------------------------------------
Greater than 15% to 20% * *
- -------------------------------------------------------------------------------------------------------------
Greater than 20% to 30% * *
- -------------------------------------------------------------------------------------------------------------
Greater than 30% to 40% * *
- -------------------------------------------------------------------------------------------------------------
Greater than 40% * *
- -------------------------------------------------------------------------------------------------------------
</TABLE>
I(3)S agrees to make and to maintain such books, records and accounts as
are necessary to verify the Cable Plus Revenue Sharing Fee and the payments
due Cable Plus under this Agreement. A certified public accountant selected
by Cable Plus may upon reasonable notice and during normal business hours
inspect the records of I(3)S on which the payments to Cable Plus are based.
The expense of any such audit shall be born by Cable Plus, except that
I(3)S shall, within thirty (30) days of completion of the audit, reimburse
Cable Plus for the expense of any such audit that discloses that Cable Plus
has been underpaid in the amount of five percent (5%) or
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more of the total amount of payments due under this Agreement for any
period Cable Plus in its discretion identifies.
8.2 CUSTOMER ACCESS PRICING; MARKET PLANS. With the intent to increase HSDS
penetration at each MDU served under this Agreement, upon reasonable
approval by Cable Plus of any changes in the price schedule, I(3)S shall
establish the price at which access to the HSDS is made available to
customers and end-users; provided that, at all times I(3)S shall provide
its services at prices that are competitive for similar services being
generally offered in the same geographical area. With respect to all
marketing plans pertaining to HSDS, said marketing plans shall be mutually
established by Cable Plus and I(3)S.
8.3 BRANDING. With respect to HSDS, and the promotion thereof, I(3)S and Cable
Plus shall mutually establish the brand names, logos, labels, trademarks,
service marks and other such identifying promotional characteristics
pertaining to the same throughout the term of this Agreement. Promotional
materials shall be co-branded with the trademarks of each party and both
parties shall participate in developing the marketing plans for the HSDS to
be provided at the MDU properties covered hereby. Promotional materials
under this Section shall be subject to review and approval of both parties.
ARTICLE 9
SPECIFIC HSDS SOFTWARE WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I(3)S represents and warrants that the software
utilized hereunder (collectively, the "Products") are free and clear of all
liens and encumbrances, and that it has full power and authority to utilize
the rights granted to it with respect to such Products without the consent
of any other person or that such consent has been obtained, and that to the
knowledge of I(3)S the Products utilized hereunder will not infringe or
violate any copyright, trade secret, trademark, patent or other
intellectual property rights of any third party.
9.2 COMPLIANCE WITH APPLICABLE LAWS. Each party represents and warrants that
the services performed by such party pursuant to this Agreement shall be in
compliance with all applicable federal, state, county, and municipal laws,
rules and regulations.
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I(3)S shall defend, indemnify
and hold harmless Cable Plus, its directors, officers, shareholders,
employees and agents and its successors and assigns, from and against any
and all claims, demands, actions, liabilities, losses, damages and
expenses, including, without limitation, settlement costs and reasonable
attorneys' fees, arising out of or relating
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to any actual or alleged infringement of any third party's trade secrets,
trademark, service mark, copyright, patent or other intellectual property
rights (the "Intellectual Property Rights") in connection with the use of
said Intellectual Property Rights under or related to this Agreement.
I(3)S' obligation pursuant to the immediately preceding sentence is subject
to the following conditions: (i) Cable Plus shall give I(3)S prompt written
notice of all actions, claims or threats against Cable Plus of infringement
or violation of Intellectual Property Rights; (ii) Cable Plus shall permit
I(3)S to elect to assume complete control of such claims at its sole
discretion and expense; and (iii) Cable Plus shall cooperate fully with
I(3)S in defending against claims, including making known or available to
the indemnifying party, upon reimbursement of all costs associated with
provision or reproduction of, all records and document pertaining to
claims.
10.2 CROSS INDEMNIFICATION FOR OBLIGATIONS UNDER THIS AGREEMENT. Each Party
hereby agrees to indemnify, defend and hold harmless the other party and
each of its officers, directors, employees and agents from any and all
damages, liabilities, costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses, arising out of, under or in
connection with the indemnitor party's duties, obligations, actions or
performance under this Agreement. Whenever a claim shall arise for
indemnification under this Section, the relevant indemnitee, as
appropriate, shall promptly notify the indemnifying party and request the
indemnifying party to defend the same. Failure to so notify the
indemnifying party shall not relieve the indemnifying party of any
liability that the indemnifying party might have, except to the extent that
such failure prejudices the indemnifying party's ability to defend such
claim. The indemnifying party shall have the right to defend against such
liability or assertion, in which event the indemnifying party shall give
written notice to the indemnitee of acceptance of the defense of such claim
and the identity of counsel selected by the indemnifying party. Except as
set forth below, such notice to the relevant indemnitee shall give the
indemnifying party full authority to defend, adjust, compromise or settle
such claim with respect to which such notice shall have been given, except
to the extent that any compromise or settlement shall prejudice the
intellectual property rights of the relevant indemnitees. The indemnifying
party shall consult with the relevant indemnitee prior to any compromise or
settlement that would affect the intellectual property rights or other
rights of any indemnitee, and the relevant indemnitee shall have the right
to refuse such compromise or settlement and, at the refusing party's or
refusing parties' cost, to take over such defense, provided that in such
event the indemnifying party shall not be responsible for, nor shall it be
obligated to indemnify the relevant indemnitee against any cost or
liability in excess of such refused compromise or settlement. With respect
to any defense accepted by the indemnifying party, the relevant indemnitee
shall be entitled to participate with the indemnifying party in such
defense if the claim requests equitable relief or other relief that could
affect the rights of the indemnitee and also shall be entitled to employ
separate counsel for such defense at such indemnitee's expense. In the
event the indemnifying party does not accept the defense of any indemnified
claim as provided above, the relevant indemnitee shall
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have the right to employ counsel for such defense at the expense of the
indemnifying party. Each party agrees to cooperate, and to cause its
employees and agents to cooperate, with the other party in the defense of
any such claim, and the relevant records of each party shall be available
to the other party with respect to any such defense.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 DEFINITION. During the term of this Agreement, I(3)S and Cable Plus may
come into possession of information relating to each other's business which
is considered confidential or proprietary (the "Confidential Information").
Confidential Information shall include, without limitation, the HSDS
software and documentation, all of I(3)S's and Cable Plus's trade secrets
and all know-how, design, invention, plan or process and information
relating to I(3)S's and Cable Plus's respective business operations,
customer lists and leads, services, products, research and development and
all other similar information.
11.2 RESTRICTIONS; NON-DISCLOSURE; NON-USE. Each party shall maintain the
confidentiality of such Confidential Information and not show or otherwise
disclose such Confidential Information to any third parties, including, but
not limited to, independent contractors and consultants, without the prior
written consent of the disclosing party. Each party shall use the
Confidential Information solely for purpose of performing its obligations
under this Agreement. Neither party shall use or exploit, directly or
indirectly, the Confidential Information of the other party. There shall be
no implied license granted to the receiving party by the disclosing party
to use Confidential Information by virtue of the disclosure of such
Confidential Information hereunder. Each party shall indemnify and hold
harmless the other party from any loss or damage the other party may
sustain as a result of the wrongful use or disclosure by such party (or any
employee, agent, licensee, contractor, assignee or delegate of the other
party) of its Confidential Information.
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described in
Section 11.2 above, neither party shall have any obligation to maintain the
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving
party; (ii) is independently developed by the receiving party without
reference to Confidential Information of the disclosing party as
established by documentary evidence in the receiving party's files; or
(iii) is received from a third party who has lawfully obtained such
Confidential Information without a confidentiality restriction. If required
by any court of competent jurisdiction or other governmental authority, the
receiving party may disclose to such authority, data, information or
material involving or pertaining to Confidential Information to the extent
required by such order, provided that the receiving party shall first have
notified the disclosing party, at the earliest practical opportunity, that
an action seeking disclosure has been filed, and
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has used its best efforts to obtain a protective order reasonably
satisfactory to the disclosing party sufficient to maintain the
confidentiality of such data, information or materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of Confidential
Information to such party's bona fide employees or agents who have a need
to know such information for purposes of conducting the receiving party's
business. Each party shall notify all employees and agents who have access
to Confidential Information or to whom disclosure is made that the
Confidential Information is the confidential, proprietary property of the
disclosing party and shall instruct such employees and agents to maintain
the Confidential Information in confidence.
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this Article 11
shall survive the termination or expiration of this Agreement for three (3)
years thereafter.
11.6 CONFIDENTIALITY OF TERMS: Unless approved in advance by the non-disclosing
party, except for the existence of this Agreement, the terms and provisions
of this Agreement shall remain strictly confidential and shall not be
disclosed to any third party other than a party's attorneys, accountants
and other professional advisers.
ARTICLE 12
DEFAULT; EARLY TERMINATION; EXPIRATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a party shall
be deemed to be in default under this Agreement:
(a) Material breach of any warranty or misrepresentation by the defaulting
party;
(b) Material failure to perform the defaulting party's obligations
hereunder, including with respect to I(3)S its failure to (i) maintain
the service standards set forth in Section 7.1 hereof, and (ii) make
the payments to Cable Plus set forth in Section 8.1 hereof.
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the benefit
of its creditors, suffering or permitting the appointment of a
receiver or similar officer for its business or assets or availing
itself of, or becoming subject to, any proceeding under the United
States Federal Bankruptcy Laws or any federal or state statute
relating to solvency or the protection of the rights of creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material
respect on the date it was made by the defaulting party.
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12.2 REMEDIES. In the event the defaulting party fails to cure any default set
forth hereunder for a period of ninety (90) days after written notice of
such default by the non-defaulting party, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against the
defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are cumulative,
but the non-defaulting party is under no obligation to exercise any such
remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or
release the defaulting party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. In the event of termination or expiration of any of
Cable Plus's Right Of Entry Agreements at MDU properties identified in
Exhibit A, I(3)S' derivative right of entry through Cable Plus to provide
HSDS with respect to that individual MDU property may be terminated by the
owner of said MDU property. Cable Plus and I(3)S shall then cooperate to
establish terms under which the parties will continue to jointly provide
delivery of HSDS) at such MDU property. If, after ninety (90) days, the
parties are unable to establish mutually acceptable terms, I(3)S shall not
be precluded from entering into an agreement with the owner of said MDU
property for the continued delivery of HSDS.
12.5 CABLE PLUS'S RESTRICTION AFTER INITIAL TERM EXPIRATION. In the event that
this Agreement is not extended and expires by its terms upon the expiration
of the Initial Term, and I(3)S is not then in default hereunder, then, for
a period of two (2) years thereafter, Cable Plus shall be precluded, by
itself or through an affiliate, from providing any HSDS that utilizes (i)
the specific technology platform then being utilized by I(3)S at the date
of expiration of this Agreement at the MDU properties covered by this
Agreement on the date of expiration, or (ii) any technology introduced by
I(3)S to Cable Plus during the term of this Agreement.
12.6 I(3)S' RESTRICTION AFTER INITIAL TERM EXPIRATION. In the event that this
Agreement is not extended and expires by its terms upon the expiration of
the Initial Term, and Cable Plus is not then in default hereunder, then,
for a period of two (2) years thereafter, I(3)S shall be precluded, by
itself or through an affiliate, from providing HSDS, cable television or
telecommunications services at the MDU properties covered by this Agreement
on the date of expiration.
12.7 REMOVAL OF HSDS EQUIPMENT. Upon termination of this Agreement, I(3)S shall
have the option, but not the obligation, of removing within one hundred
twenty (120) days of termination, at I(3)S' expense, any and/or all of the
equipment associated with the provision of HSDS at the MDU properties then
subject to termination hereunder, but in no event shall I(3)S remove any
distribution wiring of said MDU properties. In connection with such
removal, Cable Plus shall provide, or cause to be provided, I(3)S with
reasonable access to the MDU property, and shall pay I(3)S an amount equal
to
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the amortized value of all elements remaining on the distribution wiring
and in active use at the MDU property, calculated on the basis of a seven
(7) year amortization period. I(3)S shall restore the MDU property to the
reasonable satisfaction of the owner thereof after removal of any such HSDS
equipment, normal wear and tear excepted. Any portion of the HSDS equipment
not removed by I(3)S from the MDU property within the stated time frame
will be deemed abandoned in favor of the owner of the MDU property, and
I(3)S shall no longer have any liability or responsibility in connection
therewith.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE. Any notice, demand or other communication required or permitted by
any provision of this Agreement shall be deemed to have been sufficiently
given or served for all purposes when delivered in person or sent by
registered or certified mail, return receipt requested, all postage and
other charges prepaid, to the respective addresses of the parties first
noted above, or at such other address as may be designated by notice from
such party to the other party pursuant to their terms of this section.
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and public
disclosures by either party of its employees, agents or representatives
relating to this Agreement or the subject matter hereof, excluding any
announcement beyond the control of this disclosing party, will be approved
by the non-disclosing party in writing prior to release.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the schedules, attachments
and exhibits attached hereto or referred to herein, constitutes the entire
Agreement and understanding among the parties hereto and is the final
expression of their Agreement and no evidence of oral or other written
promises shall be binding. All other prior agreements or understandings
related to the subject hereof among the parties, whether written or oral,
shall be null and void and of no further force and effect upon the
execution of this Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
14.2 INCORPORATION BY REFERENCE. The schedules, exhibits and attachments
referred to herein or attached hereto are hereby incorporated in and to
this Agreement and made a part hereof by this reference.
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14.3 AMENDMENT; MODIFICATION. This Agreement may not be supplemented, amended,
modified or otherwise altered except by written instrument executed by all
the parties hereto and no course of dealing or trade usage among or
between the parties shall be effective to supplement, amend, modify or
alter this Agreement.
14.4 WAIVER. The failure to enforce or to require the performance at any time
of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either
the validity of this Agreement, any part hereof or the right of any party
thereafter to enforce each and every provision in accordance with the
terms of this Agreement.
14.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON.
14.6 SEVERABILITY. If any severable provision of this Agreement is deemed
invalid or unenforceable by any judgment of a court of competent
jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent, unless to do so would
substantially impair the underlying purposes of this Agreement.
14.7 CAPTIONS. The captions and headings appearing in this Agreement are
included solely for convenience of reference and shall not be construed or
interpreted to affect the meaning or interpretation of this Agreement.
14.8 FORCE MAJEURE. Neither party shall be responsible for any failure to
comply with or for any delay in performance of the terms of this
Agreement, including, but not limited to, delays in delivery, where such
failure or delay is directly or indirectly caused by or results from
events of force majeure beyond the control of either party. These events
shall include, but not be limited to, fire, flood, earthquake, accident,
civil disturbance, war, acts of God, or acts or government.
14.9 HIRING PROHIBITED. During the term of this Agreement and for a period of
one (1) year thereafter, neither party shall solicit for hire or hire any
employee of the other party who has directly performed services under this
Agreement as a part of their employment.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy between the
parties of any kind or nature, upon the written request of either party,
each of the parties will appoint a designated officer whose task it will
be to meet for the purpose of resolving such dispute or controversy or to
negotiate for an adjustment to any provision of this Agreement needed to
resolve such dispute or controversy. Such officers will discuss the
dispute or controversy and negotiate in good faith in an effort to resolve
the dispute or controversy or renegotiate the applicable section or
provision of this Agreement without the necessity of any formal proceeding
relating thereto. No formal proceedings for the judicial or arbitrational
resolution of
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such dispute or controversy may be commenced until either or both of the
designated officers conclude in good faith that an amicable resolution
through continued negotiation of the matter at issue is not likely to
occur.
14.11 ARBITRATION. Except where otherwise expressly provided, the parties hereby
agree to submit to arbitration any and all disputes, controversies,
differences, or claims which may arise between them in relation to or out
of this Agreement, or the breach thereof. Claims for failure to protect
the proprietary rights of a party under this Agreement shall not be
submitted to arbitration under this Section unless agreed to in writing by
the parties. If the parties fail to reach an amicable settlement or
earlier resolution by mutual agreement, any controversy or claim relating
to this Agreement shall be submitted to final and binding arbitration
pursuant to the Rules of the American Arbitration Association then in
effect, by three arbitrators knowledgeable of said rules and as to
industry standards. Venue for the arbitration shall be located in the
state where the defending party is located applying the law of the state
where the arbitration is being conducted. One arbitrator will be appointed
by each party within ten (10) days of the filing of the arbitration claim
and the two arbitrators shall appoint a third arbitrator within thirty
(30) days. None of the arbitrators shall be related to or have any direct
or indirect interest in I(3)S or Cable Plus. The arbitrators will be
instructed to consider, in making any determination, the customary
practices in the industry to the extent such practices exist. The
arbitration proceeding shall commence within thirty (30) days of the
selection of the arbitrators. Discovery shall be limited as deemed
appropriate by the arbitrators. The arbitrators shall be authorized to
provide for interim and final injunctive relief. The parties acknowledge
and agree that such arbitration shall be the sole forum for such interim
and final injunctive relief and the parties agree to accept and abide by
such injunctive relief. The arbitrators shall have the right but not the
obligation to award to the prevailing party the cost of resolving any
dispute regarding this Agreement or the formation, breach, enforcement or
performance hereof, including any reasonable fees of attorneys,
accountants and expert witnesses incurred by the prevailing party.
Punitive damages shall not be recoverable in any arbitration initiated
pursuant to this Agreement. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
Notwithstanding anything to the contrary contained herein, if, at any time
an initiating party can show that it would suffer irreparable harm by
following the above procedures solely because of the time that it would
take to engage the arbitrators and the non-filing party will not agree to
immediately appoint the arbitrators and that money damages would not be
adequate to compensate it for the harm so suffered, the initiating party
may apply to any court of competent jurisdiction for an order or judgment
granting that party a provisional remedy, including, but not limited to, a
temporary restraining order, a preliminary injunction or an attachment.
14.12 BINDING NATURE; ASSIGNABILITY. This Agreement shall be binding on the
parties hereto, and their respective successors and assigns, including,
without limitation, the confidentiality and non-competition provisions set
forth herein. Upon prior
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written notice to the other party, either party may assign its rights and
delegate its duties under this Agreement; provided however, that the
assignee party must unconditionally assume in writing, and agree to be
bound by, the right, duties and obligations of the assignor party under
this Agreement. Notwithstanding the above, I(3)S shall not, without the
prior written consent of Cable Plus, assign its rights or delegate its
duties under this Agreement to a third party that is a direct private
cable or private telephone competitor with Cable Plus.
14.13 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the contrary in
this Agreement, under no circumstances will either party be deemed to be
in any relationship with the other party carrying with it fiduciary or
trust responsibilities. The parties do not intend for this Agreement or
the relationship established thereby to be considered the formation of a
joint venture or partnership between the parties for any purpose. I(3)S
has the sole right to supervise, manage, contract, direct, procure,
perform or cause to be performed the day-to-day work to be performed by
I(3)S under this Agreement unless otherwise expressly provided herein or
agreed to by the parties in writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written
I(3)S, INC. CABLE PLUS HOLDING COMPANY
By: /s/ JIM PRICE By: /s/ GARY OMALLEY
-------------------------------- --------------------------------
Jim Price Printed Name: Gary Omalley
President -----------------------
Title: SVP
-----------------------------
Date: 8-5-98 Date: 8-4-98
------------------------------ ------------------------------
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EXHIBIT A
MDU PROPERTY RIDERS
1. MDU Property Owner/Agent: _____________________
2. Term of Property Agreement: _______________________
3. Acknowledgement by Owner of Right of HSDS Access to Property
(Attached)
4. Location of MDU Property: ___________________
5. Contact Person/Leasing Agent:___________________
6. CATV/MATV Site Survey Information:
7. Number of Units:__________________________
8. Number of Buildings:________________________
9. Current Occupancy:__________________________
10. Existing Property Age or New Build: _________
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EXHIBIT B
PROPERTY NETWORK AND
LOCAL LOOP CHARACTERISTICS
CABLE PLUS'S RESPONSIBILITIES:
o Cause the cable antennae television (CATV) infrastructure at the
Property to comply with FCC requirements.
o Maintain CATV infrastructure at the Property to provide bi-directional
HSDS delivery to all subscribers.
o Cause the bi-directional CATV infrastructure to exceed the minimal
operational requirements of the I(3)S HSDS system, which are:
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ----------------------------------
MINIMUM CATV NETWORK REQUIREMENTS VALUE
FOR i3s.net HSDS
- ---------------------------------------------------------- ----------------------------------
<S> <C>
Amplitude variations inband
Forward channel 5 dB total
Return channel 5 dB total
- ---------------------------------------------------------- ----------------------------------
Group delay variation inband
Forward channel 60 nsec/MHz, 240 nsec total
Return channel 200 nsec/MHz, 800 nsec total
- ---------------------------------------------------------- ----------------------------------
Maximum tap to tap variation 27 dB
- ---------------------------------------------------------- ----------------------------------
Dynamic range on receiver -15 dBmV to +15 dBmV
- ---------------------------------------------------------- ----------------------------------
Maximum return/upstream loss 49 dB
- ---------------------------------------------------------- ----------------------------------
Minimum carrier to noise 22 dB
- ---------------------------------------------------------- ----------------------------------
Minimum carrier to interference 25 dB
- ---------------------------------------------------------- ----------------------------------
</TABLE>
Provide, or cause to be provided sufficient bandwidth within the
CATV infrastructure at the Property to satisfy expected
Subscriber demand for HSDS and for future expansion as Subscriber
penetration on the property increases.
Provide, or cause to be provided, proper space, security and power for data
communication equipment necessary to provide Internet delivery and other
data services on the property.
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Provide, or cause to be provided, an CATV drop, connection or port in each
Subscriber's unit consistent with location of Subscriber's CPU and/or
requested location.
The end-to-end performance of HSDS is probabilistic and subject
to anomalous short-lived usage patterns by Subscribers which will
affect both the utilization of the local-loop circuits and the
i3s.net national backbone from time to time.
CABLE PLUS SHALL:
Assist in the execution of a standard ISP contract for Subscribers with
terms and conditions mutually acceptable to CABLE PLUS and I(3)S.
Designate a point of contact for I(3)S Network Operations Center (NOC) to
report problems or failures during CABLE PLUS's normal business hours.
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EXHIBIT C
GENERAL
I(3)S RESPONSIBILITIES:
Install, maintain and operate data delivery equipment for each property
offering HSDS. Installation and maintenance will meet or exceed
manufacturer's specifications. CABLE PLUS will assist I(3)S with
pre-installation engineering of the CATV infrastructure at the Property and
site survey questionnaires, installation, testing and preparation of
maintenance schedules.
Integrate all data delivery equipment for each property into the I(3)S
Element Management System portion of its Network Management Platform using
SNMP and RMON. I(3)S will monitor all data delivery equipment twenty-four
hours per day, seven day per week (24x7).
Assume the cost of the acquisition of I(3)S-specified data communication
equipment conforming to the I(3)S design for HSDS and necessary to provide
termination and delivery of HSCS between the Subscriber and the I(3)S POP
in each Market.
Order, provision, install and maintain local loop pathways between each
property and I(3)S POP in each Market with a bandwidth of not less than
1.544 Mb/s (T1). In addition, as the number of Subscribers on each property
increases, scale the local loop bandwidth so that each simultaneously
active user averages approximately 1 Mb/s ninety eight percent (98%) of the
time. Both parties acknowledge that Configure and operate all data delivery
equipment to efficiently integrate with the rest of the I3s.net network.
POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I(3)S RESPONSIBILITIES:
Acquire, install and maintain data communication equipment at each POP for
the termination and transmission of HSDS from properties to the i3s.net
national network backbone.
I(3)S will determine the location of its main presence in each Market to be
consistent with its own operational practices (which currently include
co-locating within its carrier's central offices in each Market).
Acquire, install, maintain and operate Internet peering relationships
at public and private Internet Exchange Points (EP) with other Tier 1
Internet backbone networks throughout the United States.
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Acquire, install, maintain and operate computers and software to
provide Network Management and provide Internet services for
Subscribers. To provide these functions, I(3)S will employ a
combination of locally-distributed-to-the-POP servers as well as
globally centralized servers consistent with its overall network
design and operational practices.
Order, provision, install, maintain and operate data
transport/carriage pathways from each POP, EP and/or NOC with a
bandwidth not less than 45 Mb/s (DS-3) interconnection. In addition,
as the number of Subscribers on Market increases, scale the bandwidth
so that each simultaneously active user averages approximately 1 Mb/s
ninety eight percent (98%) of the time. Both parties acknowledge that
the end-to-end performance of HSDS is probabilistic and subject to
anomalous short-lived usage patterns by Subscribers which will affect
both the utilization of the local-loop circuits and the i3s.net
national backbone from time to time.
CUSTOMER HELP LINE
SERVICE AND REQUIRED FEATURES
I(3)S Responsibilities:
Provide toll free numbers for:
Inquires about the HSDS product
Ordering and scheduling installation of HSDS products
Billing inquiries
Initial technical support inquires
Operate 24x7 customer service call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing
operation.
Resolve billing issues within 24 hours 95% of time.
Resolve property network issues within 24 hours 95% of time.
Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
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Provide toll free number for:
Technical support for all HSDS issues
Technical support for Subscriber CPU hardware and software issues
related to HSDS
Technical support for cable modem issues
Answer toll free line consistent with the CABLE PLUS/I(3)S service co-brand
Operate 24x7 customer service call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing
operation.
Resolve technical issues within 24 hours if a phone call is required 95% of
time.
Resolve technical issues within 48 hours if a truck roll is required 95% of
time.
Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
Develop and publish escalation procedures for CABLE PLUS to contact
regarding technical issues related to the network.
Provide training support for CABLE PLUS's customer service representatives
(train-the-trainer support).
SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
I(3)S SHALL:
Verify that potential Subscribers' personal computers meet the
I(3)S-established minimum requirements for the supplied software and the
HSDS service.
Make an appointment with each new Subscriber to meet the I(3)S installation
personnel for the installation of the HSDS in the Subscriber's unit.
Supply I(3)S with Subscribers' information required to install, provision
and complete the set up of Subscribers' HSDS service. CABLE PLUS and I(3)S
will jointly develop an appropriate paper-form-based system or automated
system to facilitate this process.
Verify, or cause to be verified, the CATV connection completed to the
Subscriber's specified location exceeds the minimum operational
requirements for the I(3)S-supplied network interface card (NIC) and the
I(3)S HSDS service.
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Verify, or cause to be verified, that all CATV services function properly
after I(3)S completes installation.
Maintain a sufficient inventory of NICs for the Property and develop
procedures to restock the NICs as used in Subscriber installations.
Issue and install the required number of NICs for the service requested by
the Subscriber.
Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I(3)S Service Level
Agreement. Install the required NIC(s) in the Subscriber's unit.
Install any required TCP/IP protocols and Internet software suite in the
Subscriber's personal computer.
Offer the Subscriber a brief introduction to the HSCS to be performed at
the time of installation. This introduction will include how to launch the
service, how to find the training material on the i3s.net Web site, how to
find the Subscriber Support Section on the i3s.net Web site and how to call
for technical assistance or support.
Obtain signatures required to verify that installation was executed
properly and to the satisfaction of the Subscriber.
Provide CABLE PLUS with a copy of the installation transaction
documentation verifying that the completed installation is ready for
billing. This documentation will include the cable modem delivery receipt,
the ISP contract and the completed work order.
PROCEDURES FOR DETECTION AND NOTICE
OF CABLE PLUS PROPERTY NETWORK OR LOCAL LOOP FAILURES
I(3)S SHALL:
Use the CATV system, and certain network management features that it
provides, to monitor the availability and quality of CABLE PLUS's property
network (its CATV infrastructure at the Property).
Report to CABLE PLUSs' designated engineering point of contact any problems
observed by the I(3)S NOC in the course of operating the CATV system
network management features.
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Report to CABLE PLUS's designated engineering point of contact any problems
determined by Subscriber contact in the course of operating the Subscriber
Help Desk.
Offer to CABLE PLUS a read-only direct computer interface into the I(3)S
CATV system's network management platform for the purposes of direct
observation of the information produced by the management platform and
possible enhancement of CABLE PLUS's Property network operations. If CABLE
PLUS elects to implement a read-only direct-computer interface, CABLE PLUS
will be responsible for all of the costs associated with such an interface.
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EXHIBIT D
DEFINITION OF HIGH-SPEED DATA SERVICES (HSDS)
Features and Requirements
THE I(3)S HSDS INCLUDES:
Data Network services that provide transport and peering functions to the global
Internet, including, without limitation:
o A broadband access network on MDU properties composed of one or more
headend reference nodes, interfaced with an CATV distribution system
at the Property and one or more network interface cards (NIC) within
Subscriber PCs;
o A local loop network that connects the headend reference node on each
MDU property to the I(3)S regional point-of-presence (POP) in each
metropolitan area served by I(3)S;
o A regional point-of-presence network that connects the POP to the
i3s.net national Internet backbone;
o A national Internet backbone consisting of broadband communication
facilities for the transport of data among I(3)S POPs and public and
private Exchange Points where data and Internet routing information
will be exchanged with other networks peered with i3s.net;
o A national Network Operations Center (NOC).
Certain computer services that include:
o Membership system for user authentication and authorities;
o Personalization services for customizing content to user preferences;
o Internet mail (SMTP and POP3);
o Internet newsgroups (NNTP) composed of approximately 25,000
newsgroups;
o Internet World Wide Web (HTTP) services;
o Internet chat (IRC and MIRC);
o White-pages-style directory services;
o Internet locator services;
o Conferencing and collaboration bridges;
o Streaming multimedia services such as Microsoft's NetShow and
Progressive Network's RealMedia;
o Electronic commerce services.
26
<PAGE> 27
A branded suite of client software that include:
o Web browser;
o Mail reader;
o News reader;
o Chat client;
o Conferencing and collaboration client;
o Appropriate plug-ins and ActiveX controls.
Certain customer service functions that include:
o A National Customer Care Center;
o A telephone and network-based customer help desk;
o A Trouble Reporting facility;
o A customer billing system.
Certain multimedia-rich content that showcases the capabilities of HSDS that
includes:
o Original content created by I(3)S;
o Aggregated content created by others but licensed by I(3)S and
improved for uses in a HSDS system;
o Aggregated content created by others but licensed by I(3)S and used
unimproved.
27
<PAGE> 28
EXHIBIT E
INTRODUCTION
This Exhibit entitled "Service Level Agreement" ("SLA") sets out operation
specifications and requirements for HSDS provided by I(3)S for the
residents or customers of Cable Plus (herein sometimes called "Teaming
Associate"). The SLA shall encompass data services originating and
terminating within the I(3)S internetwork ("i3s.net").
The HSDS provided by I(3)S shall meet the operations specification and
requirements stated herein, which are generally stated in terms of events
or outcomes, rather than terms of specific hardware, software or procedural
requirements. For the purposes of the SLA, i3s.net shall relate to that
portion of the global Internet operated by I(3)S, originating within end
users' customer premises and terminating within I(3)S computers or
transported and peered at a public or private Internet Exchange Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall relate
to i3s.net or I(3)S provided services (or resold services), but shall
exclude customer error, defects in "customer premises equipment" ("CPE"),
defects in customers' computers, defects in distribution coaxial cable,
defects in distribution fiber optics defects in cable television systems
and network problems experienced by destination networks at or beyond
Internet Exchange Points.
Performance Requirements
Percent Customer Service Order Beginning Commitment Dates Timely Met
This parameter is generally indicative of the timely beginning of work
on orders from customers for new service or orders to make changes in
their existing service.
The timely beginning parameter is calculated by dividing the total
Customer Service Orders begun on or before the date and clock hour
promised to the customer that the service order would be started by
the total number of service orders initiated in each calendar month
and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service Order Beginning
Commitment Dates Timely Met per month.
28
<PAGE> 29
Percent Customer Service Order Completion Commitment Dates Timely Met
This parameter is generally indicative of the timely completion of
work on orders from customers for new service or orders to make
changes in their existing service and the timely completion of those
service orders.
The timely completion parameter is calculated by dividing the total
Customer Service Orders completed on or before the date and clock hour
promised to the customer that the service order would be completed by
the total number of service orders initiated in each calendar month
and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service Order Completion
Commitment Dates Timely Met per month.
Percent of Network Availability
This parameter is generally indicative of the availability of the
network to transport and peer customer data at an Internet Exchange
Point, or, in the event that the customer data is to be fulfilled by
computers within i3s.net, generally indicative of the availability of
to transport data to the I(3)S servers and the availability of the
servers.
This parameter is calculated by dividing the number of seconds that
the network is available for each customer by the total number of
customer-seconds in each calendar month and multiplying by 100.
Specifically excluded from the Network Availability calculation shall
be regularly scheduled maintenance windows or ad hoc maintenance
windows scheduled and announced 24 hours in advance in the 13s.net
Customer Support Web Site.
Specifically excluded from the Network Availability calculation shall
be periods of time where the cable television distribution plant
(operated by the Teaming Associate or its designated third party
operator) exceed the follow table of acceptable values:
<TABLE>
<CAPTION>
- ---------------------------------------------------- ---------------------------
AMPLITUDE VARIATION INBAND 1 dB/MHz., 5 dB TOTAL
UPSTREAM
- ---------------------------------------------------- ---------------------------
<S> <C>
Amplitude Variation Inband Downstream 1 dB/MHz., 5 dB total
- ---------------------------------------------------- ---------------------------
Group Delay Variation Inband 200 nsec./MHz., 800 nsec.
- ---------------------------------------------------- ---------------------------
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
- ------------------------------------------------ -------------------------------
<S> <C>
Upstream total
- ------------------------------------------------ -------------------------------
Group Delay Variation Inband Downstream 60 nsec./MHz., 240 nsec. total
- ------------------------------------------------ -------------------------------
Tap to Tap Level Variation <27 dB
- ------------------------------------------------ -------------------------------
</TABLE>
I(3)S shall exhibit greater than 98% Network Availability per month.
Percent Customer Calls Answered within 45 Seconds by I(3)S Personnel
This parameter is based upon the number of customers calls answered
within 15 seconds by a human operator or by an ACD queue greeting
during the hours of operation of the I(3)S National Customer Care
Center and thereafter to be answered by a customer representative with
30 seconds. At a minimum, the I(3)S National Customer Care Center
shall operate from 8:00 a.m. to 5:00 p.m. Central Time, Monday through
Friday exclusive of holidays.
This parameter is calculated by dividing the number of calls answered
with 45 seconds by the total number of calls answered seconds in each
calendar month and multiplying by 100.
I(3)S shall exhibit greater than 90% of Customer Calls Answered within
45 Seconds per month.
Percent of Trouble Reports Resolved Timely
This parameter is related to the number of Trouble Reports resolved
within the following windows:
o For Trouble Reports received by I(3)S at the I(3)S National
Customer Care Center prior to 2:00 p.m. Central Time, Monday
through Friday, excepting holidays, will be cleared by the
end of the next business day.
o For Trouble Reports received by I(3)S at the I(3)S National
Customer Care Center after 2:00 p.m. Central Time, Monday
through Friday, excepting holidays, will be cleared by noon
of the second business day thereafter.
This parameter is calculated by dividing the total trouble reports
cleared on or before the date and clock hour promised to the customer
the total
30
<PAGE> 31
number of Trouble Tickets cleared in each calendar month and
multiplying by 100.
I(3)S shall exhibit greater than 90% Trouble Reports Cleared Timely
per month, according to the terms of this section for trouble that can
be resolved by I(3)S alone.
Percent Customer Repair Visit Appointments Met
This parameter is related to the customer commitments made by the
I(3)S National Customer Care Center for repairs that require a repair
visit to customers' sites or premises.
This parameter is calculated by dividing the total Customer Repair
Visits Appointments met on or before the date and clock hour promised
to the customer by the total number of Customer Repair Visit
Appointments initiated in each calendar and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Repair Commitment Met
per month.
Percent of Customer Bills Prepared Timely
This parameter is related to the generation of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated and sent to customers within twenty (20) business days of
the end of the billing cycle by the total number Customer Bills
generated in each calendar month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills Prepared Timely
per month.
Percent of Customer Bills Prepared Accurately
This parameter is related to the accuracy of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
31
<PAGE> 32
This parameter is calculated by dividing the number of Customer Bills
generated that do not require an adjustment due to a billing error
caused I(3)S by the total number Customer Bills generated in each
calendar month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills Prepared
Accurately per month.
REPORTS
I(3)S shall undertake commercially reasonable efforts to provide to
Teaming Associates reports within twenty (20) business days of the end
of each calendar month, the reports listed below in this section, each
of which may be provided separately or provided on a consolidated
basis:
A report depicting total subscribers, gross new customers and
gross customers terminated separated by product tier and
property.
New service orders, Trouble Reports opened and closed or cleared
as appropriate separated by date and property.
Aggregate I(3)S National Customer Care Center data depicting the
distribution of call waiting time in general and the percent
calls answered and calls abandoned respectively.
Billing summaries describing the date(s) bills were sent to
customers, and the billed revenue disaggregating major categories
of service.
HOLIDAYS
New Years Day
Memorial Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
32
<PAGE> 1
EXHIBIT 10.13
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
MARKETING AGREEMENT
This MASTER HIGH SPEED DATA SERVICES MARKETING AGREEMENT (this "Agreement") is
entered into as of the 5th day of March, 1998 ("Effective Date"), by and between
I(3)S, INC., a Texas corporation, with a place of business at 1330 River Bend,
Suite 600, Dallas, Texas 75247-4953 ("I(3)S"); and CAMDEN DEVELOPMENT, INC., a
Delaware corporation with a place of business at 3200 Southwest Freeway, Suite
1500, Houston, Texas 77027, including all affiliates and subsidiaries which may
become parties to this Agreement from time to time ("Camden").
RECITALS
WHEREAS, Camden owns and operates Multiple Dwelling Units ("MDUs") in the United
States.
WHEREAS, I(3)S provides system integration and network services, including,
without limitation, high speed data services, as more specifically described in
Exhibit D attached hereto and incorporated herein by reference ("HSDS"), to
multiple system franchise cable operators ("MSO"), private cable operators
("PCO"), and owners, operators and managers of MDUs.
WHEREAS, Camden and I(3)S intend to allow I(3)S to provide HSDS to residents of
MDU properties ("Properties") owned or operated by Camden pursuant to the terms
of this Agreement.
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF CAMDEN.
AUTHORITY. This Agreement has been duly authorized, executed and delivered
by Camden and constitutes a valid and legally binding Agreement of Camden, and
neither the execution and delivery of nor the performance of the provisions of
this Agreement shall conflict with or result in (a) a breach, violation or
default under the Certificate of Incorporation and Bylaws of Camden, if
applicable; or (b) the breach or violation of any law, order, rule, ordinance,
regulation, judgement or decree of an governmental authority having
jurisdiction.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of Camden shall survive the execution and
delivery of this
<PAGE> 2
Agreement, and any investigation at any time made by or on behalf of I(3)S shall
not diminish its rights to rely thereon.
1.2 REPRESENTATIONS AND WARRANTIES OF I(3)S.
AUTHORITY. This Agreement has been duly authorized, executed and delivered
by I(3)S and constitutes a valid and legally binding Agreement of I(3)S, and
neither the execution and delivery of nor the performance of the provisions of
this Agreement shall conflict with or result in (a) a breach, violation or
default under the Certificate of Incorporation and Bylaws of I(3)S, if
applicable; or (b) the breach or violation of any law, order, rule, ordinance,
regulation, judgement or decree of an governmental authority having
jurisdiction.
PERMITS, LICENSES, ETC. I(3)S possesses all material permits, licenses,
franchises rights, trademarks, trademark rights, trade names, trade name rights
and copyrights which are required to conduct the business of HSDS.
I(3)S LICENSES. I(3)S possesses all requisite licenses from third parties
necessary to provide HSDS to Camden's MDUs and their residents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of I(3)S shall survive the execution and
delivery of this Agreement, and any investigation at any time made by or on
behalf of Camden shall not diminish its rights to rely thereon.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall have a term of seven (7) years from the Effective
Date; provided, however, each Property added to this Agreement within two years
of the Effective Date shall have a term of not less than seven (7) years. Unless
one party sends notice to the other to discontinue service sixty (60) days prior
to the expiration of the term, HSDS shall continue to be provided on a
month-to-month basis, cancelable on thirty (30) days notice by Owner.
Camden HSDS Agreement 2
<PAGE> 3
ARTICLE 3
SCOPE OF RIGHTS AND OBLIGATIONS
Camden is not precluded from allowing another party, such as the parties
providing telecommunications or video entertainment services to a Property, to
deliver high speed Internet access service to a Property subject to this
Agreement in the event that said party possesses a federal or state statutory or
regulatory right, or municipal cable television franchise obligation or where it
is technically infeasible for Camden to prohibit the provision of HSDS by such
other party. At a Property subject to this Agreement, Camden shall not agree to
or accept Commissions or other forms of compensation for the marketing of HSDS,
except as provided herein, and shall not provide on-premise marketing support
for such other parties' internet access service. Subject to these limitations,
I(3)S shall have the exclusive right to market, promote and sell HSDS at each
Property covered hereby during the term of this Agreement.
The rights and obligations of the Parties under this Agreement arise and exist
with respect to those Properties for which Riders have been mutually agreed to
and executed by the Parties, as such Riders may be added hereto from time to
time.
ARTICLE 4
OWNER'S OBLIGATIONS
4.1 In consideration of the mutual agreements of the parties contained herein,
Camden unconditionally covenants and agrees to do and perform, or cause to be
done and performed, the following:
4.2 ACCESS
(i) Camden will assist I(3)S in securing access to apartment units only as
necessary in furtherance of this Agreement. The parties further agree that I(3)S
shall not enter a resident's apartment unit without resident's express approval.
Further, I(3)S shall not enter a resident's unit unless resident or an adult
representative of the resident is present. Door to door marketing by I(3)S of
HSDS is not authorized under this Agreement.
(ii) Camden hereby grants I(3)S access to the Property and the cable
distribution plant as provided in the Property Specific Rider.
(iii) Camden will permit employees, agents, or contractors of I(3)S
reasonable access, at no charge, to the Property, in connection with any and all
work hereunder, including but not limited to installation, inspection,
maintenance, repair or removal of Equipment, or to facilitate the provision of
Services to I(3)S customers. Each party's employees, contractors, or agents
will, while on the premises of any other party, comply with all stated or
published rules and regulations.
Camden HSDS Agreement 3
<PAGE> 4
4.3 MAINTENANCE PROBLEMS/CUSTOMER COMPLAINTS. Camden will direct all residents
of each Property subject to this Agreement which receives HSDS to report all
maintenance or other problems with respect to the Services directly to I(3)S, to
the point of contact designated in writing by I(3)S to Camden. Camden will
inform I(3)S of any material or recurring maintenance problems and the identity
of the subscribers so notifying or reporting within two (2) business hours to
the point(s) of contact designated by I(3)S. Camden shall direct residents to
coordinate directly with I(3)S regarding any complaints or technical problems
concerning HSDS provided to the resident(s), to the point of contact designated
in writing by I(3)S to Camden.
4.4 EQUIPMENT SPACE. Camden shall provide secure space, at no charge, to I(3)S
at each Property for the storage of equipment in connection with the performance
of its obligations hereunder, to the extent such space is reasonably available.
4.5 The MDU Property Rider shall set forth additional terms, if any, governing
the maintenance of cable television inside wiring and distribution plant at any
Property at which Camden owns such inside wiring and distribution plant.
ARTICLE 5
AFFIRMATIVE COVENANTS OF I(3)S
5.1 In consideration of the mutual agreements of the parties contained herein,
I(3)S covenants and agrees to do and perform, or cause to be done and performed,
the following:
I(3)S shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to
HSDS, and all such property shall remain free and clear of any
adverse claims, interests and liens, except as has been
heretofore disclosed in writing to Camden.
I(3)S shall maintain in full force and effect all material permits,
licenses, franchise rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to
conduct the business of HSDS.
With respect to performance hereunder, I(3)S agrees to maintain, at all times
during the term of this Agreement, as a minimum, commercial general liability
insurance with minimum limits of $1,000,000 per occurrence for bodily injury (or
death) and property damage liability with limits of at least $1,000,000 per
occurrence [Personal Injury and $1,000,000 General Policy Aggregate (applicable
to Commercial General Liability Policies)] and any additional insurance and/or
bonds required by law. Upon request, I(3)S agrees to furnish certificates or
other acceptable proof of the foregoing insurance. I(3)S warrants that it meets
or exceeds all insurance requirements stated herein and those that are required
by the laws in the State of Texas.
Camben HSDS Agreement 4
<PAGE> 5
As more specifically described in Exhibit C attached hereto and
incorporated herein by reference, I(3)S shall assume and pay all operating
and capital costs and expenses associated with any and all:
Monthly recurring private Internet exchange points
Monthly recurring switch maintenance
Monthly recurring POP transport
Monthly recurring Dallas network operations center costs (including
installation costs)
Customer support IP technicians and engineers (NOC, Help Desk and
field personnel)
I(3)S-specific training
Insurance on I(3)S capital equipment
I(3)S-specific travel and entertainment
Switch site equipment (including installation costs)
Peering point routers
Private Internet exchange point hardware (including installation
costs)
I(3)S network infrastructure equipment
Transport facilities
Backbone transport facilities
Peering interconnection facilities
Monthly recurring local Loop costs
Monthly recurring property maintenance (Lce, Router, DSU/CSU)
Monthly recurring IP headend maintenance
CSR platform and services
Internet browser platform user license
MDU property IP equipment (Lce, Router, DSU/CSU)
IP master headend equipment
Non-recurring local loop transport costs
Customer billing and collections
ARTICLE 6
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I(3)S
6.1 DESCRIPTION OF HSDS. During the term of this agreement, I(3)S shall provide,
or cause to be provided, the high speed data services, in whole or in part, more
particularly described and set forth in Exhibit D.
Camden HSDS Agreement 5
<PAGE> 6
ARTICLE 7
DEFINITION OF HSDS SERVICE LEVEL STANDARDS
7.1 DEFINITION OF HSDS SERVICE LEVEL STANDARDS. Subject to the conditions,
qualifications and limitations set forth herein, including, without limitation,
those set forth in Exhibit E attached hereto and incorporated herein by
reference, during the term of this Agreement, I(3)S shall offer, or cause to be
offered, the service level standards pertaining to various aspects of HSDS, as
more particularly described and set forth in Exhibit E.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING
REVENUE ALLOCATION. Internet access revenue generated by Customers at Properties
subject to this Agreement will be paid to I(3)S; provided, however, that, by the
twenty-fifth day of each month shall pay Camden an *** ** revenue sharing fee
calculated on the basis of customer access revenue, prepaid or not, (exclusive
of installation charges, customer service charges, customer equipment sales or
leases, other charges "passed through on a no-markup basis collected by I(3)S,
and comparable charges) actually collected by or on behalf of I(3)S for the
immediately preceding month ("Commissionable Revenues"). The revenue sharing fee
for Properties within the SMSA shall immediately be increased to *** ** in the
event that the total number of units subject to this Agreement in the SMSA
exceeds three thousand (3000) units.
8.2 CUSTOMER ACCESS PRICING. With the intent to increase HSDS penetration at
each MDU served under this Agreement, upon consultation with Camden, I(3)S shall
establish the price at which access to the HSDS is made available to customers
and end-users. Such access shall be provided at a price, service quality and
content comparable to the services of companies which utilize high-speed cable
modems to deliver HSDS. Prior to the provision of service and the execution of
any Rider, I(3)S shall provide to Camden for Camden's review the proposed
pricing structure and service quality and content standards for HSDS to each
Camden property that may become subject to this Agreement.
8.3 BRANDING. With respect to HSDS, and the promotion thereof, I(3)S shall
establish the brand names, logos, labels, trademarks, service marks and other
such identifying promotional characteristics pertaining to the same throughout
the term of this Agreement.
Camden HSDS Agreement 6
<PAGE> 7
ARTICLE 9
SPECIFIC HSDS SOFTWARE WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I(3)S represents and warrants that the software
utilized hereunder (collectively, the "Products") are free and clear of all
liens and encumbrances, and that it has full power and authority to utilize the
rights granted to it with respect to such Products without the consent of any
other person or that such consent has been obtained, and that to the knowledge
of I(3)S the Products utilized hereunder will not infringe or violate any
copyright, trade secret, trademark, patent or other intellectual property rights
of any third party.
9.2 COMPLIANCE WITH APPLICABLE LAWS. I(3)S represents and warrants that the
services performed by such party pursuant to this Agreement shall be in
compliance with all applicable federal and state laws, rules and regulations.
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I(3)S shall defend, indemnify
and hold harmless Camden, its directors, officers, shareholders, employees and
agents and its successors and assigns, from and against any and all claims,
demands, actions, liabilities, losses, damages and expenses, including, without
limitation, settlement costs and reasonable attorneys' fees, arising out of or
relating to any actual or alleged infringement of any third party's trade
secrets, trademark, service mark, copyright, patent or other intellectual
property rights (the "Intellectual Property Rights") in connection with the use
of said Intellectual Property Rights hereunder. I(3)S's obligation pursuant to
the immediately preceding sentence is subject to the following conditions: (i)
Camden shall give I(3)S prompt written notice of all actions, claims or threats
against Camden of infringement or violation of Intellectual Property Rights;
(ii) Camden shall permit I(3)S to elect to assume complete control of such
claims at its sole discretion and expense; and (iii) Camden shall cooperate
fully with I(3)S in defending against claims, including making known or
available to the indemnifying party, upon reimbursement of all costs associated
with provision or reproduction of, all records and document pertaining to
claims.
10.2. INDEMNIFICATION. Each party shall indemnify the other against all
liability, loss, damage, and expense resulting from injury to or death of any
person (including injury to or death of their employees) or loss of or damage to
tangible real or tangible personal property (including damage to their property)
or the environment, but only to the extent that such liability, loss, damage or
expense was proximately caused by its breach of this Agreement or by any grossly
negligent act or omission, willful misconduct or violation of law on the part of
the party from whom indemnity is sought ("the indemnitor"), its agents,
employees, subcontractors or assignees. Indemnitor shall have the right to
assume defense of the claim with counsel reasonably acceptable to indemnitee.
Indemnitee shall be entitled to participate in the defense of the claim with its
own counsel at its sole expense.
Camden HSDS Agreement 7
<PAGE> 8
10.3 FLOW THROUGH INDEMNIFICATION. In addition, I(3)S agrees to indemnify,
defend and hold Camden harmless from and against any and all claims, demands,
actions, liabilities, losses, damages and expenses arising out of any
contractual obligation by Camden to the owner or provider of the cable or fiber
plant at a Property subject to this Agreement, as may be described more fully in
the Rider for each Property subject to this Agreement.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 CONFIDENTIAL INFORMATION. Information to be held in confidence shall be
clearly marked "Proprietary" or "Confidential." Information which is conveyed
orally shall be deemed confidential only if prior to disclosure it is indicated
as being confidential and written confirmation identifying the confidential or
proprietary information is provided to the receiving party within ten (10)
business days after it was discussed orally.
11.2 RESTRICTIONS. Each party shall use its reasonable best efforts to maintain
the confidentiality of such Confidential Information and not show or otherwise
disclose such Confidential Information to any third parties, including, but not
limited to, independent contractors and consultants, without the prior written
consent of the disclosing party. Each party shall use the Confidential
Information solely for purpose of performing its obligations under this
Agreement. Notwithstanding this Article 11, Camden may disclose this Agreement
to a potential buyer of one or more of the Properties subject to this Agreement.
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described in
Section 11.2 above, neither party shall have any obligation to maintain the
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving party;
(ii) is independently developed by the receiving party; or (iii) is received
from a third party who has lawfully obtained such Confidential Information
without a confidentiality restriction. If required by any court of competent
jurisdiction or other governmental authority, the receiving party may disclose
to such authority, data, information or material involving or pertaining to
Confidential Information to the extent required by such order, provided that the
receiving party shall first have used its best efforts to obtain a protective
order reasonably satisfactory to the disclosing party sufficient to maintain the
confidentiality of such data, information or materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of Confidential
Information to such party's bona-fide employees or agents who have a need to
know such information for purposes of conducting the receiving party's business.
Each party shall notify all employees and agents who have access to Confidential
Information or to whom disclosure is made that the Confidential Information is
the confidential, proprietary property of the disclosing party and shall
instruct such employees and agents to maintain the Confidential Information in
confidence.
Camden HSDS Agreement 8
<PAGE> 9
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this Article 11
shall survive the termination of this Agreement for one (1) year thereafter.
ARTICLE 12
DEFAULT; TERMINATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a party shall
be deemed to be in default under this Agreement:
(a) Material breach of any warranty or misrepresentation by the defaulting
party;
(b) Material failure to perform the defaulting party's obligations
hereunder, including with respect to I(3)S its failure to (i) maintain the
service standards set forth in Section 7.1 hereof, and (ii) make the payments to
Camden set forth in Section 8.1 hereof.
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the benefit of its
creditors, suffering or permitting the appointment of a receiver or similar
officer for its business or assets or availing itself of, or becoming subject
to, any proceeding under the United States Federal Bankruptcy Laws or any
federal or state statute relating to solvency or the protection of the rights
of creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material respect on the
date it was made by the defaulting party.
12.2 REMEDIES. In the event the defaulting party fails to cure any default set
forth hereunder within thirty (30) days, except for defaults pursuant to Section
12.1(c) which shall have a cure period of ninety (90) days, after written notice
of such default by the non-defaulting party, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against the
defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are cumulative,
but the non-defaulting party is under no obligation to exercise any such remedy.
The exercise of, or failure to exercise, any such remedies shall not prevent any
future exercise of the same or any other remedies or release the defaulting
party from as obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Termination of this Agreement shall not impair
either party's then accrued rights, obligations, liabilities or remedies
hereunder.
12.5 TERMINATION FOR CONVENIENCE. At any time after the third (3rd) anniversary
date of the Effective Date and upon not less than thirty (30) days' prior
written notice to I(3)S, Camden may elect to terminate this Agreement in its
entirety or with respect to one or more of the Properties subject to this
Agreement; provided, however, that for each
Camden HSDS Agreement 9
<PAGE> 10
Property for which a Rider is executed more than thirty (30) days after the
Effective Date, the third (3rd) Anniversary Date shall be deemed to be three (3)
years after the Effective Date of such Rider. For each Property subject to this
Agreement, Camden shall pay a lump sum cash termination fee on the date of
termination in an amount equal to the monthly average Commissionable Revenues
generated under the Agreement at such Property during the immediately preceding
three (3) months prior to termination multiplied by sixty percent (60%),
multiplied by the number of months remaining in the term period applicable to
such Property. At such time as Camden has exercised its rights under this
paragraph 12.5 for each Property previously subject to this Agreement, this
Agreement shall be deemed terminated without further liability to either party.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE.
All notices pursuant to this Agreement shall be in writing and may be
personally delivered or sent by overnight courier or by Certified or Registered
mail. All notices personally delivered shall be deemed delivered at the time of
such delivery. All notices sent by Certified or Registered mail shall be deemed
delivered five (5) days after deposited in the US mail. All notices sent by
overnight courier shall be deemed made one (1) business day after delivery to
such courier service. Any party may designate a change of address upon ten (10)
days written notice.
If to I(3)S, to: I(3)S, Inc.
1330 River Bend
Suite 600
Dallas, Texas 75247-4953
Attn: Mr. Jim Price
with a copy to: I(3)S, Inc.
1330 River Bend
Suite 600
Dallas, Texas 75247-4953
Attn: Matt Hutchins, Esq.
If to Owner, to: Camden Development, Inc.
3200 Southwest Freeway,
Suite 1500
Houston, TX 77027
Attn: Mr. Greg McDonald
with a copy to: General Counsel,
Camden Development, Inc.
(Same Address)
Camden HSDS Agreement 10
<PAGE> 11
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and public
disclosures by either party of its employees, agents or representatives relating
to this Agreement or the subject matter hereof, excluding any announcement
beyond the control of this disclosing party, will be approved by the
non-disclosing party in writing prior to release.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the schedules, attachments
and exhibits attached hereto or referred to herein, constitutes the entire
Agreement and understanding among the parties hereto and is the final expression
of their Agreement and no evidence of oral or other written promises shall be
binding. All other prior agreements or understandings related to the subject
hereof among the parties, whether written or oral, shall be null and void and of
no further force and effect upon the execution of this Agreement. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
14.2 INCORPORATION BY REFERENCE. The schedules, exhibits and attachments
referred to herein or attached hereto are hereby incorporated in and to this
Agreement and made a part hereof by this reference.
14.3 AMENDMENT; MODIFICATION. This Agreement may not be supplemented, amended,
modified or otherwise altered except by written instrument executed by all the
parties hereto and no course of dealing or trade usage among or between the
parties shall be effective to supplement, amend, modify or alter this Agreement.
14.4 WAIVER. The failure to enforce or to require the performance at any time of
any of the provisions of this Agreement herein shall in no way be construed to
be a waiver of such provisions, and shall not affect either the validity of this
Agreement, any part hereof or the right of any party thereafter to enforce each
and every provision in accordance with the terms of this Agreement.
14.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to its conflicts
or choice of laws.
14.6 CONTINUITY OF CONTRACT. If any severable provision of this Agreement is
deemed invalid or unenforceable by any judgment of a court of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent, unless to do so would substantially
impair the underlying purposes of this Agreement.
14.7 CAPTIONS. The captions appearing in this Agreement are included solely for
Camden HSDS Agreement 11
<PAGE> 12
convenience of reference and shall not be construed or interpreted to affect the
meaning or interpretation of this Agreement.
14.9 FORCE MAJEURE. Neither party shall be responsible for any failure to comply
with or for any delay in performance of the terms of this Agreement, including,
but not limited to, delays in delivery, where such failure or delay is directly
or indirectly caused by or results from events of force majeure beyond the
control of either party. These events shall include, but not be limited to,
fire, flood, earthquake, accident, civil disturbance, war, acts of God, or acts
or government.
14.9 HIRING PROHIBITED. During the term of this Agreement and for a period of
one (1) year thereafter, neither party shall solicit for hire or hire any
employee of the other party who has performed services under this Agreement.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy between the
parties of any kind or nature, except in circumstances where equitable relief is
deemed necessary by either party in its sole discretion, upon the written
request of either party, each of the parties will appoint a designated officer
whose task it will be to meet for the purpose of resolving such dispute or
controversy or to negotiate for an adjustment to any provision of this Agreement
needed to resolve such dispute or controversy. Such officers will discuss the
dispute or controversy and negotiate in good faith in an effort to resolve the
dispute or controversy or renegotiate the applicable section or provision of
this Agreement without the necessity of any formal proceeding relating thereto.
No formal proceedings for the judicial or arbitrational resolution of such
dispute or controversy may be commenced until either or both of the designated
officers conclude in good faith that an amicable resolution through continued
negotiation of the matter at issue is not likely to occur.
14.11 ASSIGNMENT. Neither party shall assign or otherwise transfer this
Agreement without the written consent of the other party, which consent will not
be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing,
either party upon notice to the other party, may assign all of its rights and
delegate all of its duties under this Agreement to (a) a subsidiary, affiliate
or parent company; (b) any entity that the party controls, is controlled by, or
is under common control with; (c) any entity in which the party has a majority
equity ownership interest or a voting interest sufficient to elect a majority of
the board of directors or other governing body; (d) any entity which succeeds to
all or substantially all of the party's assets, whether by merger, sale or
otherwise; or (e) to another person who acquires, by sale, transfer or other
means of conveyance, legal ownership of a Property subject to this Agreement.
Notwithstanding the foregoing, in the event of an assignment specified in
Section 14.11(e), such assignment by Camden of its rights, duties, and
obligations hereunder shall be limited to the Property (ies) so conveyed.
14.12 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the contrary in
this Agreement, under no circumstances will either party be deemed to be in any
relationship with the other party carrying with it fiduciary or trust
responsibilities. The parties do not intend for this Agreement or the
relationship established thereby to be considered the
Camden HSDS Agreement 12
<PAGE> 13
formation of a joint venture or partnership between the parties for any purpose.
I(3)S has the sole right to supervise, manage, contract, direct, procure,
perform or cause to be performed the day-to-day work to be performed by I(3)S
under this Agreement unless otherwise expressly provided herein or agreed to by
the parties in writing.
14.13 COUNTERPARTS. This Agreement may be signed in counterparts with the same
effect as if the signature on each counterpart were upon the same instrument.
14.14 MEMORANDUM OF UNDERSTANDING. The Parties stipulate and agree that a
Memorandum describing the existence of this Agreement with respect to each
Property subject to this Agreement (attached hereto as Exhibit B) will be
recorded with the Title for such Property and all liens thereto.
14.15 SUBORDINATION. This Agreement is subject and subordinate to all leases,
mortgages, and/or deed of trust which may now or hereafter affect the Property,
to all renewals, modifications, consolidations, replacements and extensions
thereof. This clause shall be self-operative and no further instrument or
subordination shall be required by any mortgage, trustee, lessor or lessee. In
confirmation of such subordination, I(3)S shall execute promptly any certificate
that Camden may request. Notwithstanding the foregoing, the party secured by any
deed of trust shall have the right to recognize this Agreement. In the event of
any foreclosure sale under such deed of trust, this Agreement shall continue in
full force and effect at the option of the party secured by such deed of trust
or the purchaser under any such foreclosure sale. I(3)S covenants that it will,
at the written request of the party secured by any such deed of trust, execute,
acknowledge and deliver any instrument that has for its purpose and effect the
subordination to said deed of trust of the lien of this Agreement.
14.16 SEVERABILITY. The Parties agree that multiple Properties may become
subject to this Agreement. Any default or termination (whether voluntary or
involuntary) by any Party with respect to a particular Property shall operate as
a default or termination only with respect to the Parties' responsibilities and
obligations as they relate to the specific Property or Properties, as the case
may be. Unless otherwise agreed to by the Parties with respect to the particular
default, a default shall be construed, where possible, to exclude unaffected
Properties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
I(3)S, INC. CAMDEN DEVELOPMENT, INC.
By:/s/ JIM PRICE By: /s/ M. STEWART
----------------------------- ----------------------------------
Jim Price NAME: M. Stewart
President ----------------------------------
TITLE: Sr. Vice President
----------------------------------
DATE: 3-10-98 DATE: 3-5-98
--------------------------- ----------------------------------
Camden HSDS Agreement 13
<PAGE> 14
LIST OF EXHIBITS
EXHIBIT A: Sample MDU Property Rider
EXHIBIT B: Sample Memorandum of Existence of High Speed Data Services
Marketing Agreement
EXHIBIT C: I(3)S Capital and Operating Expense Responsibilities
EXHIBIT D: Description of High Speed Data Services Provided by I(3)S
EXHIBIT E: Service Level Standards
Camden HSDS Agreement 15
<PAGE> 15
EXHIBIT A
MDU PROPERTY RIDER
This MDU Property Rider ("Rider") to the Master High Speed Data Services
Marketing Agreement, entered into between I(3)S, INC., a Texas corporation with
a place of business at 1330 River Bend, Suite 600, Dallas, Texas 75247-4953
("I(3)S") and CAMDEN DEVELOPMENT, INC., a Delaware corporation with a place of
business at 3200 Southwest Freeway, Suite 1500, Houston, Texas 77027, entered
into on January ____, 1998 ("the Agreement"), is entered into between I(3)S,
Inc. and CAMDEN DEVELOPMENT, INC., ("Owner") this ______ day of _______________,
1998 ("Effective Date").
(1) ADDRESS AND NAME OF PROPERTY:
The Park at Addison
17200 West Grove
Dallas, Texas 75248
(2) FULL LEGAL DESCRIPTION OF THE PROPERTY:
Being Lot 1 of THE DOMINION, an Addition to the City of Addison,
Dallas County, Texas, according to the Plat thereof recorded in Volume
95102, Page 2238, Map Records, Dallas County, Texas.
(3) CONTACT PERSON/LEASING AGENT: ___________________
TELEPHONE NO: ______________________________
(4) CATV/MATV SITE SURVEY INFORMATION:
(5) OTHER INFORMATION:
Number of Units: _______________________________
Number of Buildings: ___________________________
Current Occupancy:______________________________
Existing Property (including age) or New Build: _______
PC Ownership Survey (if any): __________________________
Existing/Proposed Local Loop Trunking:
<PAGE> 16
OTHER PROPERTY SPECIFIC PROVISIONS:
1. MAINTENANCE OF DISTRIBUTION PLANT
To the extent Owner owns the inside wiring and distribution plant at the
Property, Owner shall maintain the cable television inside wiring and
distribution plant at the Property subject to the limitations, conditions, and
restrictions of any Agreement governing the maintenance of such cable television
inside wiring and distribution plant.
2. ACCESS TO THE PROPERTY
No rights or conditions in addition to those specified in Article 4, Owners
Obligations, are granted.
COUNTERPARTS. This MDU Property Rider may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
I(3)S, INC. CAMDEN DEVELOPMENT, INC.
By: By:
-------------------------- -------------------------------
Jim Price Name:
President ------------------------------
Title:
-----------------------------
Date: Date:
------------------------- -----------------------------
<PAGE> 17
RECORDING REQUESTED BY AND EXHIBIT B
WHEN RECORDED RETURN TO:
Elizabeth Pringle Johnson, Esq.
Camden Development, Inc.
3200 Southwest Freeway, Suite 1500
Houston, Texas 77027
MEMORANDUM OF EXISTENCE OF
MASTER HIGH SPEED DATA SERVICES
MARKETING AGREEMENT
A license has been granted by CAMDEN DEVELOPMENT, INC. ("Grantor") to I(3)S
("Grantee") under a certain Master High Speed Data Services Marketing Agreement
effective January __, 1998 by and between Grantor and Grantee (the "Agreement").
The license permits Grantee, among other things, to provide High Speed Data
Services, as described in the Agreement, and to engage in any other act or
activity contemplated by the Agreement at the Property described herein. This
Agreement runs with the land and automatically terminates upon the earlier to
occur of (i) January __, 2005 or (ii) any termination of the Agreement. Such
earlier termination may be evidenced by the recordation of an Affidavit executed
by Grantor stating that such termination has occurred. As used in the Agreement,
the term "Property" means that the real property consisting of approximately
______ apartment units located in the city of Addison, County of Dallas, State
of Texas, at the address commonly known as The Park at Addison, 17200 West
Grove, Dallas, Texas 75248. Whose legal description is as follows:
In the event of any conflict between the terms and conditions of this
Memorandum of Existence of Master High Speed Data Services Marketing Agreement
and the terms and conditions of the Agreement, the Agreement shall control. The
parties agree that the sole purpose of this Memorandum of Existence of Master
High Speed Data Services Marketing Agreement is to provide notice of the
Agreement.
Executed this ______ day of___________ 199___
GRANTOR: CAMDEN DEVELOPMENT, INC.,
A Delaware corporation
BY:
-----------------------------
NAME:
-----------------------------
TITLE:
-----------------------------
<PAGE> 18
STATE OF
-------------------
COUNTY OF
------------------
On ____________, 199 , before me, ______________________, personally
appeared __________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument and the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: (seal)
-------------------------------
GRANTEE: I(3)S
A Texas corporation
BY:
--------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
STATE OF
----------------------------
COUNTY OF
--------------------------
On ____________, 199 , before me, ________________, personally appeared
______________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by his/her/their signature(s)
on the instrument and the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: (seal)
-------------------------------
<PAGE> 19
EXHIBIT C
I(3)S OBLIGATIONS
Monthly recurring private Internet exchange points
Monthly recurring switch maintenance
Monthly recurring POP transport
Monthly recurring Dallas network operations center costs (including
installation costs)
Customer support IP technicians and engineers (NOC, Help Desk and field
personnel)
I(3)S-specific training
Insurance on I(3)S capital equipment
I(3)S-specific travel and entertainment
Switch site equipment (including installation costs)
Peering point routers
Private Internet exchange point hardware (including installation costs)
I(3)S network infrastructure equipment
Transport facilities
Backbone transport facilities
Peering interconnection facilities
Monthly recurring local loop costs
Monthly recurring property maintenance (Lce, Router, DSU/CSU)
Monthly recurring IP headend maintenance
CSR platform and services
Internet browser platform user license
MDU property IP equipment (Lce, Router, DSU/CSU)
IP master headend equipment
Non-recurring local loop transport costs
Customer billing and collections
<PAGE> 20
EXHIBIT D
DEFINITION OF HIGH-SPEED DATA SERVICES (HSDS)
The I(3)S HSDS includes, but is not limited by:
o Certain network services that provide transport and peering functions
to the global Internet that include, but not limited by:
o A broadband access network on MDU properties composed of one or
more headend reference nodes, a coaxial or hybrid fiber coaxial
(HFC) cable television distribution system and one or more cable
data modems (CDM)
o A local loop network that connects the headend reference node on
each MDU property to the I(3)S regional point-of-presence in each
metropolitan area served by I(3)S
o A regional point-of-presence network that connects the POP to the
i(3)s.net national Internet backbone
o A National Operations Center (NOC)
o Certain computer services that include, but not limited by:
o Membership system for authentication and authorities
o Internet mail (SMTP and POP3)
o Internet newsgroups (NNTP) composed of approximately 25,000
newsgroups
o Internet World Wide Web (HTTP)
o Internet chat (IRC and MIRC)
o White-pages-style directory services
o Internet locator services
o Conferencing and collaboration bridges
o Electronic commerce services
o A branded suite of client software that includes, but not limited by:
o Web browser
o Mail reader
o News reader
o Chat client
o Conferencing and collaboration client
o Certain customer service functions that include, but not limited by:
o A National Customer Care Center
o A telephone and network-based help desk
o A Trouble Reporting facility
o A customer billing system
o Certain multimedia-rich content that showcases the capabilities of
HSCDS
<PAGE> 21
EXHIBIT E
SERVICE LEVEL STANDARDS
INTRODUCTION
This document titled "Service Level Agreement" ("SLA") sets out operation
specifications and requirements for High Speed Cable Data Services
("HSCDS") provided by I(3)S, Inc. ("I(3)S") for the residents or customers
of Camden (herein sometimes called "Teaming Associate"). The SLA shall
encompass data services originating and terminating within the I(3)S
internetwork ("i(3)s.net").
The HSCDS provided by I(3)S shall meet the operations specification and
requirements stated herein, which are generally stated in terms of events
or outcomes, rather than terms of specific hardware, software or procedural
requirements. For the purposes of the SLA, i(3)S.net shall relate to that
portion of the global Internet operated by I(3)S, originating within end
users' customer premises and terminating within I(3)S computers or
transported and peered at a public or private Internet Exchange Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall relate
to i(3)s.net or I(3)S provided services (or resold services), but shall
exclude customer error, defects in "customer premises equipment" ("CPE"),
defects in customers' computers, defects in distribution coaxial cable,
defects in distribution fiber optics defects in cable television systems
and network problems experienced by destination networks at or beyond
Internet Exchange Points.
PERFORMANCE REQUIREMENTS
PERCENT CUSTOMER SERVICE ORDER BEGINNING COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely beginning of work
on orders from customers for new service or orders to make changes in
their existing service.
The timely beginning parameter is calculated by dividing the total
Customer Service Orders begun on or before the date and clock hour
promised to the customer that the service order would be started by
the total number of service orders initiated in each calendar month
and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service Order Beginning
Commitment Dates Timely Met per month.
PERCENT CUSTOMER SERVICE ORDER COMPLETION COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely completion of
work on orders from customers for new service or orders to make
changes in their existing service and the timely completion of those
service orders.
The timely completion parameter is calculated by dividing the total
Customer Service Orders completed on or before the date and clock hour
promised to the customer that the service order would be completed by
the total number of service orders initiated in each calendar month
and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service Order Completion
Commitment Dates Timely Met per month.
Service Level Agreement
Page 1 of 4
<PAGE> 22
PERCENT OF NETWORK AVAILABILITY
This parameter is generally indicative of the availability of the
network to transport and peer customer data at an Internet Exchange
Point, or, in the event that the customer data is to be fulfilled by
computers within i3s.net, generally indicative of the availability
of to transport data to the I(3)S servers and the availability of the
servers.
This parameter is calculated by dividing the number of seconds that
the network is available for each customer by the total number of
customer-seconds in each calendar month and multiplying by 100.
Specifically excluded from the Network Availability calculation shall
be regularly scheduled maintenance windows or ad hoc maintenance
windows scheduled and announced 24 hours in advance in the i3s.net
Customer Support Web Site.
Specifically excluded from the Network Availability calculation shall
be periods of time where the cable television distribution plant
(operated by the Teaming Associate or its designated third party
operator) exceed the follow table of acceptable values:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Amplitude Variation Inband Upstream 1 dB/MHz., 5 dB total
- --------------------------------------------------------------------------------
Amplitude Variation Inband Downstream 1 dB/MHz., 5 dB total
- --------------------------------------------------------------------------------
Group Delay Variation Inband Upstream 200 nsec./MHz., 800 nsec. total
- --------------------------------------------------------------------------------
Group Delay Variation Inband Downstream 60 nsec./MHz., 240 nsec. total
- --------------------------------------------------------------------------------
Tap to Tap Level Variation <27 dB
- --------------------------------------------------------------------------------
</TABLE>
I(3)S shall exhibit greater than 98% Network Availability per month.
PERCENT CUSTOMER CALLS ANSWERED WITHIN 45 SECONDS BY I(3)S PERSONNEL
This parameter is based upon the number of customers calls answered
within 15 seconds by a human operator or by an ACD queue greeting
during the hours of operation of the I(3)S National Customer Care
Center and thereafter to be answered by a customer representative with
30 seconds. At a minimum, the I(3)S National Customer Care Center
shall operate from 8:00 a.m. to 5:00 p.m. Central Time, Monday through
Friday exclusive of holidays.
This parameter is calculated by dividing the number of calls answered
with 45 seconds by the total number of calls answered seconds in each
calendar month and multiplying by 100.
I(3)S shall exhibit greater than 90% of Customer Calls Answered within
45 Seconds per month.
PERCENT OF TROUBLE REPORTS RESOLVED TIMELY
This parameter is related to the number of Trouble Reports resolved
within the following windows:
o For Trouble Reports received by I(3)S at the I(3)S National
Customer Care Center prior to 2:00 p.m. Central Time, Monday
through Friday, excepting holidays, will be cleared by the
end of the next business day.
Service Level Agreement
Page 2 of 4
<PAGE> 23
o For Trouble Reports received by I(3)S at the I(3)S National
Customer Care Center after 2:00 p.m. Central Time, Monday
through Friday, excepting holidays, will be cleared by noon
of the second business day thereafter.
This parameter is calculated by dividing the total trouble reports
cleared on or before the date and clock hour promised to the customer
the total number of Trouble Tickets cleared in each calendar month and
multiplying by 100.
I(3)S shall exhibit greater than 90% Trouble Reports Cleared Timely
per month, according to the terms of this section for trouble that can
be resolved by I(3)S alone.
PERCENT CUSTOMER REPAIR VISIT APPOINTMENTS MET
This parameter is related to the customer commitments made by the
I(3)S National Customer Care Center for repairs that require a repair
visit to customers' sites or premises.
This parameter is calculated by dividing the total Customer Repair
Visits Appointments met on or before the date and clock hour promised
to the customer by the total number of Customer Repair Visit
Appointments initiated in each calendar and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Repair Commitment Met
per month.
PERCENT OF CUSTOMER BILLS PREPARED TIMELY
This parameter is related to the generation of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated and sent to customers within twenty (20) business days of
the end of the billing cycle by the total number Customer Bills
generated in each calendar month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills Prepared Timely
per month.
PERCENT OF CUSTOMER BILLS PREPARED ACCURATELY
This parameter is related to the accuracy of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated that do not require an adjustment due to a billing error
caused I(3)S by the total number Customer Bills generated in each
calendar month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills Prepared
Accurately per month.
REPORTS
I(3)S shall undertake commercially reasonable efforts to provide to Teaming
Associates reports within twenty (20) business days of the end of each
calendar month, the reports listed below in this section, each of which may
be provided separately or provided on a consolidated basis:
Service Level Agreement
Page 3 of 4
<PAGE> 24
A report depicting total subscribers, gross new customers and gross
customers terminated separated by product tier and property.
New service orders, Trouble Reports opened and closed or cleared as
appropriate separated by date and property.
Aggregate I(3)S National Customer Care Center data depicting the
distribution of call waiting time in general and the percent calls
answered and calls abandoned respectively.
Billing summaries describing the date(s) bills were sent to customers,
and the billed revenue disaggregating major categories of service.
HOLIDAYS
New Years Day
Memorial Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
And any other holiday recognized by I(3)S
COMPETITIVE SERVICE LEVEL STANDARDS ASSESSMENT
At any time upon the written request of Camden, but at least annual in the
absence of such written request, Camden and I3S shall meet to assess the
level of service then being rendered by I3S hereunder in the context of
the level of service then being offered by providers of comparable HSDS to
the multi-family dwelling market in the same SMSA. In the event that Camden
determines in good faith after any such meeting or meetings that I3S is
not then offering a competitive level of service to the MDU properties
covered hereby when evaluated in the aggregate against such providers of
comparable HSDS, then I3S shall be required to modify the terms of this
Service Level Agreement accordingly, and improve it's level of service in
those area(s) of service deemed noncompetitive in good faith by Camden to
be comparable with those area(s) of superior service being offered by such
providers of comparable HSDS.
Service Level Agreement
Page 4 of 4
<PAGE> 1
EXHIBIT 10.14
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
ACCESS AGREEMENT
This MASTER HIGH SPEED DATA SERVICES ACCESS AGREEMENT (this "Agreement") is
entered into as of the 16th day of March, 1999 ("Effective Date"), by and
between I(3)S, INC., a Texas corporation, with an address at 1440 Corporate
Drive, Irving, Texas 75038 ("I(3)S"); and GLOBAL INTERACTIVE COMMUNICATIONS
CORP., a Delaware corporation, with an address at 1901 N. Glenville Dr., Suite
800, Richardson, TX 75081 ("Global"). I(3)S and Global are hereinafter sometimes
referred to individually as a "party", and collectively as the "parties".
RECITALS
WHEREAS, Global currently provides bundled telecommunications services,
including local and long-distance telephony, internet access and video services
to multiple dwelling units ("MDUs") and their residents in certain metropolitan
markets throughout the United States under an agreement between the MDU owner
and Global (each, a "Right-of-Entry");
WHEREAS, I(3)S provides broadband Internet Protocol network services, including,
without limitation, high speed data services, as more specifically described in
Exhibit B attached hereto and incorporated herein by reference ("HSDS"), to
multiple system franchise cable operators ("MSOs"), private cable operators
("PCOs"), and real estate investment trusts ("REITs"), nationwide; and
WHEREAS, Global and I(3)S desire to provide HSDS to MDUs, current and future, as
evidenced by the attachment of an MDU Rider, the form of which is attached
hereto as Exhibit A, which MDUs are served by Global in accordance with the
terms of this Agreement (each, a "Property", and collectively, the
"Properties").
NOW, THEREFORE, the parties hereto hereby covenant and agree as follows:
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF GLOBAL. In order to induce I(3)S to
enter into this Agreement, Global represents and warrants (which
representations and warranties shall survive the delivery of this
Agreement) as follows:
(a) ORGANIZATION AND QUALIFICATION. Global is a corporation duly
organized and validly existing and in good standing under the
laws of the State of Delaware; has all requisite power and
authority to own its property and assets and to carry on its
business as, and in the places where, such property and assets
are owned or such business is now conducted; and is duly
qualified to do business
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and is in good standing in every other jurisdiction in which such
qualification is necessary or desirable.
(b) NO DEFAULTS. Global is not in default under any instrument or
agreement existing as of the date hereof which Global is bound
that may adversely affect its ability to perform its obligations
under this Agreement; and no default hereunder has occurred.
(c) TITLE. Global has good, valid and indefeasible title to its
property that pertains in any way to HSDS, and all such property
is free and clear of all adverse claims, interests and liens,
except as has been heretofore disclosed in writing to I(3)S.
(d) ENFORCEABLE OBLIGATIONS; AUTHORIZATION. This Agreement is a
legal, valid and binding obligation of Global, enforceable in
accordance with its terms; the making and performance by Global
of this Agreement have been duly authorized by all necessary
action; are within the power and authority of Global; will not
contravene or violate any legal requirement, shareholders
agreement of Global, or charter of Global; and will not result in
the breach of, or constitute a default under, any agreement,
instrument, judgement, license, order, franchise or permit to
which Global is a party, or any of its property may be bound or
affected.
(e) PERMITS, LICENSES, ETC. Global possesses all material permits,
licenses, franchises rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to
conduct the business of HSDS.
(f) MDU PROPERTY AND OPERATING AGREEMENTS. All Rights-Of-Entry or
operating agreements to which Global is a party that pertain to
HSDS are in full force and effect, and no default has occurred
with regard to any such Right-Of-Entry or operating agreement
that would adversely affect the provision of HSDS at any
Property.
(g) INSURANCE. Global carries insurance with reputable insurers in
respect of Global's property pertaining to HSDS, in such amounts
and against such risks as are customarily maintained by other
persons of similar size engaged in similar businesses.
(h) RIGHT OF ACCESS. Global possesses the right to grant a right of
access or entry for the provision of HSDS to all Properties
during the term of this Agreement in favor of I(3)S.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by or on behalf of Global shall survive the
execution and delivery of this Agreement, and any investigation
at any time made by or on behalf of I3S shall not diminish its
rights to rely thereon.
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1.2 REPRESENTATIONS AND WARRANTIES OF I(3)S. In order to induce Global to
enter into this Agreement, I(3)S represents and warrants (which
representations and warranties shall survive the delivery of this
Agreement) as follows:
(a) ORGANIZATION AND QUALIFICATION. I(3)S is a Texas corporation duly
organized and validly existing and in good standing under the
laws of the State of Texas; has all requisite power and authority
to own its property and assets and to carry on its business as,
and in the places where, such property and assets are owned or
such business is now conducted; and is duly qualified to do
business and is in good standing in the State of Texas and in
every other jurisdiction in which such qualification is necessary
or desirable.
(b) NO DEFAULTS. I(3)S is not in default under any instrument or
agreement existing as of the date hereof which I(3)S is bound
that may adversely affect its ability to perform its obligations
under this Agreement; and no default hereunder has occurred and
is continuing.
(c) TITLE. I(3)S has good, valid and indefeasible title to its
property that pertains in any way to HSDS, and all such property
is free and clear of all adverse claims, interests and liens,
except as has been heretofore disclosed in writing to Global.
(d) ENFORCEABLE OBLIGATIONS; AUTHORIZATION. This Agreement is a
legal, valid and binding obligation of I(3)S, enforceable in
accordance with its terms; the making and performance by I(3)S of
this Agreement have been duly authorized by all necessary action;
are within the power and authority of I(3)S; will not contravene
or violate any legal requirement, shareholders agreement of
I(3)S, or articles of incorporation or bylaws of I(3)S; and will
not result in the breach of, or constitute a default under, any
agreement, instrument, judgement, license, order, franchise or
permit to which I(3)S, is a party, or any of its property may be
bound or affected.
(e) PERMITS, LICENSES, ETC. I(3)S possesses all material permits,
licenses, franchises rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to
conduct the business of HSDS.
(f) INSURANCE. I(3)S carries insurance with reputable insurers in
respect of I(3)S's property pertaining to HSDS, in such amounts
and against such risks as is customarily maintained by other
persons of similar size engaged in similar businesses.
(g) I(3)S LICENSES. I(3)S possesses all requisite licenses from third
parties necessary to provide HSDS to Global's Properties and
their residents.
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(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by or on behalf of I(3)S shall survive the
execution and delivery of this Agreement, and any investigation
at any time made by or on behalf of Global shall not diminish its
rights to rely thereon.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall be co-terminus with the term (including any
extensions thereof) of any and all individual Rights-Of-Entry; provided,
however, that this Agreement shall have a term of three (3) years from the
Effective Date as to the parties' other obligations hereunder; and further
provided, however, that the initial term may be automatically extended
after the third anniversary of the Effective Date for additional one (1)
year periods unless one party notifies the other party in writing not less
than ninety (90) days prior to the then anniversary date of the notifying
party's intent to terminate this Agreement. With respect to the
Properties, Global represents and warrants that the average remaining
minimum term of the individual Rights-Of-Entry pertaining to said
Properties is not less than five (5) years as of the date I3S is scheduled
to commence providing service thereto.
ARTICLE 3
EXCLUSIVITY
3.1 EXCLUSIVITY. Except as set forth in Exhibit B attached hereto, for the
term of this Agreement and any renewals hereof, I(3)S shall be the
exclusive provider of HSDS over Global's systems at properties located in
the State of Virginia and the greater metropolitan areas of Boston, MA;
Seattle, WA; Portland, OR; Washington, DC; and Birmingham, AL (the
"Exclusive Markets"). Such exclusivity shall be extended for the term of
any Right-Of-Entry pursuant to which I(3)S serves a Property.
Notwithstanding the foregoing, if I3S declines to serve any property not
meeting the standards set forth in Section 8.5, then Global may provide
such service itself or obtain service from any third party. For the term
of this Agreement and any renewals hereof, I(3)S shall not provide video
or telephony services competing with those of Global in the aforementioned
exclusive markets (but not including streaming media content created by or
on behalf of I(3)S); provided, this restriction shall not prohibit I(3)S
from contracting with third parties to provide HSDS, which third parties
provide such competing services to other properties within the Exclusive
Markets; and further provided, however, that this restriction shall not
preclude subscribers from receiving IP or internet protocol internet based
video or telephony services via third parties.
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ARTICLE 4
AFFIRMATIVE COVENANTS OF GLOBAL
4.1 In consideration of the mutual agreements of the parties contained herein,
Global unconditionally covenants and agrees to do and perform, or cause to
be done and performed, the following:
(a) Subject to the terms and provisions of the existing agreements
with other parties that establish certain rights of entry in favor
of said parties pertaining to certain current Properties, Global
shall maintain, or cause to be maintained, in full force and
effect the right of entry granted to I(3)S hereunder to provide
HSDS to the Properties throughout the term of this Agreement, and
after the sale, assignment or conveyance of any Property that is
covered by this Agreement, subject to the terms of the
Right-Of-Entry.
(b) Global shall maintain its corporate existence and remain in good
standing under the laws of and in every other jurisdiction in
which such qualification to do business is necessary or desirable.
(c) Global shall not become in default under any instrument or
agreement which Global is bound that may adversely affect its
ability to perform its obligations under this Agreement.
(d) Global shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to HSDS,
and all such property shall remain free and clear of any adverse
claims, interests and liens, except as has been heretofore
disclosed in writing to I(3)S.
(e) Global shall maintain in full force and effect all material
permits, licenses, franchise rights, trademarks, trademark rights,
trade names, trade name rights and copyrights which are required
to conduct the business of HSDS.
(f) Global shall maintain in full force and effect all Property or
operating agreements pertaining to the provision of HSDS.
(g) Global shall maintain in full force and effect adequate insurance
with reputable insurers in respect of Global's property pertaining
to HSDS, in such amounts and against such risks as is customarily
maintained by other persons of similar size engaged in similar
businesses.
(h) Global shall use its best efforts to assist I(3)S in providing
HSDS on Properties mutually selected by Global and I(3)S on terms
and conditions acceptable to I(3)S; which MDU properties shall be
added as Riders to Schedule I attached hereto and incorporated
herein by reference for all purposes.
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(i) As more specifically described in Exhibit B attached hereto and
incorporated herein by reference, Global shall assume and timely
pay all operating and capital costs and expenses, if any,
associated with any and all:
(1) Monthly recurring Property on-site headend, cabling
and wiring maintenance
(2) Leasing agent sales commissions and property owner
revenue sharing, provided the decision to offer such
commissions and/or revenue sharing, and the amounts
thereof, shall be in Global's sole discretion
(3) Insurance on Global capital equipment related to
HSDS
(4) Global-specific training for HSDS
(5) Global-specific travel and entertainment
(6) Property CATV or other cabling and wiring upgrades
(7) Adequate on-site Property space for the installation
and maintenance of I(3)S equipment
(8) Subject to the terms of the applicable
Right-Of-Entry, reasonable access to residents'
apartments for the installation and maintenance of
customer premise equipment
(9) Monthly customer service representatives (non-1(3)S
personnel)
(10) One half (1/2) of the cost of HSDS Advertising and
Promotion, provided Global shall not be required to
expend more than $1.75 per unit per year at any
property
ARTICLE 5
AFFIRMATIVE COVENANTS OF I(3)S
5.1 In consideration of the mutual agreements of the parties contained herein,
I3S covenants and agrees to do and perform, or cause to be done and
performed, the following:
(a) I(3)S shall maintain its corporate existence and remain in good
standing under the laws of the State of Texas and in every other
jurisdiction in which such qualification to do business is
necessary or desirable.
(b) I(3)S shall not become in default under any instrument or
agreement I(3)S is bound that may adversely affected its ability
to perform its obligations under this Agreement.
(c) I(3)S shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to HSDS,
and all such property shall remain free and clear of any adverse
claims, interests and liens, except as has been heretofore
disclosed in writing to Global.
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(d) I(3)S shall maintain in full force and effect all material
permits, licenses, franchise rights, trademarks, trademark rights,
trade names, trade name rights and copyrights which are required
to conduct the business of HSDS.
(e) I(3)S shall maintain in full force and effect adequate insurance
with reputable insurers in respect of I(3)S's property pertaining
to HSDS, in such amounts and against such risks as are customarily
maintained by other persons of similar size engaged in similar
businesses.
(f) As more specifically described in Exhibit B attached hereto and
incorporated herein by reference, I(3)S shall assume and pay all
operating and capital costs and expenses associated with any and
all:
(1) Monthly recurring private Internet exchange points
(2) Monthly recurring switch maintenance
(3) Monthly recurring POP transport
(4) Monthly recurring Dallas network operations center costs
(including installation costs)
(5) Customer support IP technicians and engineers (NOC, Help
Desk and field personnel)
(6) I(3)S-specific training
(7) Insurance on I(3)S capital equipment
(8) I(3)S-specific travel and entertainment
(9) Switch site equipment (including installation costs)
(10) Peering point routers
(11) Private Internet exchange point hardware (including
installation costs)
(12) I(3)S network infrastructure equipment
(13) Transport facilities
(14) Backbone transport facilities
(15) Peering interconnection facilities
(16) Monthly recurring local loop costs
(17) Monthly recurring property maintenance (Lce, Router,
DSU/CSU)
(18) Monthly recurring IP headend maintenance
(19) CSR platform and services (non-Global)
(20) Internet browser platform user license
(21) Property IP equipment (Lce, Router, DSU/CSU)
(22) IP master headend equipment
(23) Non-recurring local loop transport costs
(24) One half (1/2) of the cost of HSDS Advertising and
Promotion, provided I(3)S shall not be required to expend
more than $1.75 per unit per year at any property
(25) Customer billing and collections
(g) I(3)S shall refer MDU property owners to Global on a non-exclusive
basis. I(3)S hereby covenants it shall not refer MDU property
owners to any other provider of services similar to those provided
by Global on an exclusive basis.
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(h) I(3)S shall offer Global the same revenue share as I(3)S offers to
any other bundled services provider competing with Global (a
"Competitor") in the same metropolitan area in which I(3)S is
serving any Property under this Agreement, under the same terms
and conditions as this Agreement, for all properties at which
I(3)S commences providing services on or after the date of
Global's acceptance of such offer. If I(3)S offers an equity
investment opportunity to a Competitor in connection with an
agreement to provide HSDS to such Competitor, I(3)S shall offer
Global the same equity investment opportunity under the same terms
and conditions as set forth therein.
ARTICLE 6
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I(3)S
6.1 DESCRIPTION OF HSDS. During the term of this Agreement, I(3)S shall
provide, or cause to be provided, the high speed data services, in whole
or in part, more particularly described and set forth in Exhibit B.
Notwithstanding the foregoing, I(3)S shall not have the right to provide,
or to contract with any other party to provide, any video, telephony or
other services over the IP Network not set forth on Exhibit B at any
Property, provided, however, this shall not prohibit customers from
purchasing such services through the Internet independent of I(3)S.
ARTICLE 7
DEFINITION OF HSDS SERVICE LEVEL STANDARDS
7.1 DEFINITION OF HSDS SERVICE LEVEL STANDARDS. Subject to the conditions,
qualifications and limitations set forth herein, including, without
limitation, those set forth in Exhibit C attached hereto and incorporated
herein by reference, during the term of this Agreement, I(3)S shall offer,
or cause to be offered, the service level standards pertaining to various
aspects of HSDS, as more particularly described and set forth in
Exhibit C.
7.2 PLANS AND SPECIFICATIONS. At least fifteen (15) days prior to the
installation of its equipment at any Property, I(3)S shall provide to
Global a copy of its plans and specifications relating to such
installation. Global shall review, and shall cause the Property owner to
review, such plans and specifications and, if either reasonably determines
the same shall interfere with its existing systems or equipment, or is not
technically feasible, Global shall notify I(3)S of such party's objections
thereto in writing within five (5) business days of receiving the plans
and specifications. I(3)S shall not install its equipment until Global's
or the Property owner's written objections are resolved to such party's
reasonable satisfaction.
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ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING;
SERVICE
8.1 REVENUE ALLOCATION. All monthly HSDS revenue generated by customers under
the Agreement will be collected by I(3)S throughout the term of the
Agreement; provided, however, that, by the fifteenth (15th) day of each
calendar month hereafter commencing on the Effective Date I(3)S shall pay
Global a revenue sharing calculated on the basis of all customer access
revenue collected by or on behalf of I(3)S (exclusive of, without
limitation, customer premise equipment installation charges, one-time
customer service charges, customer equipment sales or leases, sums "passed
through" on a no-mark up basis collected by or on behalf of I3S, and
comparable or similar one-time charges) (the "Revenue Sharing Fee")
actually collected by or on behalf of I(3)S for the immediately preceding
month in accordance with the following table, except as provided in
Section 8.6:
<TABLE>
<CAPTION>
Penetration On Property Revenue Sharing Fee
<S> <C>
(Total number of paying
customers as of the first day of
the calendar month, divided by
total units on Property)
0% to 10% *
Greater than 10% to 15% *
Greater than 15% to 20% *
Greater than 20% to 30% *
Greater than 30% *
</TABLE>
8.2 MODIFICATION OF REVENUE SHARING FEES. Twelve (12) months after the date of
execution of this Agreement, the parties agree to renegotiate the Revenue
Sharing Fees in good faith in accordance with current market standards,
such that the Revenue Sharing Fees shall be increased or decreased if
either party is economically disadvantaged hereunder, or receiving an
inordinate proportion of the revenue associated with HSDS in relation to
its investment or contribution to the relationship established hereby or
to revenue sharing generally offered by other comparable providers of HSDS
under substantially similar terms and conditions to this Agreement.
8.3 CUSTOMER ACCESS PRICING; MARKET PLANS. With the intent to increase HSDS
penetration at each Property served under this Agreement, upon
consultation with Global, I(3)S shall establish the price at which access
to the HSDS is made available to customers and end-users, provided the
HSDS shall be competitively priced in the marketplace such that all
pricing is equal to or less than that charged by comparable providers of
similar services in the same metropolitan area, excluding promotions or
offers tailored to single or groups of MDU properties. On a case-by-case
basis and
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to the extent any Right-of-Entry provides for a revenue share to the
Property owner which includes HSDS services or installation fees, I(3)S
shall include a line-item in subscriber bills in an amount mutually agreed
upon by the parties, not to exceed four dollars ($4) per customer per
month, and shall remit such amount in full to Global, who shall in turn
remit such amount in full to the Property owner. With respect to all
marketing plans pertaining to HSDS, Global and I(3)S shall mutually
establish marketing plans. I(3)S shall, at its sole cost, provide an
on-line kiosk at each Property during the first three (3) months of
provision of service. I(3)S shall, at its sole cost, provide
demonstrations and/or promotions for HSDS at each property at least twice
per calendar year.
8.4 BRANDING. With respect to HSDS, and the promotion thereof, I(3)S shall
establish the brand names, logos, labels, trademarks, service marks and
other such identifying promotional characteristics pertaining to the same
throughout the term of this Agreement. Global and I(3)S shall co-brand
certain HSDS, including the "Broadband Now!" brand; provided, the parties
shall equally share the cost of all marketing for co-branded services at
the properties served.
8.5 SERVICE. Notwithstanding the foregoing, I(3)S hereby agrees to serve any
properties offered by Global which meet the following standards: (i) the
property must be rated at least a Class "A", or "B" property by virtue of
the fact that the monthly rents associated therewith are in excess of
$1.25 per square foot of rentable space OR the average income of the
property must be at least $40,000 per annum, as determined by [official
source of information to be provided by Global], (ii) the property must
have at least one hundred fifty (150) units, (iii) the remaining term of
the Right-Of-Entry as of the date on which I(3)S is scheduled to commence
providing services is at least sixty (60) months, (iv) Global has deployed
any of its services at such property, (v) at least fifty percent (50%) of
the residents of such property possess a personal computer in their
apartment (which shall be determined by a survey of the property at I(3)S'
sole cost and expense), and (vi) the property can be physically connected
to the I(3)S nationwide network. If Global desires for compelling business
reasons that I(3)S shall provide HSDS at any property not meeting the
standards in the preceding sentence, the parties agree to negotiate in
good faith for such provision. I(3)S shall commence HSDS at a Property
within forty-five (45) days after acceptance thereof, as indicated by its
addition thereto on Exhibit A. If I(3)S declines to serve any property not
meeting the aforementioned standards, it shall notify Global of its
decision in writing.
8.6 Upon ninety (90) days written notice to I(3)S, Global shall have the right
to assume the customer care and billing obligations of I(3)S hereunder.
Prior to Global assuming such responsibilities, the parties agree to
promptly meet and negotiate in good faith to increase Global's revenue
share to cover the costs relating to such services and an increased rate
of return.
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8.7 RECORDS. I(3)S hereby grants to Global the right to audit the books and
records of I(3)S relating to the HSDS provided hereunder upon three (3)
business days' notice. In the event during such audit Global discovers a
discrepancy of the funds I(3)S was to pay to Global in an amount equal to
or greater than five percent (5%) of such funds, I(3)S shall bear the cost
of such audit, including the fees of the auditor as well as reasonable
lodging, food and travel expenses for the auditor. This audit shall occur
during normal business hours at the place where such records are normally
kept.
ARTICLE 9
SPECIFIC HSDS SOFTWARE WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I(3)S represents and warrants that the software
utilized hereunder (collectively, the "Products") are free and clear of
all liens and encumbrances, and that it has full power and authority to
utilize the rights granted to it with respect to such Products without the
consent of any other person or that such consent has been obtained, and
that to the knowledge of I(3)S the Products utilized hereunder will not
infringe or violate any copyright, trade secret, trademark, patent or
other intellectual property rights of any third party.
9.2 COMPLIANCE WITH APPLICABLE LAWS. Each party represents and warrants that
the services performed by such party pursuant to this Agreement shall be
in compliance with all applicable federal and state laws, rules and
regulations.
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I(3)S shall defend,
indemnify and hold harmless Global, its directors, officers, shareholders,
employees and agents and its successors and assigns, from and against any
and all claims, demands, actions, liabilities, losses, damages and
expenses, including, without limitation, settlement costs and reasonable
attorneys' fees, arising out of or relating to any actual or alleged
infringement of any third party's trade secrets, trademark, service mark,
copyright, patent or other intellectual property rights (the "Intellectual
Property Rights") in connection with the use of said Intellectual Property
Rights hereunder. I(3)S's obligation pursuant to the immediately preceding
sentence is subject to the following conditions: (i) Global shall give
I(3)S prompt written notice of all actions, claims or threats against
Global of infringement or violation of Intellectual Property Rights; (ii)
Global shall permit I(3)S to elect to assume complete control of such
claims at its sole discretion and expense; and (iii) Global shall
cooperate fully with I(3)S in defending against claims, including making
known or available to the indemnifying party, upon reimbursement of all
costs associated with provision or reproduction of, all records and
document pertaining to claims.
10.2 CROSS INDEMNIFICATION FOR OBLIGATIONS UNDER THIS AGREEMENT. Each party
hereby agrees to indemnify, defend and hold harmless the other party from
any and
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all damages, liabilities, costs and expenses, including, without
limitation, reasonable attorneys' fees and expenses, arising out of, under
or in connection with the indemnitor party's duties, obligations, actions
or performance under this Agreement.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 DEFINITION. During the term of this Agreement, I(3)S and Global will
provide to each other or will come into possession information relating to
each other's business which is considered confidential or proprietary (the
"Confidential Information"). Confidential Information shall include,
without limitation, the HSDS software and documentation, all of I(3)S's
and Global's trade secrets and all know-how, design, invention, plan or
process and information relating to I(3)S's and Global's respective
business operations, services, products, research and development and all
other information that is marked "confidential" or "proprietary" prior to
or upon disclosure, or which, if disclosed orally, is identified by the
disclosing party as being Confidential Information-in writing within
thirty (30) days after its initial disclosure.
11.2 RESTRICTIONS. Each party shall use its reasonable best efforts to
maintain the confidentiality of such Confidential Information and not show
or otherwise disclose such Confidential Information to any third parties,
including, but not limited to, independent contractors and consultants,
without the prior written consent of the disclosing party. Each party
shall use the Confidential Information solely for purpose of performing
its obligations under this Agreement. Each party shall indemnify and hold
harmless the other party from any loss or damage the other party may
sustain as a result of the wrongful use or disclosure by such party (or
any employee, agent, licensee, contractor, assignee or delegatee of the
other party) of its Confidential Information.
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described in
Section 9.2 above, neither party shall have any obligation to maintain the
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving
party; (ii) is independently developed by the receiving party; or (iii) is
received from a third party who has lawfully obtained such Confidential
Information without a confidentiality restriction. If required by any
court of competent jurisdiction or other governmental authority, the
receiving party may disclose to such authority, data, information or
material involving or pertaining to Confidential Information to the extent
required by such order, provided that the receiving party shall first have
used its best efforts to obtain a protective order reasonably satisfactory
to the disclosing party sufficient to maintain the confidentiality of such
data, information or materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of Confidential
Information to such party's bonafide employees or agents who have a need
to know
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such information for purposes of conducting the receiving party's
business. Each party shall notify all employees and agents who have access
to Confidential Information or to whom disclosure is made that the
Confidential Information is the confidential, proprietary property of the
disclosing party and shall instruct such employees and agents to maintain
the Confidential Information in confidence.
11.5 CONFIDENTIALITY OF TERMS. Unless approved in advance by the non-disclosing
party, except for the existence of this Agreement, the terms and
provisions of this Agreement shall remain strictly confidential and shall
not be disclosed to any third party other than a party's attorneys,
accountants and other professional advisers.
11.6 CONTINUING OBLIGATIONS. Each party's obligations under this Article 9
shall survive the termination of this Agreement for two (2) years
thereafter.
ARTICLE 12
DEFAULT; TERMINATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a party shall
be deemed to be in default under this Agreement:
(a) Material breach of any warranty, or misrepresentation by the
defaulting party;
(b) Material failure to perform the defaulting party's obligations
hereunder, including, without limitation, with respect to I(3)S its
failure to (i) maintain the service standards set forth in Section 7.1
hereof, and (ii) make the payments to Global set forth in Section 8.1
hereof.
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the benefit of
its creditors, suffering or permitting the appointment of a receiver or
similar officer for its business or assets or availing itself of, or
becoming subject to, any proceeding under the United States Federal
Bankruptcy Laws or any federal or state statute relating to solvency or
the protection of the rights of creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material respect
on the date it was made by the defaulting party.
12.2 REMEDIES. In the event the defaulting party fails to cure any default set
forth hereunder for a period of thirty (30) days after written notice of
such default by the non-defaulting party, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against
the defaulting party.
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<PAGE> 14
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are cumulative,
but the non-defaulting party is under no obligation to exercise any such
remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or
release the defaulting party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Termination of this Agreement shall not impair
either party's then accrued rights, obligations, liabilities or remedies
hereunder.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE. Any notice, demand or other communication required or permitted
by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes when delivered in person or
sent by registered or certified mail, return receipt requested, all
postage and other charges prepaid, to the respective addresses of the
parties first noted above, or at such other addresses as may be
designated by notice from such party to the other party pursuant to their
terms of this section.
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and public
disclosures by either party of its employees, agents or representatives
relating to this Agreement or the subject matter hereof, excluding any
announcement beyond the control of this disclosing party, will be approved
by the non-disclosing party in writing prior to release.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the schedules, attachments
and exhibits attached hereto or referred to herein, constitutes the entire
Agreement and understanding among the parties hereto and is the final
expression of their Agreement and no evidence of oral or other written
promises shall be binding. All other prior agreements or understandings
related to the subject hereof among the parties, whether written or oral,
shall be null and void and of no further force and effect upon the
execution of this Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
14.2 INCORPORATION BY REFERENCE. The schedules, exhibits and attachments
referred to herein or attached hereto are hereby incorporated in and to
this Agreement and made a part hereof by this reference.
14.3 AMENDMENT; MODIFICATION. This Agreement may not be supplemented, amended,
modified or otherwise altered except by written instrument executed by all
the
14
Global HSDS Agreement
<PAGE> 15
parties hereto and no course of dealing or trade usage among or between
the parties shall be effective to supplement, amend, modify or alter this
Agreement.
14.4 WAIVER. The failure to enforce or to require the performance at any time
of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either
the validity of this Agreement, any part hereof or the right of any party
thereafter to enforce each and every provision in accordance with the
terms of this Agreement.
14.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to its
conflicts or choice of laws.
14.6 SEVERABILITY. If any severable provision of this Agreement is deemed
invalid or unenforceable by any judgment of a court of competent
jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent, unless to do so would
substantially impair the underlying purposes of this Agreement.
14.7 CAPTIONS. The captions appearing in this Agreement are included solely for
convenience of reference and shall not be construed or interpreted to
affect the meaning or interpretation of this Agreement.
14.8 FORCE MAJEURE. Neither party shall be responsible for any failure to
comply with or for any delay in performance of the terms of this
Agreement, including, but not limited to, delays in delivery, where such
failure or delay is directly or indirectly caused by or results from
events of force majeure beyond the control of either party. These events
shall include, but not be limited to, fire, flood, earthquake, accident,
civil disturbance, war, acts of God, or acts or government.
14.9 HIRING PROHIBITED. During the term of this Agreement and for a period of
one (1) year thereafter, neither party shall solicit for hire or hire any
employee of the other party who has performed services under this
Agreement, but this prohibition shall not apply to any employee who
independently responds to an advertisement placed by the hiring party.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy between the
parties of any kind or nature, upon the written request of either party,
each of the parties will appoint a designated officer whose task it will
be to meet for the purpose of resolving such dispute or controversy or to
negotiate for an adjustment to any provision of this Agreement needed to
resolve such dispute or controversy. Such officers will discuss the
dispute or controversy and negotiate in good faith in an effort to resolve
the dispute or controversy or renegotiate the applicable section or
provision of this Agreement without the necessity of any formal proceeding
relating thereto. No formal proceedings for the judicial or arbitrational
resolution
15
Global HSDS Agreement
<PAGE> 16
of such dispute or controversy may be commenced until either or both of
the designated officers conclude in good faith that an amicable resolution
through continued negotiation of the matter at issue is not likely to
occur.
14.11 ARBITRATION. Except where otherwise expressly provided, the parties hereby
agree to submit to arbitration any and all disputes, controversies,
differences, or claims which may arise between them in relation to or out
of this Agreement, or the breach thereof, if the parties fail to reach an
amicable settlement or earlier resolution by mutual agreement. Any
controversy or claim relating to this Agreement shall be submitted to
final and binding arbitration pursuant to the Rules of the American
Arbitration Association then in effect, by three arbitrators knowledgeable
of said rules and as to industry standards, sitting in a location in
Dallas County, State of Texas, designated by the filing party. Each party
will appoint one arbitrator within ten (10) days of the filing of the
arbitration claim and the two arbitrators shall appoint a third arbitrator
within thirty (30) days. None of the arbitrators shall be related to or
have any direct or indirect interest in I3S or Global. The arbitrators
will be instructed to consider, in making any determination, the customary
practices in the industry to the extent such practices exist. The
arbitration proceeding shall commence within thirty (30) days of the
selection of the arbitrators. Discovery shall be limited so as to allow
the taking of a maximum of five (5) depositions by each party. The
arbitrators shall be authorized to provide for interim and final
injunctive relief. The parties acknowledge and agree that such
arbitration shall be the sole forum for such interim and final injunctive
relief and the parties agree to accept and abide by such injunctive
relief. The arbitrators shall have the right but not the obligation to
award to the prevailing party the cost of resolving any dispute regarding
this Agreement or the formation, breach, enforcement or performance
hereof, including any reasonable fees of attorneys, accountants and expert
witnesses incurred by the prevailing party. Punitive damages shall not be
recoverable in any arbitration initiated pursuant to this Agreement.
Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. Notwithstanding anything to the
contrary contained herein, if, at any time an initiating party can show
that it would suffer irreparable harm by following the above procedures
solely because of the time that it would take to engage the arbitrators
and the non-filing party will not agree to immediately appoint the
arbitrators and that money damages would not be adequate to compensate it
for the harm so suffered, the initiating party may apply to any court of
competent jurisdiction for an order or judgment granting that party a
provisional remedy, including, but not limited to, a temporary restraining
order, a preliminary injunction or an attachment.
14.12 BINDING NATURE; ASSIGNABILITY. This Agreement will be binding on the
parties hereto, and their respective successors and assigns. Upon prior
written notice to the other party, either party may assign its rights and
delegate its duties under this Agreement; provided however, that the
assignee party must unconditionally
16
Global HSDS Agreement
<PAGE> 17
assume in writing, and agree to be bound by, the right, duties and
obligations of the assignor party under this Agreement.
14.13 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the contrary in
this Agreement, under no circumstances will either party be deemed to be
in any relationship with the other party carrying with it fiduciary or
trust responsibilities. The parties do not intend for this Agreement or
the relationship established thereby to be considered the formation of a
joint venture or partnership between the parties for any purpose. I(3)S
has the sole right to supervise, manage, contract, direct, procure,
perform or cause to be performed the day-to-day work to be performed by
I(3)S under this Agreement unless otherwise expressly provided herein or
agreed to by the parties in writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
I(3)S, INC. GLOBAL INTERACTIVE
COMMUNICATIONS CORP.
By: /s/ MATTHEW HUTCHINS By: /s/ KEVIN SCHOTTLAENDER
-------------------------- ------------------------
Matthew Hutchins Kevin Schottlaender
President President
Date: 3/16/99 Date: 3/12/99
------------------------- ------------------------
17
Global HSDS Agreement
<PAGE> 18
LIST OF EXHIBITS
EXHIBIT A: Sample Property Rider
EXHIBIT B: Description of High Speed Data Services Provided by 13S
EXHIBIT C: Service Level
1
<PAGE> 19
EXHIBIT A
FORM OF MDU PROPERTY RIDER
1. MDU Property Owner/Agent Name:
---------------------------------------------
2. Term of Property Agreement:
------------------------------------------------
3. Location of MDU Property:
--------------------------------------------------
4. Contact Person/Leasing Agent:
----------------------------------------------
5. Number of Units:
-----------------------------------------------------------
6. Number of Buildings:
-------------------------------------------------------
7. Current Occupancy:
---------------------------------------------------------
8. Existing Property (including age) or New Build:
----------------------------
9. PC Ownership Survey
10. Acknowledgement by Owner of Right of HSDS Access to Property
11. CATV/MATV Site Survey Information
12. Coaxial Cable DSL Fiber Optic
Global Interactive Communications I3S, Inc.
Corp.
- ----------------------------------- ------------------------------------
Print Name: Print Name:
------------------------ -------------------------
Title: Title:
----------------------------- ------------------------------
2
<PAGE> 20
EXHIBIT B
B-1 DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I3S AND
RESPECTIVE RESPONSIBILITIES OF THE PARTIES
1.1 The I3S HSDS is a data network service that provide transport and peering
functions of Internet Protocol (IP) data traffic, including, without limitation:
A. Broadband access networks on MDU properties composed of one or more
broadband access technologies including but not limited to coaxial or hybrid
fiber coaxial (HFC) cable television distribution systems, twisted-pair
copper-wire-based telephone distribution systems, twisted-pair copper-wire-based
local area network distribution systems and fiber-optic-based local area network
distribution systems;
B. Local loop networks that connects the broadband access networks on
each MDU property to the I3S regional points-of-presence (POPs) in each
metropolitan area served by I3S;
C. Regional point-of-presence networks that connects the POPs to the
i3s.net national IP backbone;
D. A national IP backbone consisting of broadband communication
facilities for the transport of data among I3S POPs and public and private
Exchange Points where data and Internet routing information will be exchanged
with other networks peered with i3s.net as part of the global Internet;
E. A national Network Operations Center (NOC).
F. Certain computer services that include:
(i) Membership system for user authentication and authorities;
(ii) Personalization services for customizing content to user
preferences;
(iii) Internet mail (SMTP and POP3);
(iv) Internet newsgroups (NNTP) composed of approximately 25,000 or
more newsgroups;
(v) Internet World Wide Web (HTTP) services;
(vi) Internet chat (IRC and MIRC);
(vii) Conferencing and collaboration bridges;
(viii) Streaming multimedia services such as Microsoft's NetShow and
Progressive Network's RealMedia;
(ix) A branded suite of client software that include:
(a) Web browser;
(b) Mail reader;
(c) News reader;
(d) Chat client;
3
<PAGE> 21
(e) Conferencing and collaboration client;
(f) Appropriate plug-ins and ActiveX controls.
(x) Certain customer service functions that include:
(a) A National Customer Care Center;
(b) A telephone and network-based customer help desk;
(c) A Trouble Reporting facility;
(d) A customer billing system.
G. Except as set forth in Section 6.1, certain multimedia-rich content
that showcases the capabilities of HSDS that includes:
(i) Original content created by I3S;
(ii) Aggregated content created by others but licensed by I3S and
improved for uses in a HSDS system;
(iii) Aggregated content created by others but licensed by I3S and
used unimproved.
4
<PAGE> 22
B-2 REQUIREMENTS RELATED TO BROADBAND ACCESS NETWORKS
UTILIZING MULTIPLE BROADBAND ACCESS
TECHNOLOGIES (mBAT)
A. GLOBAL's RESPONSIBILITIES
(i) Provide, or cause to be provided, suitable physical-layer
coaxial-cable, twisted-pair copper-wire, or fiber-optic distribution plant on
each GLOBAL property that will meet or exceed I3S specifications;
(ii) Provide, or cause to be provided, a right of use for the
GLOBAL-provided distribution plant; and
(iii) Provide, or cause to be provided, proper space, security
and power for data communication equipment necessary to provide I3S's HSDS.
B. I3S RESPONSIBILITIES:
(i) Provide technical specifications for suitable physical-layer
distribution plants for I3S's HSDS;
(ii) Inspect and accept or reject physical-layer distribution plants
proposed by GLOBAL as suitable for I3S's HSDS;
(iii) Maintain, or cause to be maintained, physical layer distribution
plants built and owned by GLOBAL that are used for I3S's HSDS;
(iv) Install, maintain and operate data delivery equipment for each
property offering HSDS. Installation and maintenance will meet or exceed
manufacturer's specifications and the requirements set forth in the Agreement.
Through itself or its agents, GLOBAL will assist I3S with pre-installation
engineering planning and site survey questionnaires;
(v) Integrate all data delivery equipment for each property into the
I3S Element Management System portion of its Network Management Platform using
SNMP and/or RMON. I3S will monitor all data delivery equipment twenty-four hours
per day, seven day per week (24x7);
(vi) Assume the cost of the acquisition of all data communication
equipment necessary to provide HSDS, including the RF modulator and demodulator,
and to provide termination and delivery of HSDS between the Subscriber and the
I3S POP in each Market;
(vii) Without limitation on the foregoing or the attached SLA, both
parties acknowledge that the end to end performance of HSDS is probabilistic and
subject to anomalous short lived usage patterns by Subscribers which will affect
both the utilization of the local loop circuits and the I3s.net national
backbone from time to time;
(viii) Configure and operate all data delivery equipment to
efficiently integrate with the rest of the I3s.net network;
(ix) Subscribers will not be required by I3S to install or
operate a custom web browser; and
(x) Subject to all applicable laws and regulations, Subscribers will
have voluntary access to all public Internet sites and services.
5
<PAGE> 23
B-3 ADDITIONAL REQUIREMENTS RELATED TO BROADBAND ACCESS NETWORKS
UTILIZING CABLE TELEVISION DISTRIBUTION SYSTEMS
A. GLOBAL's Responsibilities (These responsibilities apply only to the
extent HSDS is to be provided by I3S by means of an interconnection to a third
party's CATV distribution plant on an applicable property. GLOBAL shall use
commercially reasonable efforts to perform these responsibilities.):
(i) Cause CATV infrastructure to comply with FCC requirements;
(ii) Upgrade, or cause to be upgraded, property CATV infrastructure to
provide bi-directional cable delivery to all subscribers;
(iii) Cause the upgraded bi-directional CATV infrastructure to exceed
the minimal operational requirements of the I3S cable modem system, which are:
<TABLE>
<CAPTION>
- --------------------------------------------------------- --------------------------------------------
MINIMUM CABLE TELEVISION NETWORK VALUE
REQUIREMENTS FOR i3s.net HSDS
<S> <C>
- --------------------------------------------------------- --------------------------------------------
Amplitude variations inband
Forward channel 5 dB total
Return channel 5 dB total
- --------------------------------------------------------- --------------------------------------------
- --------------------------------------------------------- --------------------------------------------
Group delay variation inband
Forward channel 60 nsec/MHz, 240 nsec total
Return channel 200 nsec/MHz, 800 nsec total
- --------------------------------------------------------- --------------------------------------------
- --------------------------------------------------------- --------------------------------------------
Maximum tap to tap variation 27 dB
- --------------------------------------------------------- --------------------------------------------
- --------------------------------------------------------- --------------------------------------------
Dynamic range on receiver -15 dBmV to +15 dBmV
- --------------------------------------------------------- --------------------------------------------
- --------------------------------------------------------- --------------------------------------------
Maximum return/upstream loss 49 dB
- --------------------------------------------------------- --------------------------------------------
- --------------------------------------------------------- --------------------------------------------
Minimum carrier to noise 22 dB
- --------------------------------------------------------- --------------------------------------------
- --------------------------------------------------------- --------------------------------------------
Minimum carrier to interference 25 dB
- --------------------------------------------------------- --------------------------------------------
</TABLE>
(iv) Provide, or cause to be provided, two (2) six MHz video
channels within the CATV infrastructure bandwidth on Internet served properties;
one (1) in the spectrum from 54 MHz to 750 MHz and one (1) in the 5MHz to 50 MHz
spectrum; and reserve another two (2) additional video channels, in the same
spectrums for future expansion as Subscriber penetration on the property
increases; and
(v) Designate, or cause to be designated, an engineering point of
contact for each cable company operating the cable television distribution
system for I3S Network Operations Center (NOC) to report problems or failures
related to the cable television distribution system twenty-four hours per day,
seven days per week (24x7).
7
<PAGE> 24
B. I3S Responsibilities:
(i) Use the cable modem system, and certain network management
features that it provides, to monitor the availability and quality of GLOBAL's
property network (its CATV plant) and the Equipment;
(ii) Report to GLOBAL's designated engineering point of contact any
problems observed by the I3S NOC in the course of operating the cable modem
system network management features; and
(iii) Report to GLOBAL's designated engineering point of contact any
problems determined by Subscriber contact in the course of operating the
Subscriber Help Desk.
8
<PAGE> 25
B-4 LOCAL LOOP CHARACTERISTICS
A. Global's Responsibilities: Provide, or cause to be provided,
proper space, security and power for Local Loop termination and
transmission equipment necessary to provide Internet delivery and other
data services on the property.
B. I3S Responsibilities:
(i) Install, maintain and operate local loop termination and
transmission equipment necessary for each property offering HSDS.
Installation and maintenance will meet or exceed manufacturer's
specifications and the requirements set forth in the Agreement. Through
itself or its agents, GLOBAL will assist I(3)S with pre-installation
engineering planning and site survey questionnaires;
(ii) Integrate all local loop termination and transmission
equipment for each property into the I3S Element Management System portion
of its Network Management Platform using SNMP and/or RMON. I3S will
monitor all local loop termination and transmission equipment twenty-four
hours per day, seven day per week (24x7);
(iii) Assume the cost of the acquisition of all local loop
termination and transmission equipment necessary to provide HSDS and to
provide termination and delivery of HSDS between the Property and the I3S
POP in each Market;
(iv) Order, provision, install and maintain local loop communications
links between each property and I3S POP in each Market with a bandwidth of
not less than 1.544 mb/s (T1). In addition, as the number of Subscribers
on each property increases, scale the local loop bandwidth so that each
simultaneously active user averages approximately 1 mb/s ninety eight
percent (98%) of the time;
(v) Without limitation on the foregoing or the attached SLA, both
parties acknowledge that the end to end performance of HSDS is
probabilistic and subject to anomalous short lived usage patterns by
Subscribers which will affect both the utilization of the local loop
circuits and the I3s.net national backbone from time to time; and
(vi) Configure and operate all local loop termination and
transmission equipment to efficiently integrate with the rest of the
I3s.net network.
9
<PAGE> 26
B-5 POINT OF PRESENCE FEATURES AND ESTABLISHMENT REQUIREMENTS
A. I3S Responsibilities:
(i) Acquire, install and maintain data communication equipment at
each POP for the termination and transmission of HSDS from properties to
the i3s.net national network backbone;
(ii) I3S will determine the location of its main presence in each
Market to be consistent with its own operational practices (which
currently include co-locating within its carrier's central offices in each
Market);
(iii) Acquire, install, maintain and operate Internet peering
relationships at public and private Internet Exchange Points (EP) with
other Tier 1 Internet backbone networks throughout the United States;
(iv) Acquire, install, maintain and operate computers and software to
provide Network Management and provide Internet services for Subscribers.
To provide these functions, I3S will employ a combination of locally-
distributed-to-the-POP servers as well as globally centralized servers
consistent with its overall network design and operational practices; and
(v) Order, provision, install, maintain and operate data transport/
carriage pathways from each POP, EP and/or NOC with a bandwidth not less
than 45 mb/s (DS-3) interconnection. In addition, as the number of
Subscribers on Market increases, scale the bandwidth so that each
simultaneously active user averages approximately 1 mb/s ninety eight
percent (98%) of the time.
10
<PAGE> 27
B-6 I3S INFORMATION OPERATIONS
CONTENT PRODUCTION; GLOBAL/BROADBAND NOW!(TM) LAUNCH PAGE
A. I3S operates, and shall operate for the term of this Agreement, an
information content operation for creating original content or aggregating
content created by others and licensed to I3S for inclusion in the I3S body of
content. This material will consist of but not limited to informational,
educational, recreational, entertainment and business content. This body of
content will be offered to subscribers of the HSDS product. Provision of content
shall be in accordance with the terms of the Agreement.
B. Without limitation on paragraph A above, I3S will create content as
creative and/or business opportunities present themselves. The I3S content will
be updated as I3S, using its editorial judgment, sees fit, but in no event less
frequently than good industry practice.
C. Certain portions of this content will be offered to all HSDS Subscribers
free of charge (Basic Content). Other portions of the content may be offered to
HSDS Subscribers on an optional fee basis for unlimited access to a fixed
package of content (Premium Content). Another certain portion of the content
may be offered to HSDS Subscribers on an optional fee basis for access to a
specific time-limited event (Pay-Per View Content).
D. In addition to the fees charged customers for content, I3S may solicit
and sell advertising and other revenue-producing transaction opportunities that
will appear on certain portions of the content.
E. All fees for premium content, pay-per-view content, advertising and
revenue-producing transactions shall be determined solely by I3S, subject to the
provisions of Section 8.2.
F. The potential revenue set forth here for content shall not be subject to
other provisions in the Agreement (including attachments) regarding revenue
sharing, fees and pricing.
G. I3S, or its content partners, will design, produce and update, as
necessary, all content and be responsible for all such costs.
H. I3S shall initially design, produce and update, as necessary, a
customized launch page (the "Launch Page") for HSDS Subscribers, which can be
used to market and promote the HSDS, and, on I3S's standard time and materials
rates (or as otherwise agreed by the parties), GLOBAL's other services. In
addition, the Launch Page will include hyperlinks to GLOBAL's corporate web
sites as directed by GLOBAL. The Launch Page shall meet the technical,
functional and appearance requirements specified by I3S. I3S shall from time to
time update the Launch Page throughout the Term in accordance with the terms of
this Agreement. I3S may offer HSDS Subscribers Launch Pages that are
personalized (by property) and that, in addition to the features described
above, may promote the I3S content offerings and provide direct hyperlinks to
the I3S content.
I. In no event, at any time during the term of this Agreement, shall I3S
knowingly permit or use any (i) content in the GLOBAL/Broadband NOW!(TM) website
or within its information content operations which contains obscene material,
sexually
11
<PAGE> 28
explicit adult programming, or indecent material as defined in Section 47 C.F.R.
76.701(g), (ii) material in the GLOBAL/Broadband NOW!(TM) website soliciting or
promoting unlawful conduct, or any (iii) programming in the GLOBAL/Broadband
NOW!(TM) website that may or could have been subject to the Telecommunications
Act of 1996, Section 641, relating to the scrambling of sexually-explicit adult
video service programming.
12
<PAGE> 29
B-7 CUSTOMER CARE CENTER FEATURES
A. I3S Responsibilities
(i) Provide a toll free number for:
(a) Inquiries about the HSDS supplied by I3S
(b) Ordering and scheduling installation of HSDS products
(c) Billing inquiries
(d) Initial technical support inquires
(e) Technical support for all HSDS issues
(f) Technical support for Subscriber CPE issues related to HSDS
(ii) Answer toll free line consistent with the GLOBAL/I3S service co-brand.
(iii) Operate 24x7 customer care call center operation.
(iv) Maintain sufficient customer service staff and call center
capacity to connect to Subscribers within 1 minutes of call entering processing
operation.
(v) Develop and publish escalation procedure for Customer Service
Representatives related to network issues.
(vi) Resolve billing issues within 24 hours 95% of time, on a monthly
basis.
(vii) Resolve property network issues within 24 hours 95% of time, on
a monthly basis.
(viii) Resolve technical issues within 24 hours if a phone call is required
95% of time, on a monthly basis.
(ix) Resolve technical issues within 48 hours if a truck roll is required
95% of time, on a monthly basis.
(x) Develop and publish escalation procedures for GLOBAL to contact
regarding technical issues related to the network.
13
<PAGE> 30
B-8 SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION SPECIFICATIONS AND
INSTALLATION REQUIREMENTS
A. I3S shall:
(i) Verify that potential Subscribers' personal computers meet the
I3S-established minimum requirements for the supplied software and the HSDS
service;
(ii) Make an appointment with each new Subscriber to meet the installation
personnel for the installation of the HSDS in the Subscriber's unit;
(iii) Collect the Subscriber information required to install, provision and
complete the set up of Subscribers' HSDS service. I3S will develop an
appropriate paper-form-based system or automated system to facilitate this
process;
(iv) Provide, or cause to be provided, coaxial connection to the
Subscriber's specified location;
(v) Verify, or cause to be verified, that the coaxial connection completed
to the Subscriber's specified location exceeds the minimum operational
requirements for the I3S-supplied CPE and the I3S HSDS service;
(vi) Verify, or cause to be verified, and if necessary, promptly (but not
more than a reasonable time frame set by GLOBAL) perform repairs such that all
access network services function properly (and to not less than the standards
pre-existing I3S HSDS operations) after I3S completes installation and
throughout the provision of HSDS;
(vii) Maintain a sufficient inventory of CPE for each Market and develop
procedures to restock CPE as used in Subscriber installations;
(viii) Issue and install the required CPE for the service requested by
the Subscriber;
(ix) Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I3S Service Level Agreement;
(x) Install the required cable modems(s) and have HSDS operational in the
Subscriber's unit within the number of days of a Subscriber's request set forth
in Section 6.4 of the Agreement;
(xi) Install any required network interface cards (NICs), TCP/IP protocols
and Internet software suite in the Subscriber's personal computer;
(x) Offer the Subscriber a brief introduction to the HSDS to be performed
at the time of installation. This introduction will include how to launch the
service, how to find the training material on the i3s.net Web site, how to find
the Subscriber Support Section on the i3s.net Web site and how to call for
technical assistance or support;
(xi) Obtain signatures required to verify that each Subscriber installation
was executed properly and to the satisfaction of the Subscriber; and
(xii) Provide GLOBAL with a copy of the installation transaction
documentation verifying that the completed installation is ready for billing.
This documentation will include the CPE delivery receipt, the ISP contract and
the completed work order.
14
<PAGE> 31
B-9 HSDS INITIAL SUBSCRIBER RATES, SERVICE LEVELS AND
INSTALLATION AND EQUIPMENT CHARGES
A. The following table outlines the various levels of service available to
Personal Service subscribers:
<TABLE>
<CAPTION>
% of TIME SUBSCRIBER IS
UPSTREAM GUARANTEED DOWNSTREAM
PRICE PER DOWNSTREAM TRANSMISSION AND
PERSONAL SERVICE LEVEL MONTH TRANSMISSION SPEED Speed UPSTREAM SPEEDS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BBNow!(TM) Lite $29.95 64 Kbps 64 Kbps 98%
BBNow!(TM) Standard $49.95 1.0 Mbps 1.0 Mbps 98%
BBNow!(TM) Max $79.95 1.5 Mbps 1.5 Mbps 98%
</TABLE>
B. The following table outlines the various levels of service available to
Home Office Service subscribers:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
DOWNSTREAM UPSTREAM
PRICE PER TRANSMISSION TRANSMISSION
HOME OFFICE SERVICE LEVEL Month SPEED SPEED
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Home Office--Level 1 $199 1.5 Mbps 128 Kbps
Home Office--Level 2 $299 1.5 Mbps 512 Kbps
Home Office--Level 3 $499 1.5 Mbps 1.0 Mbps
Home Office--Level 4 $699 1.5 Mbps 1.5 Mbps
- ------------------------------------------------------------------------------------------------------
</TABLE>
Vanity DNS hosting $100.00 per month
Installation fee $49.95 non-recurring
Network interface card (NIC) market price (not to exceed $60)
CPE (cable modem, xDSL modem or other
broadband access device) purchase market price
Monthly rental of CPE market price*
*The decision to purchase or rent the CPE necessary for the provision of HSDS
shall be at the sole discretion of each resident subscribing to HSDS.
15
<PAGE> 32
<PAGE> 33
EXHIBIT C
SERVICE LEVELS
A. Definitions
1. A "Trouble" or "Trouble Report" shall relate to i3s.net or 13S provided
services (or resold services) and the Equipment and I3S-maintained facilities,
but shall exclude customer error, defects in customer equipment ("CPE"), defects
in customers' computers, defects in property cable or wiring plants, defects in
fiber optic distribution systems, defects in cable television distribution
systems and network problems experienced by destination networks at or beyond
Internet Exchange Points.
2. Except as otherwise set forth herein, performance levels shall be
calculated by dividing the total Customer Service Orders begun on or before the
date and clock hour promised to the customer that the service order would be
started by the total number of service orders initiated in each calendar month
and multiplying by 100.
3. Performance Requirements
1. Percent Customer Service Order Beginning Commitment Dates Timely Met:
I3S shall exhibit greater than 90% Customer Service Order Beginning Commitment
Dates Timely Met per month.
2. Percent Customer Service Order Completion Commitment Dates Timely Met:
I3S shall exhibit greater than 90% Customer Service Order Completion Commitment
Dates Timely Met per month.
3. Percent of Network Availability
a. This parameter is calculated by dividing the number of seconds that
the network is available for each customer by the total number of
customer-seconds in each calendar month and multiplying by 100.
b. Specifically excluded from the Network Availability
calculation shall be regularly scheduled maintenance windows or ad hoc
maintenance windows scheduled and announced 24 hours in advance in the i3s.net
Customer Support Web Site.
c. Specifically excluded from the Network Availability calculation
shall be periods of time where the access distribution plant (operated by GLOBAL
or its designated third party operator) exceed the operational standards set by
I3S for each type of broadband access technology.
d. I3S shall exhibit greater than 98% Network Availability per month.
16
<PAGE> 34
4. Percent Customer Calls Answered within 45 Seconds by I3S Personnel
a. At a minimum, the I3S National Customer Care Center shall operate
from 8:00 a.m. to 5:00 p.m. Central Time, Monday through Friday exclusive of
holidays.
b. This parameter is calculated by dividing the number of calls
answered with 45 seconds by the total number of Customer Care Center calls
answered in each calendar month and multiplying by 100.
c. I3S shall exhibit greater than 90% of Customer Calls Answered
within 45 Seconds per month.
5. Percent of Trouble Reports Resolved Timely
a. This parameter is related to the number of Trouble Reports resolved
within the following windows:
(i) For Trouble Reports received by I3S at the I3S National
Customer Care Center prior to 2:00 p.m. Central Time, Monday through Friday,
excepting holidays, will be cleared by the end of the next business day.
(ii) For Trouble Reports received by I3S at the I3S National
Customer Care Center after 2:00 p.m. Central Time, Monday through Friday,
excepting holidays, will be cleared by noon of the second business day
thereafter.
(iii) This parameter is calculated by dividing the total
trouble reports cleared on or before the date and clock hour promised to the
customer the total number of Trouble Tickets cleared in each calendar month and
multiplying by 100.
(iv) I3S shall exhibit greater than 90% Trouble Reports
Cleared Timely per month, according to the terms of this section for trouble
that can be resolved by I3S alone.
6. Percent Customer Repair Visit Appointments Met
(a) This parameter is related to the customer commitments made by the
I3S National Customer Care Center for repairs that require a repair visit to
customers' sites or premises.
(b) This parameter is calculated by dividing the total Customer Repair
Visits Appointments met on or before the date and clock hour promised to the
customer by the total number of Customer Repair Visit Appointments initiated in
each calendar month and multiplying by 100.
17
<PAGE> 35
(c) I3S shall exhibit greater than 90% Customer Repair Commitment Met
per month.
(d) I3S shall complete installations of HSDS in any unit within five
(5) business days of taking an order, subject to the consent of the customer
and/or property manager.
7. Percent of Customer Bills Prepared Timely
(a) This parameter is related to the generation of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
(b) This parameter is calculated by dividing the number of Customer
Bills generated and sent to customers within twenty (20) business days of the
end of the billing cycle by the total number Customer Bills generated in each
calendar month and multiplying by 100.
(c) I3S shall exhibit greater than 95% Customer Bills Prepared Timely
per month.
8. Percent of Customer Bills Prepared Accurately
(a) This parameter is related to the accuracy of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
(b) This parameter is calculated by dividing the number of
Customer Bills generated that do not require an adjustment due to a billing
error caused I3S by the total number Customer Bills generated in each calendar
month and multiplying by 100.
(c) I3S shall exhibit greater than 95% Customer Bills Prepared
Accurately per month.
9. Reports: I3S shall provide to GLOBAL reports within twenty (20) business
days of the end of each calendar month, the reports listed below in this
section, each of which may be provided separately or provided on a consolidated
basis:
(a) A report depicting total subscribers, gross new customers and
gross customers terminated separated by product tier and property.
(b) New service orders, Trouble Reports opened and closed or cleared
as appropriate separated by date and property.
(c) Aggregate I3S National Customer Care Center data depicting the
distribution of call waiting time in general and the percent calls answered and
calls abandoned respectively.
18
<PAGE> 36
(d) Billing summaries describing the date(s) bills were sent to
customers, and the billed revenue disaggregating major categories of service.
19
<PAGE> 1
EXHIBIT 10.15
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
AGREEMENT
This MASTER HIGH SPEED DATA SERVICES AGREEMENT (this "Agreement") is entered
into as of the 12 day of November 1998 ("Effective Date"), by and between I(3)S,
INC., a Texas corporation, with an address at 1330 River Bend, Suite 600,
Dallas, Texas 75247-4953 ("I(3)S"); and GTE MEDIA VENTURES INCORPORATED, a
Delaware corporation, with an address at 100 East Royal Lane, HQJ02C05, Irving,
Texas 75039 ("GTE").
RECITALS
WHEREAS, GTE currently provides wireless and wireline, cable television
programming and other services to multiple dwelling units ("MDUs") and their
residents in several metropolitan markets throughout the United States;
WHEREAS, I(3)S provides broadband network services, including, without
limitation, high speed data services, as more specifically described in Exhibit
D attached hereto and incorporated herein by reference ("HSDS"), to multiple
system franchise cable operators ("MSOs"), private cable operators ("PCOs"),
apartment owners, and real estate investment trusts ("REITs"), nationwide; and
WHEREAS, GTE desires to enter into an agreement with I(3)S to provide HSDS to
MDUs selected by GTE in its business judgment, in accordance with the terms of
this Agreement (collectively, the "Properties" and individually, a "Property").
NOW, THEREFORE, the parties hereto hereby covenant and agree as follows:
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF GTE. In order to induce I(3)S to enter
into this Agreement, GTE represents and warrants (which representations
and warranties shall survive the delivery of this Agreement) as follows:
(a) ORGANIZATION AND QUALIFICATION. GTE is a corporation duly organized
and validly existing and in good standing under the laws of the
State of Delaware; has all requisite power and authority to own its
property and assets and to carry on its business as, and in the
places where, such property and assets are owned or such business
is now conducted; and is duly qualified to do business and is in
good standing in every other jurisdiction in which such
qualification is necessary or desirable.
(b) NO DEFAULTS. GTE is not in default under any instrument or
agreement existing as of the date hereof by which GTE is bound that
may adversely
1
GTE HSDS Agreement
<PAGE> 2
affect its ability to perform its obligations under this Agreement;
and no default hereunder has occurred and is continuing.
(c) TITLE. GTE has good, valid and indefeasible title to its property
that pertains in any way to the provision of HSDS on the
Properties, and all such property is free and clear of all adverse
claims, interests and liens, except as has been heretofore
disclosed in writing to I(3)S.
(d) ENFORCEABLE OBLIGATIONS; AUTHORIZATION. This Agreement is a legal,
valid and binding obligation of GTE, enforceable in accordance with
its terms; the making and performance by GTE of this Agreement have
been duly authorized by all necessary action; are within the power
and authority of GTE; will not contravene or violate any legal
requirement or charter of GTE; and will not result in the breach
of, or constitute a default under, any agreement, instrument,
judgement, license, order, franchise or permit to which GTE is a
party, or any of its property may be bound or affected.
(e) PERMITS, LICENSES, ETC. GTE possesses all material permits,
licenses, franchise rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to
conduct its business.
(f) MDU PROPERTY AND OPERATING AGREEMENTS. All MDU property or
operating agreements to which GTE is a party that pertain to the
Properties are in full force and effect, and no default has
occurred with regard to any such MDU property or operating
agreement that would adversely affect the provision of HSDS at any
of the Properties.
(g) INSURANCE. GTE carries insurance with reputable insurers covering
GTE's property pertaining to HSDS and to the business conducted
thereby, in such amounts and against such risks as are necessary
for the provision of services to the Properties.
(h) RIGHT OF ACCESS. GTE possesses the right under contract or will
obtain the contractual rights to allow an adequate contractual
access or entry for the provision of HSDS to all Properties where
HSDS is to be provided during the term of this Agreement in favor
of I(3)S.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of GTE shall survive the execution
and delivery of this Agreement, and any investigation at any time
made by or on behalf of I(3)S shall not diminish its rights to rely
thereon.
1.2 REPRESENTATIONS AND WARRANTIES OF I(3)S. In order to induce GTE to enter
into this Agreement, I(3)S represents and warrants (which representations
and warranties shall survive the delivery of this Agreement) as follows:
2
GTE HSDS Agreement
<PAGE> 3
(a) ORGANIZATION AND QUALIFICATION. I(3)S is a Texas corporation duly
organized and validly existing and in good standing under the laws
of the State of Texas; has all requisite power and authority to own
its property and assets and to carry on its business as, and in the
places where, such property and assets are owned or such business
is now conducted; and is duly qualified to do business and is in
good standing in the State of Texas and in every other jurisdiction
in which such qualification is necessary or desirable, including,
but not limited to, any jurisdictions contemplated by this
Agreement.
(b) NO DEFAULTS. I(3)S is not in default under any instrument or
agreement existing as of the date hereof by which I(3)S is bound
that may adversely affect its ability to perform its obligations
under this Agreement; and no default hereunder has occurred and is
continuing.
(c) TITLE. I(3)S has good, valid and indefeasible title to its property
that pertains in any way to HSDS, and all such property is free and
clear of all adverse claims, interests and liens, except as has
been heretofore disclosed in writing to GTE.
(d) ENFORCEABLE OBLIGATIONS; AUTHORIZATION. This Agreement is a legal,
valid and binding obligation of I(3)S, enforceable in accordance
with its terms; the making and performance by I(3)S of this
Agreement have been duly authorized by all necessary action; are
within the power and authority of I(3)S; will not contravene or
violate any legal requirement, shareholders agreement of I(3)S, or
articles of incorporation or bylaws of I(3)S; and will not result
in the breach of, or constitute a default under, any agreement,
instrument, judgement, license, order, franchise or permit to which
I(3)S is a party, or any of its property may be bound or affected.
(e) PERMITS, LICENSES, ETC. I(3)S possesses all material permits,
licenses, franchise rights, trademarks, trademark rights, trade
names, trade name rights, copyrights and all other applicable
intellectual property rights which are required to conduct the
business of HSDS and to perform I(3)S, obligations under this
Agreement.
(f) INSURANCE. I(3)S carries insurance with reputable insurers covering
I(3)S's property pertaining to HSDS and to the business conducted
thereby, in such amounts and against such risks as is necessary for
the provision of HSDS to the Properties, including (1) minimum
limits of $1,000,000 per occurrence for bodily injury or death, (2)
property damage liability with limits of at least $1,000,000 per
occurrence of personal injury, and (3) $1,000,000 General Policy
Aggregate (applicable to commercial general liability policies).
(g) I(3)S LICENSES. I(3)S possesses all requisite licenses and
applicable intellectual property rights from third parties
necessary to provide HSDS to the Properties and their residents.
3
GTE HSDS Agreement
<PAGE> 4
(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of I(3)S shall survive the
execution and delivery of this Agreement, and any investigation at
any time made by or on behalf of GTE shall not diminish its rights
to rely thereon.
ARTICLE 2
TERM
2.1 TERM. The term of this Agreement, including the financial provisions
pertaining thereto, shall be for five (5) years commencing on the
Effective Date; provided, however, that with respect to each Property
covered hereby, the term of this Agreement shall always be coterminous
with the term (including any extensions thereof) of the individual GTE
agreement with MDU property owners or management companies to provide
cable antennae television, direct broadcast satellite or
telecommunications services thereto.
ARTICLE 3
EXCLUSIVITY
3.1 EXCLUSIVITY. Although it is intended that GTE and I(3)S will offer and
provide HSDS, respectively, to the Properties, as mutually agreed between
the parties, in all metropolitan areas where GTE and I(3)S maintain
operations, neither GTE nor I(3)S shall be precluded from entering into
agreements with third parties to provide HSDS to such parties' customers
thereunder. Notwithstanding the foregoing, GTE shall not market, sell,
provide or promote, or cause to be marketed, sold, provided or promoted,
directly or indirectly, a service which is competitive with HSDS, in
whole or in part, to the Properties served by I(3)S under the terms and
provisions, and during the term, of this Agreement; accordingly, GTE
shall not proactively market any Internet access service that competes
with HSDS on the Properties during the term hereof; provided, however,
that for purposes of this Section 3.1, GTE's branded dial-up Internet
access service or GTE's branded DSL service shall not be considered a
competing service with HSDS.
ARTICLE 4
AFFIRMATIVE COVENANTS OF GTE
4.1 In consideration of the mutual agreements of the parties contained
herein, GTE unconditionally covenants and agrees to do and perform, or
cause to be done and performed, the following:
(a) GTE shall maintain, or cause to be maintained, in full force and
effect an adequate right of entry, which permits I(3)S hereunder to
provide HSDS to the Properties throughout the term of this
Agreement.
GTE HSDS Agreement 4
<PAGE> 5
(b) GTE shall maintain its corporate existence and remain in good
standing under the laws of and in every jurisdiction in which such
qualification to do business is necessary or desirable for purposes
of this Agreement.
(c) GTE shall not knowingly become in default and remain in default
under any instrument or agreement which GTE is bound that may
adversely affect its ability to perform its obligations under this
Agreement.
(d) GTE shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to its
performance under this Agreement, and all such property shall
remain free and clear of any adverse claims, interests and liens,
except as has been heretofore disclosed in writing to I(3)S, or
except for rights of subordination granted to lenders of MDU
owners.
(e) GTE shall maintain in full force and effect all material permits,
licenses, franchise rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to
conduct its business.
(f) GTE shall maintain in full force and effect all MDU property or
operating agreements pertaining to the provision of HSDS to the
Properties, but shall have the right, in its sole discretion, to
terminate any such agreement as long as I(3)S has not yet placed
equipment on the affected Property.
(g) GTE shall maintain in full force and effect adequate insurance with
reputable insurers covering GTE's property pertaining to HSDS, in
such amounts and against such risks as is necessary for the
provision of services to the Properties.
(h) GTE shall use all commercially reasonable efforts to assist I(3)S
in providing HSDS on Properties mutually selected by GTE and I(3)S
on terms and conditions mutually acceptable to I(3)S and GTE; which
Properties shall be added as Riders to Exhibit A attached hereto
and incorporated herein by reference for all purposes; provided,
however, that subject to I(3)S' right of first refusal set forth in
Section 8.2 hereof, GTE shall identify the Properties to be
submitted to I(3)S for the provision of HSDS under this Agreement,
and is not required to submit all of its MDU properties for the
provision of HSDS under this Agreement.
(i) As more specifically described in Exhibit B attached hereto and
incorporated herein by reference, for Properties covered by this
Agreement, GTE shall assume the obligations and timely pay all
operating and capital costs and expenses, if any, associated with
any and all:
5
GTE HSDS Agreement
<PAGE> 6
(1) Monthly recurring on-site headend, cabling and wiring
maintenance for equipment and facilities owned by GTE
(2) Leasing agent sales commissions and property owner revenue
sharing, if any, required under agreements between property
owners or managers and GTE
(3) Insurance on GTE-owned capital equipment related to HSDS
(4) GTE-specific training for HSDS
(5) MDU property CATV or other cabling and wiring upgrades
(6) Adequate on-site MDU space for the installation and
maintenance of I(3)S equipment
(7) Reasonable access to residents' apartments for the
installation and maintenance of customer premise equipment
(8) Customer service representatives (non-I(3)S personnel)
(9) Periodic access to the rent roll pertaining to the
Properties if permitted by GTE's agreements pertaining to
the Properties
ARTICLE 5
AFFIRMATIVE COVENANTS OF I(3)S
5.1 In consideration of the mutual agreements of the parties contained
herein, I(3)S covenants and agrees to do and perform, or cause to be done
and performed, the following:
(a) I(3)S shall maintain its corporate existence and remain in good
standing under the laws of the State of Texas and in every other
jurisdiction in which such qualification to do business is
necessary or desirable for its performance under this Agreement.
(b) I(3)S shall not become in default under any instrument or agreement
by which I(3)S is bound that may adversely affect its ability to
perform its obligations under this Agreement.
(c) I(3)S shall possess and maintain good, valid, indefeasible and
marketable title to its property that pertains in any way to HSDS,
and all such property shall remain free and clear of any adverse
claims, interests and liens, except as has been heretofore
disclosed in writing to GTE.
(d) I(3)S shall maintain in full force and effect all material permits,
licenses, franchise rights, trademarks, trademark rights, trade
names, trade name rights, copyrights, and all other applicable
intellectual property rights which are required to conduct the
business of HSDS and to perform I(3)S' obligations under this
Agreement.
(e) I(3)S shall maintain in full force and effect adequate insurance
with reputable insurers covering I(3)S's property pertaining to
HSDS and to the conduct of the
6
GTE HSDS Agreement
<PAGE> 7
business pertaining thereto, in such amounts and against such risks
as are necessary for the provision of HSDS to the Properties,
including (1) minimum limits of $1,000,000 per occurrence for
bodily injury or death, (2) property damage liability with limits
of at least $1,000,000 per occurrence of personal injury, and (3)
$1,000,000 General Policy Aggregate (applicable to commercial
general liability policies).
(f) As more specifically described in Exhibit C attached hereto and
incorporated herein by reference, I(3)S shall assume and pay all
operating and capital costs and expenses associated with any and
all:
(1) Monthly recurring private Internet exchange points
(2) Monthly recurring switch maintenance
(3) Monthly recurring POP transport
(4) Monthly recurring Dallas network operations center costs
(including installation costs)
(5) Customer support IP technicians and engineers (NOC, Help Desk
and field personnel)
(6) I(3)S-specific training
(7) Insurance on I(3)S capital equipment
(8) Switch site equipment (including installation costs)
(9) Peering point routers
(10) Private Internet exchange point hardware (including
installation costs)
(11) I(3)S network infrastructure equipment
(12) Transport facilities
(13) Backbone transport facilities
(14) Peering interconnection facilities
(15) Recurring property maintenance (Lce, Router, DSU/CSU)
(16) Recurring IP headend maintenance
(17) CSR platform and services (non-GTE)
(18) Internet browser platform user license
(19) MDU property IP equipment (Lce, Router, DSU/CSU)
(20) IP master headend equipment
(21) Local loop transport costs
(22) Customer billing and collections
(23) HSDS marketing and promotion
(24) Any other costs associated with providing HSDS
(25) All activities referenced in Exhibit C to this Agreement
ARTICLE 6
HIGH SPEED DATA SERVICES PROVIDED BY I(3)S
6.1 DESCRIPTION OF HSDS. During the term of this Agreement, I(3)S shall
provide, or cause to be provided; the high speed data services, in whole
or in part, more particularly described and set forth in Exhibit D.
GTE HSDS Agreement 7
<PAGE> 8
6.2 HSDS SUBSCRIBER TERMS AND CONDITIONS. I(3)S and GTE shall jointly
develop, in good faith, an HSDS Subscriber Agreement to govern the
provision of HSDS on the Properties.
ARTICLE 7
HSDS SERVICE LEVEL STANDARDS
7.1 DEFINITION OF HSDS SERVICE LEVEL STANDARDS. Subject to the conditions,
qualifications and limitations set forth herein, including, without
limitation, those set forth in Exhibit E attached hereto and incorporated
herein by reference, during the term of this Agreement, I(3)S warrants
and represents that it shall offer, or cause to be offered, and shall
provide, or cause to be provided, HSDS at or exceeding the service level
standards pertaining to various aspects of HSDS, as more particularly
described and set forth in Exhibit E.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING;
OTHER GTE SERVICES
8.1 REVENUE ALLOCATION. All monthly HSDS revenue generated by customers under
the Agreement will be billed and collected by I(3)S throughout the term
of the Agreement; provided, however, that, by the fifteenth (15th) day of
each month I(3)S shall pay GTE a revenue sharing fee ("GTE Revenue
Sharing Fee") calculated on the basis of customer access revenue
(exclusive of, without limitation, customer premise equipment
installation charges, customer service charges, customer equipment sales
or leases, sums "passed through" on a no-mark up basis collected by or on
behalf of I(3)S, and comparable or similar charges) actually collected by
or on behalf of GTE and I(3)S for the immediately preceding month in
accordance with the following table:
<TABLE>
<CAPTION>
Penetration on Property GTE Revenue Sharing Fee
(Sum of the total number of paying customers (Percentage of Gross Connectivity
per day, per month Revenue)
divided by the total units on property)
<S> <C>
0% to 10% *
Greater than 10% to 15% *
Greater than 15% to 20% *
Greater than 20% to 30% *
Greater than 30% to 40% *
Greater than 40% *
</TABLE>
8
GTE HSDS Agreement
<PAGE> 9
8.2 MODIFICATION OF REVENUE SHARING FEES; RIGHT OF FIRST REFUSAL BY I(3)S;
MOST FAVORED PARTNER PROVISION. GTE acknowledges and agrees that the
Revenue Sharing Fees set forth above are predicated upon I(3)S providing
HSDS to substantially all of the Properties mutually agreed between I(3)S
and GTE. With respect to I(3)S' provision of HSDS to GTE MDU properties,
I(3)S shall have the right of first refusal to provide HSDS to all MDU
properties served or to be served by GTE where GTE provides or will
provide satellite master antennae television, wireline CATV, or direct
broadcast satellite services and has elected, in its business judgment,
to offer HSDS to residents thereof. In the event that GTE presents an
MDU property to I(3)S for the provision of HSDS, I(3)S shall either
approve or refuse such MDU property within fifteen (15) business days
from the date GTE first presents the MDU property to I(3)S for approval.
In the event that I(3)S fails to respond within said fifteen (15) day
period; it will be deemed to have refused the right to provide HSDS to
said MDU property, unless the parties agree to extend said fifteen (15)
day approval period. During the term of this Agreement, I(3)S shall offer
GTE the most favored terms that I(3)S has then contracted for with other
non-affiliated third party partners pertaining to HSDS in the MDU market
for the same terms and conditions that GTE and I(3)S have entered into
under this Agreement for all future Properties that become subject to
this Agreement thereafter, unless said terms and conditions are less
favorable than the terms and conditions hereof in which case GTE may
elect to continue to adopt the terms and conditions of this Agreement.
8.3 CUSTOMER ACCESS PRICING; MARKET PLANS. With the intent to increase HSDS
penetration at each of the Properties served under this Agreement, I(3)S
shall upon consultation with GTE establish the price and rates at which
access to the HSDS is made available to customers and end-users, the
initial rates for which are set forth in Exhibit F attached hereto;
provided, however, that in the event that I(3)S is generally providing
access to the HSDS in the same Standard Metropolitan Statistical Area
(SMSA) at subscriber rates which are substantially lower than the rates
and prices I(3)S is then charging customers and end-users for the same
access services hereunder, then upon written request by GTE, I(3)S shall
lower the rates and prices hereunder to be competitive with the lower
rates generally being charged by I(3)S for said access services in the
same SMSA. Further, I(3)S shall remain competitive with the prices then
being charged by other comparable high speed, broadband Internet access
services generally being offered by commercial HSDS providers in the same
SMSA. Marketing plans pertaining to HSDS on the Properties shall be
established by I(3)S with significant input and advice from GTE, and
subject to GTE's approval, which approval shall not be unreasonably
withheld, delayed or conditioned.
8.4 BRANDING. With respect to HSDS, and the promotion thereof, upon
consultation with GTE, I(3)S shall establish the brand names, logos,
labels, trademarks, service marks and other such identifying promotional
characteristics pertaining to the same throughout the term of this
Agreement. It is intended by the parties that the HSDS will be branded
BroadbandNOW!(TM), and I(3)S hereby grants to GTE a royalty-free,
nonexclusive, nontransferable license during the term of this Agreement
to use the
9
GTE HSDS Agreement
<PAGE> 10
BroadbandNOW(TM) name, service mark, trademark and logo in GTE's printed
material and advertising of any kind pertaining to the offering of HSDS
to MDU properties. Except as specifically set forth in this Agreement,
nothing in this Agreement shall grant, suggest or imply any authority for
one party to use the name, trademarks, service marks or trade names of
the other for any purpose whatsoever. Without the prior written consent
of GTE, which consent shall not be unreasonably withheld, delayed or
conditioned, I(3)S shall not acquire any right to use, and shall not use,
the name "GTE", the GTE logo, or any other GTE trademark or service mark
known to I(3)S.
8.5 OTHER GTE SERVICES. With respect to other GTE services then being offered
by GTE and its affiliates throughout the term of the Agreement that may
be contracted for by I(3)S in connection with the provision of the HSDS
hereunder and pursuant to other agreements or relationships with third
parties, I(3)S and GTE shall negotiate in good faith to allow GTE or its
affiliates the opportunity to provide such services to I(3)S on terms and
conditions acceptable to I(3)S and at prices and rates which are
competitive with other similar or comparable providers of such services
in markets then being served by GTE, or as tariffed.
ARTICLE 9
SPECIFIC HSDS SOFTWARE WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I(3)S represents and warrants that the software
utilized hereunder for the provision of HSDS (collectively, the
"Products") are free and clear of all liens and encumbrances, and that it
has full power and authority to utilize the rights granted to it with
respect to such Products without the consent of any other person or that
such consent has been obtained, and that to the knowledge of I(3)S the
Products utilized hereunder will not infringe or violate any copyright,
trade secret, trademark, patent or other intellectual property rights of
any third party
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I(3)S shall defend,
indemnify and hold harmless GTE, its parent, subsidiaries, affiliates,
directors, officers, shareholders, employees and agents and its
successors and assigns, from and against any and all claims, demands,
actions, liabilities, losses, damages and expenses, including, without
limitation, settlement costs and reasonable attorneys' fees, arising out
of or relating to any actual or alleged infringement of any third party's
trade secrets, trademark, service mark, copyright, patent or other
intellectual property rights (the "Intellectual Property Rights") in
connection with the use of said Intellectual Property Rights hereunder.
I(3)S's obligation pursuant to the immediately preceding sentence is
subject to the following conditions: (i) GTE shall give I(3)S prompt
written notice of all actions, claims or threats against GTE of
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<PAGE> 11
infringement or violation of Intellectual Property Rights; (ii) GTE shall
permit I(3)S to elect to assume complete control of such claims at its
sole discretion and expense; provided, however, that GTE may elect, in
such case, to retain its own counsel, at GTE's expense, to represent
GTE's interest; and further, provided, however, that I(3)S will fully
cooperate with GTE and keep it fully informed and refrain from entering
into any settlement or agreed judgment without GTE's prior written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned; and (iii) GTE shall cooperate fully with I(3)S in defending
against claims, including making known or available to the indemnifying
party, upon reimbursement of all costs associated with provision or
reproduction of, all records and document pertaining to claims.
10.2 CROSS INDEMNIFICATION FOR OBLIGATIONS UNDER THIS AGREEMENT. Each party
hereby agrees to indemnify, defend and hold harmless the other party from
any and all damages, liabilities, costs and expenses, including, without
limitation, reasonable attorneys' fees and expenses, arising out of,
under or in connection with the indemnitor party's duties, obligations,
actions or performance under this Agreement, or the indemnitor party's
gross negligence or willful misconduct.
10.3 LIMITATION OF LIABILITY. It is expressly understood that GTE makes no
projection, representation or warranty regarding the amount of revenue
that may be earned by I(3)S under this Agreement. Neither party shall be
liable to the other party for any indirect, incidental, special, or
consequential damages of any kind whatsoever; provided, however, that
this limitation of liability shall not apply to either party's
indemnification obligations under this Agreement.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 DEFINITION. During the term of this Agreement, I(3)S and GTE will provide
to each other or will come into possession information relating to each
other's business which is considered confidential or proprietary (the
"Confidential Information"). Confidential Information shall include,
without limitation, the HSDS software and documentation, all of I(3)S's
and GTE's trade secrets and all know-how, design, invention, plan or
process and information relating to I(3)S's and GTE's respective business
operations, services, products, research and development and all other
information that is marked "confidential" or "proprietary" prior to or
upon disclosure, or which, if disclosed orally, is identified by the
disclosing party as being Confidential Information in writing within
thirty (30) days after its initial disclosure.
11.2 RESTRICTIONS; NON-DISCLOSURE; NON-USE. Each party shall use its best
efforts to maintain the confidentiality of such Confidential Information
and not show or otherwise disclose such Confidential Information to any
third parties, including, but
11
GTE HSDS Agreement
<PAGE> 12
not limited to, independent contractors and consultants, without the
prior written consent of the disclosing party. Each party shall use the
Confidential Information solely for purpose of performing its obligations
under this Agreement. Further, neither party shall use or exploit,
directly or indirectly, the Confidential Information of the other party.
There shall be no implied license granted to the receiving party by the
disclosing party to use Confidential Information by virtue of the
disclosure of such Confidential Information hereunder. Each party shall
indemnify and hold harmless the other party from any loss or damage the
other party may sustain as a result of the wrongful use or disclosure by
such party (or any employee, agent, licensee, contractor, assignee or
delegatee of the other party) of its Confidential Information.
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described in
Section 9.2 above, neither party shall have any obligation to maintain
the confidentiality of any Confidential Information which: (i) is or
becomes publicly available by other than unauthorized disclosure, by the
receiving party; (ii) is independently developed by the receiving party
without reference to Confidential Information of the disclosing party as
established by documentary evidence in the receiving party's files; or
(iii) is received from a third party who has lawfully obtained such
Confidential Information without a confidentiality restriction. If
required by any court of competent jurisdiction or other governmental
authority, the receiving party may disclose to such authority, data,
information or material involving or pertaining to Confidential
Information to the extent required by such order, provided that the
receiving party shall first have used its best efforts to obtain a
protective order reasonably satisfactory to the disclosing party
sufficient to maintain the confidentiality of such data, information or
materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of Confidential
Information to such party's bonafide employees or agents who have a need
to know such information for purposes of conducting the receiving party's
business. Each party shall notify all employees and agents who have
access to Confidential Information or to whom disclosure is made that the
Confidential Information is the confidential, proprietary property of the
disclosing party and shall instruct such employees and agents to maintain
the Confidential Information in confidence.
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this Article 9
shall survive the termination of this Agreement for three (3) years
thereafter.
ARTICLE 12
DEFAULT; EARLY TERMINATION; EXPIRATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a party
shall be deemed to be in default under this Agreement:
(a) Material breach of any warranty or representation by the defaulting
party;
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GTE HSDS Agreement
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(b) Material failure to perform the defaulting party's obligations
hereunder, including with respect to I(3)S its failure to (i)
maintain the service standards set forth in Section 7.1 hereof, and
(ii) make the payments to GTE set forth in Section 8.1 hereof.
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the
benefit of its creditors, suffering or permitting the appointment
of a receiver or similar officer for its business or assets or
availing itself of, or becoming subject to, any proceeding under
the United States Federal Bankruptcy Laws or any federal or state
statute relating to solvency or the protection of the rights of
creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material
respect on the date it was made by the defaulting party.
12.2 REMEDIES. In the event the defaulting party fails to cure any default set
forth hereunder for a period of thirty (30) days after written notice of
such default by the non-defaulting party, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against
the defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are cumulative,
but the non-defaulting party is under no obligation to exercise any such
remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or
release the defaulting party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Early termination or expiration of this Agreement
shall not impair either party's then accrued rights, obligations,
liabilities or remedies hereunder.
12.5 EXAMINATION; AUDIT RIGHTS. I(3)S agrees that GTE has the right to audit
or otherwise examine, or have audited or otherwise examined, on an annual
basis all applicable books, records, documents, and other data of I(3)S,
including computations and projections, specifically and only relating to
the GTE Revenue Sharing Fee under this Agreement, and I(3)S' billing and
collection of revenues from HSDS subscribers. If GTE's audit reveals that
GTE has been underpaid its GTE Revenue Sharing Fee by a percentage in
excess of five percent (5%) over the period of the audit, I(3)S shall pay
GTE's reasonable costs of the audit, in addition to paying all past due
amounts owed to GTE. I(3)S shall make available at its principal place of
business at all reasonable times during normal business hours the
materials described in the first sentence of this Section 12.5 for
examination, audit, or reproduction. In the event that this Agreement is
completely or partially terminated, the records relating to the GTE
Revenue Sharing Fee shall be made
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GTE HSDS Agreement
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available for two (2) years after any termination of this Agreement.
Records pertaining to appeals or to litigation or the settlement of
claims arising under or relating to either party's performance under this
Agreement shall be made available until disposition of such appeals,
litigation or claims.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE. Any notice, demand or other communication required or permitted
by any provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes when delivered in person or
sent by registered or certified mail, return receipt requested, all
postage and other charges prepaid, to the respective addresses of the
parties first noted above, or at such other address as may be designated
by notice from such party to the other party pursuant to their terms of
this section. In addition, a copy of all notices given to GTE under this
Agreement shall be sent to: Sandra Skogen, Law Department, GTE
Communications Corporation, 6665 North MacArthur Blvd., Irving, Texas
75039; 972-465-4826 (Fax).
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and public
disclosures by either party of its employees, agents or representatives
relating to this Agreement or the subject matter hereof, excluding any
announcement beyond the control of this disclosing party, will be
approved by the non-disclosing party in writing prior to release.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the schedules,
attachments and exhibits attached hereto or referred to herein,
constitutes the entire Agreement and understanding among the parties
hereto and is the final expression of their Agreement and no evidence of
oral or other written promises shall be binding. All other prior
agreements or understandings related to the subject hereof among the
parties, whether written or oral, shall be null and void and of no
further force and effect upon the execution of this Agreement. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
14.2 INCORPORATION BY REFERENCE. The schedules, exhibits and attachments
referred to herein or attached hereto are hereby incorporated in and to
this Agreement and made a part hereof by this reference.
14.3 AMENDMENT; MODIFICATION. This Agreement may not be supplemented, amended,
14
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modified or otherwise altered except by written instrument executed by
all the parties hereto and no course of dealing or trade usage among or
between the parties shall be effective to supplement, amend, modify or
alter this Agreement.
14.4 WAIVER. The failure to enforce or to require the performance at any time
of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either
the validity of this Agreement, any part hereof or the right of any party
thereafter to enforce each and every provision in accordance with the
terms of this Agreement.
14.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS
CONFLICTS OR CHOICE OF LAWS. VENUE FOR ANY ACTION BROUGHT UNDER THIS
AGREEMENT SHALL BE IN DALLAS, DALLAS COUNTY, TEXAS.
14.6 SEVERABILITY. If any severable provision of this Agreement is deemed
invalid or unenforceable by any judgment of a court of competent
jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as
possible according to its original terms and intent, unless to do so
would substantially impair the underlying purposes of this Agreement.
14.7 CAPTIONS. The captions appearing in this Agreement are included solely
for convenience of reference and shall not be construed or interpreted to
affect the meaning or interpretation of this Agreement.
14.8 FORCE MAJEURE. Neither party shall be responsible for any failure to
comply with or for any delay in performance of the terms of this
Agreement, including, but not limited to, delays in delivery, where such
failure or delay is directly or indirectly caused by or results from
events of force majeure beyond the control of either party. These events
shall include, but not be limited to, fire, flood, earthquake, accident,
civil disturbance, war, acts of God, or acts or government.
14.9 HIRING PROHIBITED. Unless otherwise mutually agreed between the parties,
during the term of this Agreement and for a period of one (1) year
thereafter, neither party shall solicit for hire or hire any employee of
the other party who has performed services under this Agreement.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy between
the parties of any kind or nature, upon the written request of either
party, each of the parties will appoint a designated officer whose task
it will be to meet for the purpose of resolving such dispute or
controversy or to negotiate for an adjustment to any provision of this
Agreement needed to resolve such dispute or controversy. Such officers
will discuss the dispute or controversy and negotiate in good faith in an
effort to resolve the dispute or controversy or renegotiate the
applicable section
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<PAGE> 16
or provision of this Agreement without the necessity of any formal
proceeding relating thereto. No formal proceedings for the judicial or
arbitrational resolution of such dispute or controversy may be commenced
until either or both of the designated officers conclude in good faith
that an amicable resolution through continued negotiation of the matter
at issue is not likely to occur, or until thirty (30) days have elapsed
from the date of the written request, whichever is sooner.
14.11 BINDING NATURE; ASSIGNABILITY. This Agreement will be binding on the
parties hereto, and their respective successors and assigns. Upon prior
written notice to the other party, either party may assign its rights and
delegate its duties under this Agreement; provided however, that the
assignee party must unconditionally assume in writing, and agree to be
bound by, the right, duties and obligations of the assignor party under
this Agreement. Notwithstanding this section, no consent is required for
an assignment of this Agreement by GTE to a parent, subsidiary or
affiliate.
14.12 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the contrary in
this Agreement, under no circumstances will either party be deemed to be
in any relationship with the other party carrying with it fiduciary or
trust responsibilities. The parties do not intend for this Agreement or
the relationship established thereby to be considered the formation of a
joint venture or partnership between the parties for any purpose. The
persons provided by each party for the performance of its obligations
hereunder shall be solely that party's employees and shall be under the
exclusive direction and control of that party. They shall not be
considered employees of the other party for any purpose. Each party shall
be responsible for compliance with all laws, rules and regulations
involving, but not limited to, employment of labor, hours of labor,
health and payment of taxes, including federal, state and municipal
taxes, chargeable or assessed with respect to its employees, such as
Social Security, unemployment, workers' compensation, disability
insurance, and federal and state withholding. Each party shall indemnify
the other party for any loss, damage, liability, claim, demand, or
penalty that may be sustained by reason of its failure to comply with
this provision.
14.13 COMPLIANCE WITH APPLICABLE LAWS. Each party represents and warrants that
the services performed by such party pursuant to this Agreement shall be
in compliance with all applicable federal and state laws, rules and
regulations.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
I(3)S, INC. GTE MEDIA VENTURES INCORPORATED
By: /s/ MATTHEW HUTCHINS By: /s/ WILLIAM D. WILSON
-------------------- ---------------------------
Matthew Hutchins Title: President
Vice President, Business Development --------------
& Corporate Affairs Printed Name: William D. Wilson
-----------------
Date: 11/4/98 Date: 11/12/98
------------------ -------------------------
[STAMP]
APPROVED AS TO FORM
/s/ KATHLEEN E. PALTER 11-10-98
-------------------------------
KATHLEEN E. PALTER
GTE LEGAL DEPT.
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GTE HSDS Agreement
<PAGE> 18
EXHIBIT A
MDU PROPERTY RIDERS
FORM OF MDU PROPERTY RIDER
(Type of Information Required)
1. MDU Property Owner/Agent: ________
2. Term of Property Agreement: ________
3. Acknowledgement by Owner of Right of HSDS Access to Property.
4. Location of MDU Property: ________
5. Contact Person/Leasing Agent: ________
6. CATV/MATV Site Survey Information:
7. Number of Units: ________
8. Number of Buildings: ________
9. Current Occupancy: ________
lO. Existing Property (including age) or New Build: ________
11. PC Ownership Survey: ________
12. Existing/Proposed Local Loop Trunking:
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GTE HSDS Agreement
<PAGE> 19
EXHIBIT B
PROPERTY NETWORK AND
LOCAL LOOP CHARACTERISTICS
GTE'S RESPONSIBILITIES:
o Build or obtain exclusive access to and maintain CATV infrastructure to
comply with FCC requirements.
o Build or obtain exclusive access to and maintain property CATV
infrastructure to provide bi-directional cable delivery to all subscribers.
o Maintain the upgraded bi-directional CATV infrastructure to exceed the
minimal operational requirements of the I(3)S cable modem system, which
are:
<TABLE>
<CAPTION>
Minimum Cable Television Network Requirements Value
for i3s.net HSDS
<S> <C>
Amplitude variations inband
Forward channel 5 dB total
Return channel 5 dB total
Group delay variation inband
Forward channel 60 nsec/MHz, 240 nsec total
Return channel 200 nsec/MHz, 800 nsec total
Maximum tap to tap variation 27 dB
Dynamic range on receiver -15 dBmV to +15 dBmV
Maximum return/upstream loss 49 dB
Minimum carrier to noise 22 dB
Minimum carrier to interference 25 dB
</TABLE>
Provide, or cause to be provided, two (2) six MHz video channels within the CATV
infrastructure bandwidth on Internet served properties; one (1) in the spectrum
from 54 MHz to 750 MHz and one (1) in the 5MHz to 50 MHz spectrum; and reserve
another two (2) additional video channels, in the same spectrums for future
expansion as Subscriber penetration on the property increases.
Provide, or cause to be provided, proper space, security and power for data
communication equipment necessary to provide Internet delivery and other data
services on the property.
Provide, or cause to be provided, coaxial connection (coax drop) to each
Subscriber's unit. Designate an engineering point of contact for I(3)S Network
Operations Center (NOC) to report problems or failures twenty-four hours per
day, seven days per week (24x7).
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 20
EXHIBIT C
POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I(3)S RESPONSIBILITIES:
Install, maintain and operate data delivery equipment for each property
offering HSDS. Installation and maintenance will meet or exceed
manufacturer's specifications. Through itself or its agents, GTE will
assist I(3)S with pre-installation engineering planning and site survey
questionnaires, installation, testing and preparation of maintenance
schedules.
Integrate all data delivery equipment for each property into the I(3)S
Element Management System portion of its Network Management Platform using
SNMP and RMON. I(3)S will monitor all data delivery equipment twenty-four
hours per day, seven day per week (24x7).
Assume the cost of the acquisition of I(3)S-specified data communication
equipment conforming to the I(3)S design for HSDS and necessary to provide
termination and delivery of HSCS between the Subscriber and the I(3)S POP
in each Market.
Order, provision, install and maintain local loop pathways between each
property and I(3)S POP in each Market with a bandwidth of not less than
1.544 mb/s (T1). In addition, as the number of Subscribers on each property
increases, scale the local loop bandwidth so that each simultaneously
active user averages approximately 1 mb/s ninety eight percent (98%) of the
time. Both parties acknowledge that the end-to-end performance of HSDS is
probabilistic and subject to anomalous short-lived usage patterns by
Subscribers which will affect both the utilization of the local-loop
circuits and the I3s.net national backbone from time to time.
Configure and operate all data delivery equipment to efficiently integrate
with the rest of the I3s.net network.
Acquire, install and maintain data communication equipment at each POP for
the termination and transmission of HSDS from properties to the i3s.net
national network backbone.
I(3)S will determine the location of its main presence in each Market to be
consistent with its own operational practices (which currently include
co-locating within its carrier's central offices in each Market).
Acquire, install, maintain and operate Internet peering relationships at
public and private Internet Exchange Points (EP) with other Tier 1 Internet
backbone networks throughout the United States.
Acquire, install, maintain and operate computers and software to provide
Network Management and provide Internet services for Subscribers. To
provide these functions, I(3)S will employ a combination of
locally-distributed-to-the-POP servers as well as globally centralized
servers consistent with its overall network design and operational
practices.
Order, provision, install, maintain and operate data transport/carriage
pathways from each POP, EP and/or NOC with a bandwidth not less than 45
mb/s (DS-3) interconnection. In addition, as the number of Subscribers on
Market increases, scale the bandwidth so that each simultaneously active
user averages approximately 1 mb/s ninety eight percent (98%) of the time.
Both parties acknowledge that the end-to-end performance of HSDS is
probabilistic and subject to anomalous short-lived usage patterns by
Subscribers which will affect both the utilization of the local-loop
circuits and the i3s.net national backbone from time to time.
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 21
EXHIBIT C (CONTINUED)
CUSTOMER HELP LINE
SERVICE AND REQUIRED FEATURES
I(3)S RESPONSIBILITIES
Provide toll free numbers for:
Inquires about the HSDS product
Ordering and scheduling installation of HSDS products
Billing inquiries
Initial technical support inquires
Operate 24x7 customer service call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing
operation.
Resolve billing issues within 24 hours 95% of time.
Resolve property network issues within 24 hours 95% of time.
Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
Provide toll free number for:
Technical support for all HSDS issues
Technical support for Subscriber CPU hardware and software
issues related to HSDS Technical support for cable modem
issues
Answer toll free line consistent with the GTE/I(3)S service co-brand
Operate 24x7 customer service call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing
operation.
Resolve technical issues within 24 hours if a phone call is required
95% of time.
Resolve technical issues within 48 hours if a truck roll is required
95% of time.
Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
Develop and publish escalation procedures for GTE to contact regarding
technical issues related to the network.
Provide training support for GTE's customer service representatives
(train-the-trainer support).
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 22
EXHIBIT C (CONTINUED)
SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
I(3)S SHALL:
Verify that potential Subscribers' personal computers meet the
I(3)S-established minimum requirements for the supplied software and
the HSDS service.
Make an appointment with each new Subscriber to meet the I(3)S
installation personnel for the installation of the HSDS in the
Subscriber's unit.
Supply I(3)S with Subscribers' information required to install,
provision and complete the set up of Subscribers' HSDS service. GTE
and I(3)S will jointly develop an appropriate paper-form-based system
or automated system to facilitate this process.
Provide, or cause to be provided, coaxial connection to the
Subscriber's specified location.
Verify, or cause to be verified, that the coaxial connection completed
to the Subscriber's specified location exceeds the minimum operational
requirements for the I(3)S/supplied cable modem and the I(3)S HSDS
service.
Verify, or cause to be verified, that all CATV services function
properly after I(3)S completes installation.
Maintain a sufficient inventory of cable modems for each Market and
develop procedures to restock cable modems as used in Subscriber
installations.
Issue and install the required number of cable modems for the service
requested by the Subscriber.
Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I(3)S Service Level
Agreement.
Install the required cable modems(s) in the Subscriber's unit.
Install any required network interface cards (NICs), TCP/IP protocols
and Internet software suite in the Subscriber's personal computer.
Offer the Subscriber a brief introduction to the HSCS to be performed
at the time of installation. This introduction will include how to
launch the service, how to find the training material on the i3s.net
Web site, how to find the Subscriber Support Section on the i3s.net
Web site and how to call for technical assistance or support.
Obtain signatures required to verify that installation was executed
properly and to the satisfaction of the Subscriber.
Provide GTE with a copy of the installation transaction documentation
verifying that the completed installation is ready for billing. This
documentation will include the cable modem delivery receipt, the ISP
contract and the completed work order.
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 23
EXHIBIT C (CONTINUED)
PROCEDURES FOR DETECTION AND NOTICE
OF GTE PROPERTY NETWORK OR LOCAL LOOP FAILURES
I(3)S SHALL:
Use the cable modem system, and certain network management features
that it provides, to monitor the availability and quality of GTE's
property network (its CATV plant).
Report to GTE's designated engineering point of contact any problems
observed by the I(3)S NOC in the course of operating the cable modem
system network management features.
Report to GTE's designated engineering point of contact any problems
determined by Subscriber contact in the course of operating the
Subscriber Help Desk.
Offer to GTE a read-only direct computer interface into the I(3)S
cable modem system's network management platform for the purposes of
direct observation of the information produced by the management
platform and possible enhancement of GTE's Property network
operations. If GTE elects to implement a read-only direct-computer
interface, GTE will be responsible for all of the costs associated
with such an interface.
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 24
EXHIBIT D
DEFINITION OF HIGH-SPEED DATA SERVICES (HSDS)
FEATURES AND REQUIREMENTS
The I(3)S HSDS includes:
o Data Network services that provide transport and peering functions to
the global Internet, including, without limitation:
o A broadband access network on MDU properties composed of one
or more headend reference nodes, a coaxial or hybrid fiber
coaxial (HFC) cable television distribution system and one
or more cable data modems (CDM);
o A local loop network that connects the headend reference
node on each MDU property to the I(3)S regional
point-of-presence (POP) in each metropolitan area served by
I(3)S;
o A regional point-of-presence network that connects the POP
to the i3s.net national Internet backbone;
o A national Internet backbone consisting of broadband
communication facilities for the transport of data among
I(3)S POPs and public and private Exchange Points where data
and Internet routing information will be exchanged with
other networks peered with i3s.net;
o A national Network Operations Center (NOC).
o Certain computer services that include.
o Membership system for user authentication and authorities;
o Personalization services for customizing content to user
preferences;
o Internet mail (SMTP and POP3);
o Internet newsgroups (NNTP) composed of approximately 25,000
newsgroups;
o Internet World Wide Web (HTTP) services;
o Internet chat (IRC and MIRC);
o White-pages-style directory services;
o Internet locator services;
o Conferencing and collaboration bridges;
o Streaming multimedia services such as Microsoft's NetShow
and Progressive Network's RealMedia;
o Electronic commerce services.
o A branded suite of client software that include:
o Web browser;
o Mail reader;
o News reader;
o Chat client;
o Conferencing and collaboration client;
o Appropriate plug-ins and ActiveX controls.
o Certain customer service functions that include:
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 25
o A National Customer Care Center;
o A telephone and network-based customer help desk;
o A Trouble Reporting facility;
o A customer billing system.
o Certain multimedia-rich content that showcases the capabilities of
HSDS that includes:
o Original content created by I(3)S;
o Aggregated content created by others but licensed by I(3)S
and improved for uses in a HSDS system;
o Aggregated content created by others but licensed by I(3)S
and used unimproved.
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 26
EXHIBIT E
INTRODUCTION
This Exhibit entitled "Service Level Agreement" ("SLA") sets out
operation specifications and requirements for HSDS provided by
I(3)S for the residents or customers of GTE Media Ventures
Incorporated (herein sometimes called "Teaming Associate"). The
SLA shall encompass data services originating and terminating
within the I(3)S internetwork ("i3s.net").
The HSDS provided by I(3)S shall meet the operations specification
and requirements stated herein, which are generally stated in
terms of events or outcomes, rather than terms of specific
hardware, software or procedural requirements. For the purposes of
the SLA, i3s.net shall relate to that portion of the global
Internet operated by I(3)S, originating within end users' customer
premises and terminating within I(3)S computers or transported and
peered at a public or private Internet Exchange Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall
relate to i3s.net or I(3)S provided services (or resold services),
but shall exclude customer error, defects in "customer premises
equipment" ("CPE"), defects in customers' computers, defects in
distribution coaxial cable, defects in distribution fiber optics
defects in cable television systems and network problems
experienced by destination networks at or beyond Internet Exchange
Points.
PERFORMANCE REQUIREMENTS
PERCENT CUSTOMER SERVICE ORDER BEGINNING COMMITMENT DATES TIMELY
MET
This parameter is generally indicative of the timely
beginning of work on orders from customers for new
service or orders to make changes in their existing
service.
The timely beginning parameter is calculated by dividing
the total Customer Service Orders begun on or before the
date and clock hour promised to the customer that the
service order would be started by the total number of
service orders initiated in each calendar month and
multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service
Order Beginning Commitment Dates Timely Met per month.
PERCENT CUSTOMER SERVICE ORDER COMPLETION COMMITMENT DATES TIMELY
MET
This parameter is generally indicative of the timely
completion of work on orders from customers for new
service or orders to make changes in their existing
service and the timely completion of those service
orders.
The timely completion parameter is calculated by dividing
the total Customer Service Orders completed on or before
the date and clock hour promised to the customer that the
service order would be completed by the total number of
service orders initiated in each calendar month and
multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service
Order Completion Commitment Dates Timely Met per month.
Service Level Agreement
Page 1 of 4
<PAGE> 27
PERCENT OF NETWORK AVAILABILITY
This parameter is generally indicative of the
availability of the network to transport and peer
customer data at an Internet Exchange Point, or, in the
event that the customer data is to be fulfilled by
computers within i3s.net, generally indicative of the
availability of to transport data to the I(3)S servers
and the availability of the servers.
This parameter is calculated by dividing the number of
seconds that the network is available for each customer
by the total number of customer-seconds in each calendar
month and multiplying by 100.
Specifically excluded from the Network Availability
calculation shall be regularly scheduled maintenance
windows or ad hoc maintenance windows scheduled and
announced 24 hours in advance in the i3s.net Customer
Support Web Site.
Specifically excluded from the Network Availability
calculation shall be periods of time where the cable
television distribution plant (operated by the Teaming
Associate or its designated third party operator) exceed
the follow table of acceptable values:
<TABLE>
<S> <C>
Amplitude Variation Inband Upstream 1 dB/MHz., 5 dB total
- ---------------------------------------------------------------------------
Amplitude Variation Inband Downstream 1 dB/MHz., 5 dB total
- ---------------------------------------------------------------------------
Group Delay Variation Inband Upstream 200 nsec./MHz., 800 nsec. total
- ---------------------------------------------------------------------------
Group Delay Variation Inband Downstream 60 nsec./MHz., 240 nsec. total
- ---------------------------------------------------------------------------
Tap to Tap Level Variation <27 dB
- ---------------------------------------------------------------------------
</TABLE>
I(3)S shall exhibit greater than 98% Network Availability
per month.
PERCENT CUSTOMER CALLS ANSWERED within 45 Seconds by I(3)S
PERSONNEL
This parameter is based upon the number of customers
calls answered within 15 seconds by a human operator or
by an ACD queue greeting during the hours of operation of
the I(3)S National Customer Care Center and thereafter to
be answered by a customer representative with 30 seconds.
At a minimum, the I(3)S National Customer Care Center
shall operate from 8:00 a.m. to 5:00 p.m. Central Time,
Monday through Friday exclusive of holidays.
This parameter is calculated by dividing the number of
calls answered with 45 seconds by the total number of
calls answered seconds in each calendar month and
multiplying by 100.
I(3)S shall exhibit greater than 90% of Customer Calls
Answered within 45 Seconds per month.
PERCENT OF TROUBLE REPORTS RESOLVED TIMELY
This parameter is related to the number of Trouble
Reports resolved within the following windows:
o For Trouble Reports received by I(3)S at the I(3)S
National Customer Care Center prior to 2:00 p.m.
Central Time, Monday through Friday, excepting
holidays, will be cleared by the end of the next
business day.
Service Level Agreement
Page 2 of 4
<PAGE> 28
o For Trouble Reports received by I(3)S at the I(3)S
National Customer Care Center after 2:00 p.m.
Central Time, Monday through Friday, excepting
holidays, will be cleared by noon of the second
business day thereafter.
This parameter is calculated by dividing the total
trouble reports cleared on or before the date and clock
hour promised to the customer the total number of Trouble
Tickets cleared in each calendar month and multiplying by
100.
I(3)S shall exhibit greater than 90% Trouble Reports
Cleared Timely per month, according to the terms of this
section for trouble that can be resolved by I(3)S alone.
PERCENT CUSTOMER REPAIR VISIT APPOINTMENTS MET
This parameter is related to the customer commitments
made by the I(3)S National Customer Care Center for
repairs that require a repair visit to customers' sites
or premises.
This parameter is calculated by dividing the total
Customer Repair Visits Appointments met on or before the
date and clock hour promised to the customer by the total
number of Customer Repair Visit Appointments initiated in
each calendar and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Repair
Commitment Met per month.
PERCENT OF CUSTOMER BILLS PREPARED TIMELY
This parameter is related to the generation of Customer
Bills for delivery to customers by mail, electronic mail
or credit card billing.
This parameter is calculated by dividing the number of
Customer Bills generated and sent to customers within
twenty (20) business days of the end of the billing cycle
by the total number Customer Bills generated in each
calendar month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills
Prepared Timely per month.
PERCENT OF CUSTOMER BILLS PREPARED ACCURATELY
This parameter is related to the accuracy of Customer
Bills for delivery to customers by mail, electronic mail
or credit card billing.
This parameter is calculated by dividing the number of
Customer Bills generated that do not require an
adjustment due to a billing error caused I(3)S by the
total number Customer Bills generated in each calendar
month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills
Prepared Accurately per month.
REPORTS
I(3)S shall undertake commercially reasonable efforts to provide
to Teaming Associates reports within twenty (20) business days of
the end of each calendar month, the reports listed below in this
section, each of which may be provided separately or provided on a
consolidated basis:
Service Level Agreement
Page 3 of 4
<PAGE> 29
A report depicting total subscribers, gross new customers
and gross customers terminated separated by product tier
and property.
New service orders, Trouble Reports opened and closed or
cleared as appropriate separated by date and property.
Aggregate I(3)S National Customer Care Center data
depicting the distribution of call waiting time in
general and the percent calls answered and calls
abandoned respectively.
Billing summaries describing the date(s) bills were sent
to customers, and the billed revenue disaggregating major
categories of service.
HOLIDAYS
New Years Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
And any other holiday recognized by I(3)S
Service Level Agreement
Page 4 of 4
<PAGE> 30
EXHIBIT F
HSDS INITIAL SUBSCRIBER RATES, SERVICE LEVELS
AND INSTALLATION AND EQUIPMENT CHARGES
Initial Subscriber charges shall be:
<TABLE>
<S> <C>
64 kb/s contention-based non-burstable $29.95 per month
1.00 mb/s contention-based burstable $39.95 per month
1.54 mb/s contention-based with reserved bandwidth $79.95 per month
Small office, home office (SOHO) $500.00 per month
Vanity DNS hosting $100.00 per month
Installation fee $99.00 non-recurring
Network interface card (NIC) market price (assumed to be $60)
LanCity LCp cable modem purchase $395.00 non-recurring
Monthly rental of LCp initially $10.00 per month
</TABLE>
I(3)S / GTE Media Ventures Exhibits Confidential
<PAGE> 1
EXHIBIT 10.16
[OPTEL LETTERHEAD]
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL
March 10, 1998
Mr. Jim Price
President
I(3)S, Inc.
1530 Riverbend Street, Suite 600
Dallas, Texas 75247-4953
Re: Strategic Alliance for the Provision of High Speed Data Services
Dear Mr. Price:
TVMAX Telecommunications, Inc., d/b/a OpTel ("OpTel") and I(3)S, Inc.
("I(3)S") have been discussing a strategic alliance for the purpose of bringing
high speed data service, including without limitation Internet service, to,
among others, OpTel's residential customers. OpTel currently provides video and
telephony services to multiple dwelling units and their residents in a number of
markets across the United States. I(3)S provides system integration and network
services, including, without limitation, high speed cable data services and
Internet services, to multiple system franchise cable operators ("MSO"), private
cable operators ("PCO"), and real estate investment trusts ("REIT"), nationwide.
OpTel and I(3)S desire to provide high speed data services to MDUs, current and
future, served by OpTel, and neighboring businesses, in accordance with the
terms of this agreement.
The following sets forth the terms, conditions and agreements between the
parties regarding the strategic alliance for the provision of high speed data
services:
1. Purpose of Strategic Alliance.
OpTel and I(3)S hereby form an alliance for the purpose of providing
high-speed data services, which services shall include, without limitation,
Internet services ("HSDS"), to existing and future residential and commercial
customers of OpTel and to other persons to whom OpTel and I(3)S through their
respective networks, determine to bring HSDS. It is envisioned that OpTel,
which, itself and through affiliates, provides multi-channel video and
telecommunications services principally to residents of multiple dwelling units
("MDUs"), will endeavor to market and distribute HSDS provided by I(3)S in
selected MDUs from time to time being provided multi-channel video services.
Subject to the successful completion of field testing (see Paragraph 13.N
below), OpTel will initially offer the HSDS to the first of OpTel's markets
commencing approximately thirty to ninety days after the parties' execution of
this agreement. Consistent with the terms set forth in this agreement, and, at
its discretion, OpTel will offer HSDS in its other markets acceptable to I(3)S
during the term of this agreement.
<PAGE> 2
I(3)S, Inc.
March 10, 1998
Page 2
2. Structure of Relationship.
The parties hereby enter into a strategic alliance for the purposes of
providing HSDS to MDUs and other customers served by OpTel under the terms of
this agreement. Each party will keep its own books and records and maintain its
own corporate existence. The parties will not be partners or joint venturers.
3. Roles and Responsibilities of the Parties.
A. OpTel. As part of the agreements contemplated hereby, OpTel
shall:
(i) Determine, in its sole discretion, which geographic markets
(each a "Market") it wishes to offer HSDS pursuant to these
arrangement and the timing of OpTel's offering in each
market. The criteria for determining the eligibility of a
Market will be: (i) whether the Market has available MDUs
having fully activated coaxial cable plant passings of not
less than 3,500 residential units, and (ii) whether the
Market contains a reasonably acceptable number of higher
quality MDU's, typically referred to as "Class A" and
"Class B" properties (collectively, the "Market Criteria").
I(3)S confirms the eligibility of each of the markets
identified on Schedule I attached hereto (each an "Approved
Market"). If OpTel wishes to offer HSDS to any Market other
than an Approved Market, such Market must meet the Market
Criteria and be approved by I(3)S before I(3)S shall be
obligated to participate in the delivery of HSDS to that
Market as described herein.
(ii) Determine, at its sole discretion, which MDUs or other
customers within a Market to bring HSDS (each a "Property
Determination"). OpTel shall have the right to discontinue
HSDS to any MDU or other customer if: (i) OpTel ceases
providing its cable television services to such MDU, (ii)
OpTel determines that it does not have the contractual or
other legal right to provide the HSDS to such MDU via its
property cable plant, or (iii) OpTel in good faith
determines that it should discontinue the HSDS to such MDU
in response to an MDU owner's request to do so or otherwise
as OpTel in good faith deems necessary for the proper
conduct of OpTel's business or to maintain a proper
relationship with the owner of an MDU. OpTel agrees that
clause (iii) of the preceding sentence shall be applicable
only with respect to circumstances surrounding individual
MDUs or MDUs under common or affiliated ownership and shall
not give OpTel the right to terminate this agreement in its
entirety or with respect to any Market.
(iii) Prior to or upon making a Property Determination, establish
the property network in the manner and having the physical
characteristics set forth on Schedule A (the "Property
Network") and the required local loop route also as
described on Schedule A (the "Local Route").
<PAGE> 3
I(3)S, Inc.
March 10, 1998
Page 3
(iv) Accept orders for HSDS and related services from
subscribers (each MDU resident or other customer that
subscribes to the HSDS is herein referred to as a
"Subscriber").
(v) Perform billing and collection functions related to HSDS.
(vi) Provide marketing of the HSDS product, as determined by
OpTel, after consultation with I(3)S.
(vii) Maintain sole responsibility for all relations with all
OpTel customers and Subscribers, including without
limitation MDU residents, owners, ownership associations
and property management, except that I(3)S will have
contact with Subscribers and MDU owners and property
management as necessary for I(3)S to perform its
obligations described in subsections 3.B(ii) and (iii)
below.
(viii) Maintain such permits, licenses, franchise rights and
intellectual property rights as may be required by
applicable law or as OpTel deems desirable in connection
with these matters and its business.
(ix) Assume the operating and capital cost associated with any
and all:
(a) Monthly recurring local loop costs
(b) Monthly recurring property maintenance (Lce, Router,
DSU/CSU, etc.)
(c) Monthly recurring headend maintenance
(d) Monthly recurring IP flow gateway (Houston, Texas)
(e) OpTel's customer service representatives
(f) Advertising and promotion to MDU residents
(g) Sales commissions, if any, due OpTel employees
(h) Insurance on OpTel-provided equipment
(i) MDU property owner revenue sharing (as determined by
OpTel)
(j) OpTel-specific training for HSDS
(k) CSR platform and services (non-IP or I(3)S personnel)
(l) One-half(1/2) of MCIS platform user costs
(m) Travel and entertainment expenses of OpTel employees
(n) MDU property CATV upgrades (to the extent necessary)
(o) MDU property equipment (Lce, Router, CSU/DSU)
(p) Master headend equipment
(q) Non-recurring local loop transport costs
The parties expressly acknowledge and agree that the provision of HSDS at
any MDU or other facility under the agreements contemplated hereby will be
entirely derivative and dependent upon OpTel's continued right to serve the
property and to maintain a video distribution plant thereon, and all
arrangements and agreements with Subscribers are dependent upon such continuing
rights. Maintenance of these rights to serve is entirely at OpTel's discretion,
and cannot be assured. Consequently, in no event shall OpTel be responsible to
I(3)S or any Subscriber in respect of the diminution in, or loss of, such video
distribution and related rights, or any other right of access, which OpTel might
endeavor to maintain. Moreover, it is expressly understood that the substantial
majority of OpTel customers for multi-channel video services are renters or
other transient occupants
<PAGE> 4
I(3)S Inc.
March 10, 1998
Page 4
of MDUs and there can be no expected minimum customer life. However, if OpTel's
right to serve a property terminates, OpTel ceases providing its video services
to that property, and OpTel has no further rights or interests in the video
distribution plant at that property, nothing contained in this agreement shall
prevent I(3)S from entering into a separate arrangement with the owner of that
property for the delivery of high-speed data services. OpTel shall use
reasonable efforts to provide I(3)S with advance notice of the date of
termination or cessation of OpTel's video services at a property.
OpTel and I(3)S periodically shall establish the expected "look and feel"
of the "Opening Screen" and other customized electronic media, so that I(3)S
can perform its obligations, and shall update such information from
time-to-time in accordance with Schedule B.
OpTel shall, at all times, maintain sole ownership of the names, addresses
and other account information of Subscribers and other OpTel customers;
provided, OpTel shall make such information available to I(3)S solely for
purpose of facilitating the performance of its obligations hereunder. I(3)S
shall not use such information for any other purpose or disclose such
information to third parties, unless and to the extent I(3)S is required to do
so by applicable law or pursuant to OpTel's prior written consent.
OpTel shall have the right to offer complimentary HSDS to property owners
or ownership or management associations, etc., as reasonably necessary in
connection with the furtherance of this business. OpTel and I(3)S agree that
complimentary HSDS offerings shall be limited to free installation, free
Hardware and Software and free HSDS (collectively, "Complimentary Service") for
up to two (2) computers at an MDU property management or leasing office and
Complimentary Service for one computer each for up to two (2) MDU-resident
employees of management level.
B. I(3)S. As part of the agreements contemplated hereby, I(3)S shall:
(i) Establish in each Approved Market and in each new market
designated by OpTel (provided any such new market meets the
Market Criteria and is approved by I(3)S) the Internet
point of presence ("POP") having the features and within
the time frame set forth on Schedule C and provide the
Internet service features described on Schedule D (the
"Service Features"). I(3)S shall establish the location of
the POP in each Market based on several factors, including,
without limitation, the co-location facilities being
offered by OpTel in each Market.
(ii) Provide or cause to be provided a 24-hour help desk service
line under an 800 or 888 toll free phone material and
technical support/customer help in accordance with Schedule
E (the "Customer Help Features").
(iii) Provide in a timely manner to each Subscriber the software
described on Schedule F ("Software") and the modem and
other hardware described on such schedule (the "Hardware").
I(3)S will make suitable arrangements (the exact nature to
be determined by I(3)S) for the leasing or financing of the
Hardware in order to make the Hardware available to
Subscribers at an acceptable and competitive cost, such
cost initially to be as set forth on Schedule H attached
hereto.
<PAGE> 5
I(3)S, Inc.
March 10, 1998
Page 5
(iv) Provide or cause to be provided local field service
personnel with respect to each Market to enable I(3)S to
provide the Software and Hardware to Subscribers and
provide customer-premises service of the Software and
Hardware.
(v) Provide and update the customized OpTel Opening Screen and
other features in accordance with Schedule B.
(vi) Market third-party advertising space on OpTel's Opening
Screen, such advertising to be subject to OpTel's prior
approval. Marketing, design and production costs shall be
the responsibility of the advertiser.
(vii) Provide all software and hardware and intellectual property
in connection with HSDS, all of which shall be owned or
lawfully licensed by I(3)S, and shall not knowingly
infringe upon the rights of any third party. The HSDS
proposed to be offered under the terms of this letter shall
be in compliance with all required licenses. I(3)S shall be
solely responsible for compliance.
(viii) Monitor status of OpTel's Property Network and Local Route
and notify OpTel's Customer Service Department of any
Property Network or Local Route failures detected by I(3)S
in accordance with the procedures described in Schedule G.
I(3)S will not be able to monitor the property headend
and/or receiving equipment (as distinguished from the
property distribution system) at any property where the
property receiving equipment is not being used to deliver
HSDS.
(ix) Procure and maintain in full force and effect all required
permits, licenses, franchise rights, trademarks, trademark
rights, trade names, trade name rights and copyrights which
are required to conduct the business of HSDS.
(x) Assume the operating and capital cost associated with any
and all:
(a) Monthly recurring private Internet exchange points
(b) Monthly recurring switch maintenance
(c) Monthly recurring POP transport
(d) Monthly recurring management station
(e) Customer support IP technicians and engineers (NOC,
Help Desk and field)
(f) One half (1/2) of MCIS platform user costs
(g) Travel and entertainment expenses of I(3)S employees
(h) Switch site equipment (including installation costs)
(i) Network management station (including installation
costs)
(j) Peering point routers
(k) Private Internet exchange point hardware (including
installation costs)
<PAGE> 6
I(3)S, Inc.
March 10, 1998
Page 6
(l) IP flow gateway (Houston, Texas) (including
installation costs)
(m) I(3)S network infrastructure equipment
(n) Internet transport facilities
(o) NAP interconnection facilities
4. I(3)S Hardware and Software. I(3)S will enter into a separate and
specific agreement with each Subscriber concerning the use and purchase or lease
of the Hardware and Software. OpTel shall not be a party to any such agreement.
Except for OpTel's performance of the billing and collection procedures set
forth in Paragraph 5.B below, I(3)S agrees that OpTel shall have no
responsibility or liability for any claims arising out of the purchase or lease
of the Hardware or Software or the operation, repair or maintenance thereof.
5. Subscriber Rates and Charges; Billing and Collection; Expenses and
Revenues.
A. Subscriber Rates and Charges and HSDS Features. OpTel and I(3)S
shall mutually establish the (i) HSDS features, (ii) HSDS Subscriber rates and
(iii) HSDS installation charges, service charges and rent or other charges
associated with a Subscriber's purchase or lease of the HSDS Hardware and
Software (the items referred to in clause (iii) being collectively referred to
as "Service and Equipment Charges"). OpTel and I(3)S intend to offer the latest
HSDS and Internet features and to set HSDS subscriber rates and Service and
Equipment Charges so as to maximize Subscriber revenues. OpTel and I(3)S agree
that the HSDS features, Subscriber rates and Service and Equipment Charges shall
always be competitive with those of other HSDS services being offered to
residents of other MDU's in the applicable Market. Further, I(3)S agrees that if
I(3)S is offering, directly or indirectly, through a relationship with an MSO,
PCO, REIT or otherwise, similar HSDS or Internet services to residents of MDUs
in any Market being provided HSDS pursuant to this agreement at subscription
rates lower than the rates being charged to Subscribers, then OpTel shall have
the right to reduce the HSDS subscription rates to a level competitive with such
offerings. I(3)S agrees that all Service and Equipment Charges shall be based on
I(3)S' actual costs and shall not be marked up to include any profit margin. The
initial HSDS subscription rates, service levels and Service and Equipment
Charges are set forth in Schedule H attached hereto.
B. Billing and Collection. OpTel shall perform all billing and
collection functions relating to amounts due from Subscribers for the HSDS and
Service and Equipment Charges (excluding charges for service/repair calls).
I(3)S shall perform all billing and collection functions relating to
service/repair calls. In no event shall OpTel have any liability or
responsibility for a Subscriber's failure to pay any Service and Equipment
Charges, nor shall the Alliance Revenues (defined below) be subject to any
deduction by reason of unpaid Service and Equipment Charges. All Service and
Equipment Charges received by OpTel shall be paid to I(3)S and shall not be
included in Alliance Revenues. OpTel shall provide I(3)S with a monthly billing
and collections report and a report of delinquent Subscriber accounts. Unless
the parties agree otherwise, I(3)S shall terminate Internet service to any
Subscriber whose account is delinquent for greater than fifteen days or in the
event a Subscriber violates any other material term or condition of service and
fails to cure such violation within a reasonable period of time following
notice. I(3)S shall provide OpTel with written notice of each Subscriber whose
HSDS has been terminated within 24 hours following termination.
C. Expenses. Each party shall bear any and all operating and other
expenses associated with the services and equipment it is required to provide or
maintain as set forth in this agreement and each party shall maintain its own
network infrastructure which shall at all times remain the property of such
party.
<PAGE> 7
I(3)S, Inc.
March 10, 1998
Page 7
D. Allocation of Revenue. All OpTel-billed revenue received from
Subscribers, but excluding payments of Service and Equipment Charges will be
described revenues attributable to the alliance ("Alliance Revenues") and shall
be allocated and paid to OpTel or I(3)S, as the case may be, in accordance with
the sharing percentages set forth below. Each party receiving Alliance Revenues
which may be payable in whole or in part to the other party shall hold such
monies in a fiduciary capacity and trust for such party and promptly pay over
the same. By way of example only, monthly Subscriber revenues received by OpTel
shall be payable in part to I(3)S in accordance with the Sharing Percentages.
Each party shall pay the other party such other party's share (determined in
accordance with the Sharing Percentages) of all Alliance Revenues received
during a calendar month by no later than the 25th day of the following calendar
month, which payment shall be accompanied by an itemized statement of all
Alliance Revenues received by that party during the applicable calendar month
and that party's calculation of each party's share of such revenues. OpTel shall
use reasonable efforts to collect all HSDS service subscription fees from
Subscribers.
E. Place of Payment. Alliance Revenues payable to OpTel shall be sent
to TVMAX Telecommunications, Inc., 1111 W. Mockingbird Lane, 10th Floor, Dallas,
Texas 75247, Attention: Accounts Receivable, or to such other location of which
OpTel gives I(3)S written notice. Alliance Revenues payable to I(3)S shall be
sent to I(3)S Inc., 1530 Riverbend Street, Suite 600, Dallas, Texas 75247-4953,
Attention: Accounts Receivable, or to such other location of which I(3)S give
OpTel written notice.
F. Accounting. Each party will account periodically to the other and
maintain access to books and records to afford the other party the right to
audit and confirm these matters.
G. Sharing Percentages. Initially, OpTel's sharing percentage shall be
* and I(3)S' sharing percentage shall be * (the "Sharing Percentages"). On the
date six months after the date hereof and then again on each anniversary of the
Market Activation Date (defined below) of the first Market activated pursuant to
this agreement, I(3)S and OpTel shall meet and review their respective capital
expenditures and expenses pertaining to the previous period's operations and
updated forecasts pertaining to such expenditures and expenses and, if each
party agrees in good faith that it's appropriate, adjust the Sharing Percentages
in order that each party's share of the Alliance Revenues will be appropriate
considering the costs each party has incurred to date and is expected to incur
over the following period.
H. Audit Rights. Either party, upon providing the other with fifteen
days prior written notice of its desire to do so, at its expense, may audit the
records of the other relating to revenues generated from Subscribers, Subscriber
and third-party advertising revenues associated with the OpTel home page/Opening
Screen or otherwise relating to the provision of HSDS pursuant to this
agreement. Such audit shall be conducted during the other party's business hours
at its office in Dallas, Texas. If a party's audit discloses an underpayment of
that party's share of Alliance Revenue, the other party shall, subject to its
right to contest the audit, forward such underpayment to the auditing party. If
such underpayment exceeds five percent of the actual amount of such party's
share of Alliance Revenue for the last year, then, subject to its right to
contest the audit, the other party shall reimburse the auditing party for all
reasonable third-party costs of the audit. If the other party elects to the
audit, OpTel and I(3)S shall mutually agree on an independent auditor to reaudit
the Alliance Revenues for the applicable period. The determination of such
independent auditor shall be binding. If such independent auditor determines
that either party underpaid the other's share of Alliance Revenue by more than
five percent of the actual amount for the last year, then such
<PAGE> 8
I(3)S, Inc.
March 10, 1998
Page 8
underpaying party also shall pay the cost of the second audit; otherwise, the
auditing party shall pay the cost of the second audit.
6. Term.
A. Term of Agreement. This agreement shall have an initial term of
five (5) years (the "Term") commencing on the date hereof. Following the initial
Term or any renewal Term, the Term shall automatically renew for any additional
one (1) year period. The Term and any renewal Term shall be subject to earlier
termination (a) in the event of a default or (b) in the event that the HSDS
arrangements are terminated with respect to all Markets as described below prior
to the end of the Term or any renewal Term. All representations, warranties and
indemnities of the parties shall survive the expiration or earlier termination
of the Term or any renewal thereof. Upon termination or expiration of the Term,
each party will continue to own the equipment, hardware, software, etc. paid
for, installed, owned and maintained by that party during the Term.
B. Individual Market Terms. In any Market designated by OpTel and in
which I(3)S has established a POP in accordance with the agreements contemplated
herein, the parties agree that the service arrangements in that Market will not
be terminated (other than for default) for a period of five (5) years from the
date of activation of the first OpTel MDU in a Market (the "Market Activation
Date"). After such five (5) year period, the arrangements with respect to such
Market may only be terminated on six months' prior notice (i.e., notice given on
or after the date which is four years and six months after the Market Activation
Date). Notwithstanding the termination of the arrangements in any Market, I(3)S
shall maintain its facilities and continue to provide the HSDS for a reasonable
period of time (not to exceed six (6) months from the date of termination) until
OpTel has made arrangements with another Internet service provider, and I(3)S
shall cooperate with OpTel in an orderly and efficient transition of the
Subscribers to any other Internet service provider designated by OpTel.
7. Nonexclusivity; Noncompetition and Most Favored Nation.
A. Nonexclusivity and Noncompetition. The agreements contemplated
hereby shall be non-exclusive as to each party. Neither party shall be precluded
from offering or providing a high-speed data service at MDU's or other
properties not being provided HSDS pursuant to this agreement; provided,
however, I(3)S will not during the Term, directly or indirectly, market or sell
HSDS in or to any MDU under contract for service with, or then being served by,
OpTel or any OpTel affiliate. During the Term, OpTel shall not, directly or
indirectly, offer or provide any high-speed data service which competes with the
HSDS at any MDU or other customer location where the HSDS is being provided
pursuant to this agreement.
B. Most Favored Nation. I(3)S shall not offer HSDS to or for the
benefit of competitors of OpTel under terms which, in the aggregate, are more
favorable to such competitors than those provided to OpTel without offering such
more favorable terms to OpTel retroactive to the date first offered to any such
competitor.
8. Representations and Warranties.
OpTel and I(3)S each represents and warrants to the other that: (a) it is
now in a solvent condition and that no bankruptcy or insolvency proceedings are
pending or contemplated by or against such party; (b) this agreement has been
duly authorized, executed and delivered by it and constitutes the legal, valid
and binding obligation of such party enforceable in accordance with its terms;
(c) no consent or approval
<PAGE> 9
I(3)S, Inc.
March 10, 1998
Page 9
of any other person or entity to the execution, delivery, performance or
enforceability of this agreement is required; (d) neither the execution of this
agreement nor the performance of the obligations contained herein by such party
will conflict with or result in a breach of the terms, conditions of provisions
of any agreement to which such party is a party or by which it is bound; and (e)
it has or will have good, valid, and indefeasible title to all equipment to be
provided by it pursuant to this agreement that pertains in any way to the HSDS.
Each person executing this agreement on behalf of a party hereto represents and
warrants that he or she is authorized to do so by all necessary corporate,
company or partnership action.
9. Insurance.
A. I(3)S' Insurance. I(3)S, at its expense, shall procure and maintain
throughout the Term: (i) commercial general liability insurance on an occurrence
basis with limits of liability of not less than $5,000,000, insuring against
bodily injury, death or property damage occurring in any one accident; (ii)
standard fire and extended coverage casualty insurance covering the Hardware,
all equipment associated with each POP and all equipment for the delivery of
HSDS (excluding that to be provided by OpTel), in an amount not less then
replacement cost; and (iii) worker's compensation and employer's liability
insurance if and to the extent required by applicable law. I(3)S shall cause
OpTel to be named as an additional insured in the insurance policies described
in clauses (i) and (ii) above and shall provide OpTel with a certificate
evidencing that such insurance coverage is in full force and effect. All
insurance shall be issued by insurance companies having a rating of A-VIII or
better according to the current issue of Best's Insurance Reports.
B. OpTel's Insurance. OpTel, at its expense, shall procure and
maintain throughout the Term: (i) commercial general liability insurance on an
occurrence basis with limits of liability of not less than $5,000,000, insuring
against bodily injury, death or property damage occurring in any one accident;
(ii) standard fire and extended coverage casualty insurance covering OpTel's
cable system or major components thereof and those items of equipment for the
delivery of HSDS to be provided by OpTel; and (iii) worker's compensation and
employer's liability insurance if and to the extent required by applicable law.
OpTel shall cause I(3)S to be named as an additional insured in the commercial
general liability insurance policy and shall provide I(3)S with a certificate
evidencing that such insurance coverage is in full force and effect. All
insurance shall be issued by insurance companies having a rating of A-VIII or
better according to the current issue of Best's Insurance Reports.
10. Indemnities.
A. General Indemnities. OpTel agrees to indemnify and defend I(3)S
against and hold I(3)S harmless from all fines, suits, claims, demands, causes
of actions, costs, damages and liability of every kind, including but not
limited to attorneys fees and expenses (collectively, "Claims"), resulting from
(i) any bodily injury, death and/or damage to property that results from or is
caused by the negligence or willful misconduct of I(3)S or any of its employees,
agents or contractors; and (ii) the breach of any representation, covenant or
warranty of OpTel contained in this agreement. I(3)S agrees to indemnify and
defend OpTel against and hold OpTel harmless from all Claims resulting from (i)
any bodily injury, death and/or damage to property that results from or is
caused by the negligence or willful misconduct of I(3)S or any of its employees,
agents or contractors, and (ii) the breach of any representation, covenant or
warranty of I(3)S contained in this agreement.
B. I(3)S Defense and Indemnity Obligations. I(3)S, at its sole
expense, shall defend OpTel and its affiliated entities, and their respective
directors, officers, employees and agents ("OpTel Affiliates"), against any and
all third-party Claims (including without limitation third-party
<PAGE> 10
I(3)S, Inc.
March 10, 1998
Page 10
Claims to which any OpTel Affiliate becomes subrogated) arising out of or
relating to the provision of Internet services, including without limitation,
all Claims arising out of or relating to (i) publishing activities, including
without limitation, content, obscenity and indecency; (ii) hosting activities,
including without limitation, security, privacy, and compensation and taxes;
and (iii) the violation or infringement of any Intellectual Property Right (as
defined below) (collectively, "Internet Claims"); provided, however, the
foregoing shall not include any Internet Claims arising solely by reason of the
actions of any OpTel Affiliate. The defense of any Claim under the preceding
sentence shall be handled by legal counsel chosen by I(3)S and reasonably
acceptable to OpTel. I(3)S and its legal counsel shall consult with OpTel and
its legal counsel in the defense of any such Claim. OpTel shall have the right,
but not the obligation, to participate in the defense of any such Claim with
its own counsel at its own expense. Without limiting any of the foregoing,
I(3)S shall defend, indemnify and hold harmless the OpTel Affiliates from and
against any and all third-party Internet Claims arising out of or relating to
any act or omission of I(3)S or any of its employees, agents or contractors;
provided, however, the foregoing shall not include Internet Claims arising
solely out of the parties offering or provision of HSDS to MDUs as contemplated
by the terms of this agreement.
C. Intellectual Property Rights Indemnification. I(3)S shall defend,
indemnify and hold harmless OpTel from and against any and all Claims arising
out of or relating to any actual or alleged infringement of any third party's
trade secret, trademark, service mark, copyright, patent or other intellectual
property right (each an "Intellectual Property Right") in connection with the
use of any Intellectual Property Right by I(3)S or its employees, agents or
contractors, in connection with the performance of its obligations under this
agreement. In connection with I(3)S's obligations pursuant to the immediately
preceding sentence, OpTel shall (i) give I(3)S prompt written notice of all
actions, claims or threats against OpTel of infringement or violation of
Intellectual Property Rights; and (ii) cooperate fully with I(3)S in defending
against any Claims, including making known or available to the I(3)S, upon
reimbursement of all costs associated with provision or reproduction of, all
records and document pertaining to any Claims; provided, however, OpTel's
failure to do either of the foregoing shall not in any way limit, reduce or
diminish I(3)S' obligations under this paragraph except to the extent, and only
to the extent, that OpTel's failure has an actual adverse effect on I(3)S'
ability to defend against any of the Claims.
11. Events of Default, Remedies and Dispute Resolution.
A. Events of Default; Remedies. The occurrence of any one of the
following events by a party shall be an event of default by such party under
this agreement:
(i) A party shall fail to pay when due any sum of money required
to be paid under this agreement to the other party, and such failure continues
for twenty days after the failing party receives written notice thereof from the
other party.
(ii) A party shall fail to perform or observe any term, condition
or agreement contained in this agreement (other than a failure described in
clause (a) above) and such failure is not cured within sixty days after the
failing party receives written notice thereof from the other party, but if such
failure is of a nature that it reasonably cannot be cured within such sixty day
period (but is susceptible of being cured), the failing party shall not be in
default if such party commences to cure such failure within such sixty day
period and thereafter diligently pursues the curing of same to completion.
(iii) A representation or warranty of a party contained herein
shall be untrue or misleading in any material respect when made.
<PAGE> 11
I(3)S, Inc.
March 10, 1998
Page 11
(iv) A party shall become insolvent, shall admit in writing its
inability to pay its debts when due, shall make a transfer in fraud of its
creditors, or all or substantially all of its assets or its interest in this
agreement are levied on by execution or other legal process.
(v) A party shall file a petition under any section or chapter of
the U.S. Bankruptcy Code, as amended, or under any similar federal or state law
or statute; or a party shall be adjudged bankrupt or insolvent in proceedings
filed against it; or a receiver or trustee shall be appointed for all or
substantially all of the assets of a party and such receivership or bankruptcy
shall not be dismissed within sixty days from the appointment of the receiver or
trustee.
Upon the occurrence of an event of default by a party, the non-defaulting party
may terminate this agreement by written notice to the defaulting party, bring an
action against the defaulting party for damages and/or otherwise seek any remedy
available at law or in equity (including specific performance and injunctive
relief). If for any reason this agreement or the arrangements in any Market are
terminated, I(3)S shall maintain its facilities and continue to provide the HSDS
for a reasonable period of time (not to exceed six (6) months from the date of
termination) until OpTel has made arrangements with another Internet service
provider, and I(3)S shall cooperate with OpTel in an orderly and efficient
transition of the Subscribers to any other Internet service provider designated
by OpTel.
B. Informal Dispute Resolution. In the event of any dispute or
controversy between the parties of any kind or nature, upon the written request
of either party, each of the parties will appoint a designated officer whose
task it will be to meet for the purpose of resolving such dispute or controversy
or to negotiate for an adjustment to any provision of this agreement needed to
resolve such dispute or controversy. Such officers will meet at a mutually
agreeable location within ten (10) business days of the date of the notice
requesting informal dispute resolution. Such officers will discuss the dispute
or controversy and negotiate in good faith in an effort to resolve the dispute
or controversy or renegotiate the applicable section or provision of this
agreement without the necessity of any formal proceeding relating thereto;
provided, neither party shall be obligated by this paragraph to waive a default
by the other party or otherwise compromise any right that it may have. No formal
proceedings for the judicial or arbitrational resolution of such dispute or
controversy may be commenced until either or both of the designated officers
conclude in good faith that an amicable resolution through continued negotiation
of the matter at issue is not likely to occur.
C. Arbitration. The parties agree that it is not in either party's
best interest to engage in expensive and protracted litigation to resolve any
dispute between the parties hereto. Accordingly, if any disputed matter in any
way arising out of or in connection with this agreement cannot be resolved
between the parties, then each party agrees exclusively to submit such disputed
matter to binding arbitration in Dallas County, Texas or such other mutually
acceptable location in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. THEREFORE, EACH OF THE PARTIES HERETO
EXPRESSLY WAIVES THE RIGHT TO A TRIAL BY JURY AND A TRIAL BY COURT IN CONNECTION
WITH ANY AND ALL DISPUTES ARISING IN ANY MANNER OUT OF THIS AGREEMENT. The
arbitration hearing shall take place within sixty (60) days after written demand
by either party or as soon thereafter as an arbitrator can be appointed. The
matter shall be submitted to a single arbitrator knowledgeable of such rules and
industry standards. The arbitrator will be instructed to consider, in making any
determination, the customary practices in the industry to the extent such
practices exist. The arbitrator shall be instructed to award the prevailing
party reasonable attorneys fees and costs. Punitive damages shall not be
recoverable in any arbitration initiated pursuant to this agreement. A
<PAGE> 12
I(3)S, Inc.
March 10, 1998
Page 12
judgment on any award entered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, either party may
seek in a court of competent jurisdiction a provisional remedy, including but
not limited to, injunctive relief, attachment, or claim and delivery, without
waiving the right to arbitration.
12. Notices. Any notice or other communication allowed or permitted to be
given under this agreement by one party to the other shall be in writing and
sent via U.S. Mail, hand delivery or overnight express delivery. Any notice
shall be deemed to have been given when deposited with the U.S. Postal Service
if sent by U.S. Mail. Notices and other communications given by other means
shall be deemed given when received at the place for the giving of notice. For
the purposes of giving notices hereunder, the following addresses shall be
applicable until changed by giving the other party notice of the change:
TVMAX Telecommunications, Inc. I(3)S, Inc.
1111 W. Mockingbird, 10th Floor 1530 Riverbend Street, Suite 600
Dallas, Texas 75247 Dallas, Texas 75247-4953
Attn: Legal Department Attn: Jim Price
13. Other and Miscellaneous.
A. Ownership of Intellectual Property Rights. Each party shall
maintain ownership of its own brands, trademarks, etc. and nothing in the
agreement shall give either party a right in intellectual property owned by the
other.
B. Taxes. Each party shall be responsible for its own taxes.
C. Force Majeure. Whenever a period of time is prescribed in this
agreement for action to be taken by either party, such party will 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, work stoppages, shortages
of labor or materials, war, governmental delays, governmental preemption or
priorities or other controls in connection with a national or other public
emergency, acts of God, casualties, utility outages, Applicable Laws, or any
other causes beyond the reasonable control of such party; provided this
subsection shall not apply to an obligation by either party for the payment of
money.
D. Mechanic's Liens. I(3)S shall not grant, create or allow to exist
by reason of any act of I(3)S or its employees, agents or contractors any
mechanics or materialman's lien or similar encumbrance on any multifamily
property being served by OpTel or on OpTel's cable television system at such
property.
E. Confidentiality. Unless otherwise agreed to in writing, each party
agrees (a) except as required by law, to keep confidential all of the financial
or service terms of this agreement and all Proprietary Information (defined
below) of the other party and not to disclose or reveal any such Proprietary
Information to any person other than those employed by the receiving party or
acting on its behalf who need to know the Proprietary Information to carry out
that party's obligations under this agreement, provided that any such person
acting on the receiving party's behalf is bound by the terms of this paragraph,
and (b) not to use Proprietary Information received from the other party for its
own benefit or any purpose other than in connection with the performance of that
party's obligations under this agreement. Each party acknowledges that it is
responsible for any breach of the terms hereof by it or its representatives
involving unauthorized disclosure or use of Proprietary Information. In the
event that pursuant to applicable law or regulation or legal process, either
party is requested to disclose any
<PAGE> 13
I(3)S, Inc.
March 10, 1998
Page 13
Proprietary Information of the other party, the receiving party will provide the
disclosing party with prompt notice of such request(s) to enable the disclosing
party to seek an appropriate protective order or other appropriate remedy and/or
waive compliance with the provisions of this agreement. In the event that such
protective order or other remedy is not obtained or the disclosing party waives
compliance with the provisions of this agreement, the receiving party shall
furnish only that portion of the Proprietary Information that it is advised by
written opinion of counsel is legally required to be furnished and shall
exercise reasonable commercial efforts to obtain a protective order or other
reliable assurance that confidential treatment will be accorded the Proprietary
Information. "Proprietary Information" means all information about a party
furnished by it or its representatives to the other party on or after the date
hereof, and regardless of the manner in which it is furnished, together with all
analyses, compilations, studies, summaries, extracts or other documents, whether
prepared by the disclosing party or others, which contain or otherwise reflect
such information, including, without limitation, financial status, customer
lists, marketing strategy, business plans and organizational structure.
Proprietary Information shall not include, however, information which (a) is or
becomes generally available to the public other than as a result of a disclosure
by the receiving party or by any of the receiving party's representatives, (b)
becomes available to the receiving party on a non-confidential basis from a
person other than the disclosing party or its representatives who is not
otherwise bound by a confidentiality agreement with the disclosing party or the
disclosing party's representatives, or is not otherwise prohibited from
transmitting the information to the receiving party, or (c) is independently
developed by the receiving party prior to disclosure to it by the disclosing
party or its representatives. In the event that the disclosing party at any time
so requests, the receiving party will promptly deliver to the disclosing party
or destroy all of the Proprietary Information of the disclosing party, including
all copies thereof, in the receiving party's possession or in the possession of
any of the receiving party's representatives, and will promptly confirm such
destruction in writing. Without prejudice to the rights and remedies otherwise
available to either party, a disclosing party shall be entitled to equitable
relief by way of injunction if the receiving party or any of the receiving
party's representatives breaches or threaten to breach any of the provisions of
this paragraph, without the necessity of proving irreparable harm or posting
bond or other security. The obligations of the parties under this paragraph
shall terminate five (5) years after the termination of this agreement.
F. Press Releases and Other Disclosures. All public communications
with respect to the matters set forth in this agreement must be approved by both
parties, subject to any required reporting or disclosure under state or federal
securities laws or in accordance with agreements between a party and its
investors.
G. Assignment. I(3)S shall have the right to assign this agreement to
any person; provided, however, I(3)S shall not have the right to assign this
agreement if (i) the financial strength of the assignee is less than I(3)S'
financial strength measured as of the date of this agreement, (ii) the assignee
is not reasonably capable of performing all of the obligations of I(3)S under
this agreement, or (iii) the assignee is a PCO, MSO or other provider of cable
television services, or a Regional Bell Operating Company or other incumbent
local exchange telephone company. A change in control of I(3)S shall be
considered an assignment. OpTel shall have the right to assign this agreement to
any person; provided, however, OpTel shall not have the right to assign this
agreement to any non-affiliated entity if the financial strength of such entity
is less than OpTel's financial strength measured as of the date of this
agreement. As a condition to the assignment of this agreement by either party,
the assignee of such party must, in writing, agree to assume and perform the
obligations of the assigning party from and after the date of such assignment.
<PAGE> 14
I(3)S, Inc.
March 10, 1998
Page 14
H. Attorneys' Fees. In the event of any dispute, arbitration or
litigation between the parties concerning this agreement, the prevailing party
shall be entitled to recover from the other reasonable attorneys fees and costs.
I. Binding Agreement. This agreement is binding on and enforceable
against the parties and their respective legal representatives, successors and
assigns.
J. Choice of Law; Venue. This agreement has been made and entered into
in the State of Texas, and shall be governed by and construed in accordance with
the law of the State of Texas. OpTel and I(3)S agree that venue of any action or
proceeding under or with reference to this agreement shall lie solely in Dallas
County, Texas.
K. Severability; No Partnership. If any provision of this agreement
should be held to be invalid or unenforceable, the validity and enforceability
of the remaining provisions of this agreement shall not be affected thereby.
Nothing herein contained shall be construed to create any partnership or joint
venture between the parties.
L. Entire Agreement; Amendments. This agreement supersedes any prior
agreements between the parties concerning the Property and the subject matter
hereof, and no statements, representations or agreements, oral or written, not
contained in this agreement shall have any force or effect. This agreement may
not be amended or added to in any way except by written instruments executed by
both parties or their respective successors in interest.
M. Counterparts. This agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one instrument, but in making proof hereof it shall only be necessary to produce
one such counterpart.
N. Field Testing. As soon as reasonably possible after the complete
execution of this agreement, OpTel and I(3)S shall commence to field test (the
"Field Test") the HSDS product at up to three (3) MDU's to be selected by OpTel
(each a "Test MDU"). The Field Test at any Test MDU shall continue for up to
ninety days from service activation, but may be terminated earlier by the
agreement of the parties. Except as provided in this subparagraph below, all of
the terms of this agreement, including without limitation all of the terms
concerning each party's obligations and each party's responsibilities for costs,
shall be applicable to the Field Test. OpTel and I(3)S agree that at one Test
MDU Subscribers at the Test MDU will not be charged for the HSDS and will not be
charged any Service and Equipment Charges during the Field Test. At the other
Test MDU's, OpTel and I(3)S shall charge residents HSDS subscription rates and
Service and Equipment Charges in order to perform a "marketing" test of the HSDS
product. By no later than twenty days following the completion of the Field
Testing, OpTel shall notify I(3)S whether OpTel believes the Field Testing was
successful. If OpTel determines that the Field Test was successful, then this
agreement shall continue in full force and effect. In which case, provided OpTel
can make appropriate arrangements with the owner of the Test MDU, the HSDS will
be continued at the Test MDU on a retail basis and residents that wish to
subscribe to the HSDS will be obligated to commence paying the monthly
subscription rate and make appropriate arrangements to purchase and/or lease the
Hardware and Software. If OpTel determines that the Field Test was not
successful, then OpTel shall be entitled to terminate this agreement and neither
party shall have any liabilities or obligations to the other; except that, if
either (i) OpTel terminates this agreement or (ii) appropriate arrangements
cannot be made with the owner of the Test MDU and OpTel decides not to continue
the HSDS at the Test MDU on a retail basis, then OpTel shall reimburse I(3)S in
an amount equal to the out-of-pocket costs incurred by I(3)S in connection with
providing the HSDS to the Test MDU
<PAGE> 15
I(3)S, Inc.
March 10, 1998
Page 15
during the Field Test (such amount not to exceed $7,500). The parties intend
that if the Field Test(s) are considered to have been successful, as described
above, the parties shall proceed immediately to implement this agreement in
accordance with the terms hereof.
TVMAX Telecommunications, Inc.,
a Delaware corporation
By: /s/ LOUIS BRUNEL
-------------------------------------
Name: LOUIS BRUNEL
------------------------------------
Title: President & CEO
-----------------------------------
I(3)S, INC., a Texas corporation
By: /s/ J.R. PRICE
-------------------------------------
Name: J.R. Price
------------------------------------
Title: CEO
-----------------------------------
<PAGE> 16
SCHEDULE A
PROPERTY NETWORK AND
LOCAL LOOP CHARACTERISTICS
OPTEL'S RESPONSIBILITIES:
1. Cause CATV infrastructure to comply with the FCC technical
requirements set forth in 47 C.F.R. Section 76.605.
2. Upgrade property CATV infrastructure to provide bi-directional cable
delivery to all Subscribers.
3. Cause the upgraded bi-directional CATV infrastructure to meet or
exceed the following minimal operational requirements of the I(3)S
cable modem system:
<TABLE>
<CAPTION>
Minimum Cable Television Network Value
Requirements For i3s.net HSDS
- ---------------------------------------------------------- ----------------------------------
<S> <C>
Amplitude variations inband
Forward channel 5 dB total
Return channel 5 dB total
- ---------------------------------------------------------- ----------------------------------
Group delay variation inband
Forward channel 60 nsec/MHz, 240 nsec total
Return channel 200 nsec/MHz, 800 nsec total
- ---------------------------------------------------------- ----------------------------------
Maximum tap to tap variation 27 dB
- ---------------------------------------------------------- ----------------------------------
Dynamic range on receiver -15 dBmV to +15 dBmV
- ---------------------------------------------------------- ----------------------------------
Maximum return/upstream loss @ 40 MHz 49 dB
- ---------------------------------------------------------- ----------------------------------
Minimum carrier to noise 22 dB
Referenced to Analog Carrier 37 dBC
- ---------------------------------------------------------- ----------------------------------
Minimum carrier to interference 25 dB
Referenced to Analog Carrier 40 dBC
- ---------------------------------------------------------- ----------------------------------
</TABLE>
4. Provide two (2) six MHz video channels within the CATV infrastructure
bandwidth on Internet served properties; one (1) in the spectrum from
54 MHz to 750 MHz and one (1) in the 5MHz to 50 MHz spectrum; and,
where available, reserve another two (2) additional video channels, in
the same spectrums for future expansion as Subscriber penetration on
the property increases.
5. Provide space, reasonable security and power for data communication
equipment necessary to provide Internet delivery and other data
services on the property.
6. Reimburse I(3)S for I(3)S' cost to acquire the I(3)S-specified data
communication equipment conforming to the I(3)S design for HSDS and
necessary to provide termination and delivery of HSDS between the
Subscriber and the I(3)S POP in each Market, which equipment will be
installed on each property jointly by I(3)S and OpTel technicians.
7. Order, provision, install and maintain local loop pathways between
each property and I(3)S POP in each Market with a bandwidth of not
less than 1.544 mb/s (T1). In addition, as the number of Subscribers
on each property increases, scale the local loop bandwidth so that
each
<PAGE> 17
simultaneously active user averages approximately 1 mb/s ninety eight
percent (98%) of the time provided OpTel determines that it is
economically feasible and necessary for the provision of HSDS. Both
parties acknowledge that the end-to-end performance of HSDS is
probabilistic and subject to anomalous short-lived usage patterns by
Subscribers which will affect both the utilization of the local-loop
circuits and the i3s.net national backbone from time to time. In the
event OpTel determines in its sole discretion that provisioning
additional local loop or other bandwidth is not economically feasible,
then, with respect to the affected property, I(3)S will be relieved of
any obligations contained in this agreement to remain competitive in
terms of HSDS speed.
8. Provide coaxial connection (coax drop) to each Subscriber's unit
consistent with location of Subscriber's CPU and/or requested
location.
I(3)S RESPONSIBILITIES:
1. Install, maintain and operate data delivery equipment for each
property offering HSDS. Installation and maintenance will meet or
exceed manufacturer's specifications. OpTel, through its local Market
support team, will assist I(3)S with pre-installation engineering
planning and site survey questionnaires, installation, testing and
preparation of maintenance schedules.
2. Integrate all data delivery equipment for each property into the I(3)S
Element Management System portion of its Network Management Platform
using SNMP and RMON. I(3)S will monitor all data delivery equipment
twenty-four hours per day, seven day per week (24x7).
3. Configure and operate all data delivery equipment to efficiently
integrate with the rest of the i3s.net network.
<PAGE> 18
SCHEDULE B
I3S INFORMATION OPERATIONS - CONTENT PRODUCTION;
OPTEL START PAGE -- PRODUCTION AND UPDATING
1. I(3)S operates an information content operation for creating original
content or aggregating content created by others and licensed to I(3)S for
inclusion in the I(3)S body of content. This material will consist of
informational, educational, recreational, entertainment and business
content. This body of content will be offered to Subscribers of the HSDS
product.
2. I(3)S creates content as creative and/or business opportunities present
themselves. The I(3)S content will be updated as I(3)S, using its editorial
judgment, sees fit.
3. Certain portions of this content will be offered to all HSDS Subscribers
free of charge (Basic Content). Other portions of the content will be
offered to HSDS Subscribers on an optional fee basis for unlimited access
to a fixed package of content (Premium Content). Another certain portion of
the content will be offered to HSDS Subscribers on an optional fee basis
for access to a specific time-limited event (Pay-Per-View Content). In
addition to the fees charged to customers for content, I(3)S will solicit
and sell advertising that will appear on certain portions of the content.
4. I(3)S may elect to bill Subscribers directly or request that OpTel bill
Subscribers as part of their regular monthly billing for service as part of
a HSDS/content bundle. All OpTel-billed revenues relating to I(3)S content
offering will be included in Alliance Revenues and subject to the Sharing
Percentages.
5. I(3)S or its content partners will design, produce and update, as
necessary, all content and be responsible for all such costs.
6. I3S shall design, produce and update, as necessary, a customized start page
(the "Start Page") for HSDS Subscribers, which shall be used primarily to
market and promote the HSDS and OpTel's current and future video,
telecommunications and other services. In addition, the Start Page will
include hyperlinks to OpTel corporate Web sites as directed by OpTel. The
Start Page shall meet the technical, functional and appearance requirements
reasonably specified by OpTel, subject to reasonable approval by I(3)S.
I(3)S shall update and maintain the Start Page throughout the Term in
accordance with directions from OpTel and the terms of this agreement.
I(3)S may offer HSDS Subscribers Start Pages that are personalized (by
property) and that, in addition to the features described above, may
promote the I(3)S content offerings and provide direct hyperlinks to the
I(3)S content.
<PAGE> 19
SCHEDULE C
POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I(3)S RESPONSIBILITIES:
1. Acquire, install and maintain data communication equipment at each POP for
the termination and transmission of HSDS from properties to the i3s.net
national network backbone.
2. Determine the location of its main presence in each Market to be consistent
with its own operational practices (which currently include co-locating
within its carrier's central offices in each Market). However, I(3)S will
establish multiple POPs in each market sufficient to minimize local loop
transport from properties. Moreover, where desired by OpTel, I(3)S will
co-locate certain data communication equipment within OpTel facilities in
order to concentrate OpTel-provided local loops terminating in OpTel
facilities for transport to the I(3)S regional POP. In those markets where
I(3)S will co-locate equipment within OpTel facilities, OpTel will provide,
without charge, suitable space, reasonable security and power for the I(3)S
equipment consistent with I(3)S operational practices and provide
reasonable monitored access for I(3)S support staff in order that the
equipment can be maintained or serviced in the case of failure.
3. Acquire, install, maintain and operate Internet peering relationships at
public and private Internet Exchange Points (EP) with other Tier 1 Internet
backbone networks throughout the United States.
4. Acquire, install, maintain and operate computers and software to provide
Network Management and provide Internet services for Subscribers. To
provide these functions, I(3)S will employ a combination of
locally-distributed-to-the-POP servers as well as globally centralized
servers consistent with its overall network design and operational
practices.
5. Order, provision, install, maintain and operate data transport/carriage
pathways from each POP, EP and/or NOC with a bandwidth not less than 45
mb/s (DS-3) interconnection. In addition, as the number of Subscribers on
Market increases, scale the bandwidth so that each simultaneously active
user averages approximately 1 mb/s ninety eight percent (98%) of the time.
Both parties acknowledge that the end-to-end performance of HSDS is
probabilistic and subject to anomalous short-lived usage patterns by
Subscribers which will affect both the utilization of the local-loop
circuits and the i3s.net national backbone from time to time.
6. Establish a POP as described above in each Approved Market within ninety
(90) days after its receipt of written notice from OpTel requesting same.
If OpTel desires to provide HSDS to a Market that is not an Approved
Market, then, I(3)S shall use reasonable efforts to establish a POP in that
Market. Within twenty (20) days after OpTel's written notice to I(3)S that
OpTel desires to provide HSDS to a Market that is not an Approved Market,
I(3)S shall notify OpTel whether it will establish a POP in that Market and
the date by which it will establish such POP. In order to coordinate the
delivery of HSDS in any such Market, I(3)S will use reasonable efforts to
provide OpTel with thirty (30) days prior notice of the date upon which the
POP will be ready for service.
<PAGE> 20
SCHEDULE D
DEFINITION OF HIGH-SPEED DATA SERVICES (HSDS)
FEATURES AND REQUIREMENTS
The I(3)S HSDS includes, but is not limited to:
1. Data Network services that provide transport and peering functions to
the global Internet, including, without limitation:
a. A broadband access network on MDU properties composed of one or
more headend reference nodes, a coaxial or hybrid fiber coaxial
(HFC) cable television distribution system and one or more cable
data modems (CDM);
b. A local loop network that connects the headend reference node on
each MDU property to the I(3)S regional point-of-presence (POP)
in each metropolitan area served by I(3)S;
c. A regional point-of-presence network that connects the POP to the
i3s.net national Internet backbone;
d. A national Internet backbone consisting of broadband
communication facilities for the transport of data among I(3)S
POPs and public and private Exchange Points where data and
Internet routing information will be exchanged with other
networks peered with i3s.net;
e. A National Operations Center (NOC).
2. Certain computer services that include, but not limited to:
a. Membership system for user authentication and authorities;
b. Personalization services for customizing content to user
preferences;
c. Internet mail (SMTP and POP3);
d. Internet newsgroups (NNTP) composed of approximately 25,000
newsgroups;
e. Internet World Wide Web (HTTP) services;
f. Internet chat (IRC and MIRC);
g. White-pages-style directory services;
h. Internet locator services;
i. Conferencing and collaboration bridges;
j. Streaming multimedia services such as Microsoft's NetShow and
Progressive Network's RealMedia;
k. Electronic commerce services.
3. A branded suite of client software that includes, but not limited to:
a. Web browser;
b. Mail reader;
c. News reader;
d. Chat client;
e. Conferencing and collaboration client;
f. Appropriate plug-ins and ActiveX controls.
4. Certain customer service functions that include, but not limited to:
a. A National Customer Care Center;
b. A telephone and network-based customer help desk;
c. A Trouble Reporting facility;
d. A customer billing system.
<PAGE> 21
5. Certain multimedia-rich content that showcases the capabilities of
HSDS that includes, but not limited to:
a. Original content created by I(3)S;
b. Aggregated content created by others but licensed by I(3)S and
improved for uses in a HSDS system;
c. Aggregated content created by others but licensed by I(3)S and
used unimproved.
<PAGE> 22
SCHEDULE E
CUSTOMER HELP LINE
SERVICE AND REQUIRED FEATURES
OPTEL RESPONSIBILITIES:
1. Provide toll free numbers for:
a. Inquiries about the HSDS product
b. Ordering and scheduling installation of HSDS products
c. Billing inquiries
d. Tier 1 technical support inquires
2. Operate 24x7 customer service call center operation.
3. Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing
operation.
4. Resolve billing issues within 24 hours 95% of time.
5. Resolve property network issues within 24 hours 95% of time.
6. Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
I(3)S RESPONSIBILITIES
1. Provide toll free number for:
a. Technical support for all HSDS issues
b. Technical support for Subscriber CPU hardware and software issues
related to HSDS
c. Technical support for cable modem issues
2. Answer toll free line consistent with the OpTel/I(3)S service co-brand
3. Operate 24x7 customer service call center operation.
4. Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing
operation.
5. Resolve technical issues within 24 hours 95% of time.
6. Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
7. Develop and publish escalation procedures for OpTel to contact
regarding technical issues related to the network.
8. Provide training support for OpTel's customer service representatives
(train-the-trainer support).
<PAGE> 23
SCHEDULE F
SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
OPTEL SHALL:
1. Develop a standard ISP contract for Subscribers with terms and
conditions reasonably acceptable to I(3)S.
2. Train its customer service representatives to follow I(3)S-provided
procedures to try to verify that potential Subscribers' personal
computers meet the I(3)S established minimum requirements for the
supplied software and the HSDS service.
3. Schedule an appointment with each new Subscriber to meet the I(3)S
installation personnel for the installation of the HSDS in the
Subscriber's unit.
4. Supply I(3)S with Subscribers' information required to install,
provision and complete the set up of Subscribers' HSDS service (the
nature of which to be provided by I(3)S). OpTel and I(3)S will
jointly develop an appropriate paper-form-based system or automated
system to facilitate this process.
5. Provide coaxial connection to the Subscriber's specified location.
6. Verify that the coaxial connection completed to the Subscriber's
specified location meets or exceeds the minimum operational
requirements for the I(3)S supplied cable modem and the I(3)S HSDS
service described in Schedule A.
7. Verify that all CATV services function properly after I(3)S completes
installation.
I(3)S SHALL:
1. Maintain a sufficient inventory of cable modems in each Market and
develop procedures to restock Markets with cable modems as used in
Subscriber installations.
2. Issue and install the required number of cable modems for the service
requested by the Subscriber. Develop contract for subscribers for
cable modem lease with terms and conditions reasonably acceptable to
OpTel.
3. Meet the Subscriber at the Subscriber's residence at the scheduled
time at least 95% of time.
4. Install the required cable modem(s) in the Subscriber's unit.
5. Install any required network interface cards (NICs), TCP/IP protocols
and Internet software suite in the Subscriber's personal computer.
6. Offer the Subscriber a brief introduction to the HSDS to be performed
at the time of installation. This introduction will include how to
launch the service, how to find the training material on the i3s.net
Web site, how to find the Subscriber Support Section on the i3s.net
Web site and how to call for technical assistance or support.
7. Obtain signatures required to verify that installation was executed
properly and to the satisfaction of the subscriber.
<PAGE> 24
8. Provide OpTel with a copy of the installation transaction
documentation verifying that the completed installation is ready for
billing. This documentation will include the cable modem delivery
receipt, the ISP contract, the completed work order and Subscriber's
signature verifying that the installation was executed properly.
9. I(3)S installation technicians shall present a neat, well-groomed and
professional appearance and shall efficiently perform the procedures
described above in a professional and courteous fashion.
<PAGE> 25
SCHEDULE G
PROCEDURES FOR DETECTION AND NOTICE
OF OPTEL PROPERTY NETWORK AND LOCAL LOOP FAILURES
OPTEL SHALL:
1. Designate an engineering point of contact for I(3)S Network Operations
Center (NOC) to report problems or failures twenty-four hours per day,
seven days per week (24x7).
I(3)S SHALL:
1. Use the cable modem system and certain network management features
that it provides to monitor the availability and quality of OpTel's
property network (its CATV plant).
2. Report to OpTel's designated engineering point of contact any problems
observed by the I(3)S NOC in the course of operating the cable modem
system network management features.
3. Report to OpTel's designated engineering point of contact any problems
determined by Subscriber contact in the course of operating the
Subscriber Help Desk.
4. Offer to OpTel a read-only direct computer interface into the I(3)S
cable modem system's network management platform for the purposes of
direct observation of the information produced by the management
platform and possible enhancement of OpTel's property network
operations. If OpTel elects to implement a read-only direct -computer
interface, OpTel will be responsible for all of the costs associated
with such an interface.
<PAGE> 26
SCHEDULE H
HSDS INITIAL SUBSCRIBER RATES, SERVICE LEVELS
AND INSTALLATION AND EQUIPMENT CHARGES
I(3)S and OpTel agree that, initially, the HSDS Subscriber rates, service levels
and installation and equipment charges shall be:
<TABLE>
<S> <C>
64 kb/s contention-based non-burstable $29.95 per month*
1.00 mb/s contention-based burstable $49.95 per month*
1.54 mb/s contention-based with reserved bandwidth $69.95 per month*
Small office, home office (SOHO) $500.00 per month*
Vanity DNS hosting $100.00 per month*
Installation fee $99.00 non-recurring
Network interface card (NIC) market price (assumed to be
$60)
LanCity LCp cable modem purchase market price (currently $395.00)
non-recurring
Monthly rental of LCp market price
</TABLE>
* Additional monthly fees may be charged to non-cable subscribers. These
fees may vary by both market and service level of HSDS.
Note: The rates, levels and charges set forth above are subject to change as
provided in this agreement. I(3)S and OpTel agree that rates may be
reviewed as frequently as required and may vary by Market
<PAGE> 27
SCHEDULE I
APPROVED MARKETS
I(3)S agrees that the following OpTel Markets, with 3,500+ units, meet the
Market Criteria and are eligible for the delivery of HSDS:
San Francisco, CA
San Diego, CA
Los Angeles, CA
Phoenix, AZ
Denver, CO
Colorado Springs, CO
Dallas-Fort Worth, TX
Houston, TX
Chicago, IL
Miami-Fort Lauderdale, FL
I(3)S currently has plans to open regional POPs in the following Markets in
calendar year 1998. If OpTel has 3500 or more units in any of the following
Markets, then such Markets will meet the Market Criteria and be eligible for the
delivery of HSDS.
San Jose, CA Pennsauken, NJ
Washington DC Las Vegas, NV
Tampa, FL New York, NY
Atlanta, GA Portland, OR
Detroit, MI Seattle, WA
St. Louis, MO Milwaukee, WI
Charlotte, NC
I(3)S also currently plans to open local concentrator locations (access nodes on
the i3s.net network without the full capabilities of a regional POP, but
connected directly to one or more regional POPs) in the following cities:
Birmingham, AL Kansas City, KS/MO Akron, OH
Huntsville, AL Wichita, KS Cincinnati, OH
Scottsdale, AZ Louisville, KY Cleveland, OH
Tucson, AZ Boston, MA Columbus, OH
Bakersfield, CA Marlborough, MA Oklahoma City, OK
Sacramento, CA Westborough, MA Philadelphia, PA
Orlando, FL Baltimore, MD Providence, RI
Jacksonville, FL MT. Pleasant, MI Memphis, TN
Macon, GA Raleigh/Durham, NC Nashville, TN
Savannah, GA Greensboro, NC Austin, TX
Bettendorf, IA Omaha, NB Corpus Christi, TX
Des Moines, IA Edison, NJ El Paso, TX
Peoria, IL Jersey City, NJ San Antonio, TX
Rantoul, IL Plainsboro, NJ Norfolk, VA
Indianapolis, IN Rochester, NY Richmond, VA
<PAGE> 1
EXHIBIT 10.17
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
MARKETING AGREEMENT
This MASTER HIGH SPEED DATA SERVICES MARKETING AGREEMENT (this
"Agreement") is entered into as of the 1st day of February 1999 ("Effective
Date"), by and between I(3)S, INC., a Texas corporation, with a place of
business at 1440 Corporate Drive, Irving Texas 75038 ("I3S"); and Private Cable,
Inc., a Texas corporation with a place of business at 1909 Avenue G, Rosenberg,
Texas 77471, including all affiliates and subsidiaries which may become parties
to this Agreement from time to time (collectively "PCI").
RECITALS
WHEREAS, PCI provides, directly and through third party
private cable operators and others ("PCI Customers") satellite-based, video
entertainment programming to multiple dwelling unit communities ("MDUs") in
several metropolitan markets throughout the United States;
WHEREAS, I3S provides broadband Internet protocol network
services, including, without limitation, high speed data services, as more
specifically described in Exhibit D and E attached hereto and incorporated
herein by reference (the "Service"), to multiple system franchise cable
operators ("MSO's"), private cable operators ("PCO's"), and real estate
investment trusts ("REIT's"), nationwide; and
WHEREAS, PCI and I3S desire to provide the Service to MDUs,
current and future, served by PCI or a PCI customer pursuant to a right of entry
agreement ("I3S ROE") that gives PCI or a PCI Customer the right of access to
one or more MDU's (individually, an "I3S Property", and collectively, the "I3S
Properties") to provide the Service in accordance with the terms of this
Agreement.
NOW, THEREFORE, the parties hereto hereby covenant and agree
as follows:
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF PCI.
AUTHORITY. This Agreement has been duly authorized, executed
and delivered by PCI and constitutes a valid and legally binding Agreement of
PCI, and neither the execution and delivery of nor the performance of the
provisions of this Agreement shall conflict with or result in (a) a breach,
violation or default under the Certificate of Incorporation and Bylaws of PCI,
if applicable; or any material agreement binding on PCI that would affect its
obligations hereunder;
<PAGE> 2
or (b) the breach or violation of any law, order, rule, ordinance, regulation,
judgement or decree of an governmental authority having jurisdiction.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by or on behalf of PCI shall survive the
execution and delivery of this Agreement, and any investigation at any time made
by or on behalf of I3S shall not diminish its rights to rely thereon.
1.2 REPRESENTATIONS AND WARRANTIES OF I3S.
AUTHORITY. This Agreement has been duly authorized, executed
and delivered by I3S and constitutes a valid and legally binding Agreement of
I3S, and neither the execution and delivery of nor the performance of the
provisions of this Agreement shall conflict with or result in (a) a breach,
violation or default under the Certificate of Incorporation and Bylaws of I3S,
if applicable; or any material agreement binding on I3S that would affect its
obligations hereunder; or (b) the breach of violation of any law, order, rule,
ordinance, regulation, judgement or decree of an governmental authority having
jurisdiction.
PERMITS, LICENSES, ETC. I3S possesses all material permits,
licenses, franchises rights, trademarks, trademark rights, trade names, trade
name rights and copyrights which are required to conduct the business of the
Service.
I3S LICENSES. I3S possesses all requisite licenses from third
parties necessary to provide the Service to PCI's MDUs and their residents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by or on behalf of I3S shall survive the
execution and delivery of this Agreement, and any investigation at any time made
by or on behalf of PCI shall not diminish its rights to rely thereon.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall have an initial term of seven (7)
years from the Effective Date; provided, however, that the initial term may be
automatically extended after the seventh anniversary of the Effective Date on a
month-to-month basis unless one party provides the other party with thirty (30)
days prior written notice of the notifying party's intent to terminate this
Agreement upon the expiration of such thirty (30) day notice period; and
further, provided, however, that the term of this Agreement shall be
automatically extended to always be coterminous with the term (including any
extensions thereof) of any and all I3S ROE'S for any and all I3S Properties.
<PAGE> 3
ARTICLE 3
EXCLUSIVITY
3.1 EXCLUSIVITY. PCI and PCI Customers may not be precluded from
allowing parties providing U.S. Federal Communications Commission tariffed
telecommunications or municipal franchise cable television services to the I3S
Property to deliver high speed Internet access service to an I3S Property in the
event that said party possesses a specific federal or state statutory or
regulatory right to do so. PCI shall not agree to or accept commissions or other
forms of compensation or benefits for the marketing of the Service at the I3S
Properties, except as provided herein, and shall not provide on-premise
marketing support for such other parties' Internet access service. Further,
neither I3S, PCI, nor a PCI Customer shall provide, market or support, or cause
to be provided, marketed or supported, directly or indirectly, a competitive
service to HSDS to the I3S Properties during the term of this Agreement. Subject
to these limitations, I3S shall have the exclusive right to market, promote and
sell the Service at each I3S Property during the term of this Agreement.
ARTICLE 4
PCI'S OBLIGATIONS
4.1 OBTAINING I3S ROE'S. In consideration of the mutual agreements
of the parties contained herein, PCI covenants and agrees to use its best
efforts to obtain and maintain or cause to be obtained and maintained by a PCI
Customer an I3S ROE for each I3S Property. I3S shall have no obligation to
provide the Service at any location in the absence of an I3S ROE. The I3S ROE
shall provide that I3S shall, at its own expense, provide the Service to the
residents of the I3S Property and collect revenues directly from its subscribers
and further provide, at a minimum (unless waived by I3S in writing), that:
(i) there are three parties to the I3S ROE; (a) I3S, (b)
the owner or authorized agent of the owner of the I3S Property, e.g. the
property manager (the "Owner") and (c) the owner or authorized agent of the
owner, e.g. a PCO, of the cable facilities used to deliver the Service to the
residents of the I3S Property (the "Operator"); and
(ii) the Owner grants I3S access to the I3S Property to
provide the Service to the residents; and
(iii) the Operator grants I3S access to the equivalent of
at least two (2) video channels worth of bandwidth on the cable distribution
facilities (the "System") at the I3S Property to provide the Service to the
residents; and
(iv) the Operator shall, at its own expense, operate and
maintain the video head-end and the System to the specifications described in
Exhibit F (the "Specifications") sufficient to ensure that the Service is
properly delivered to the residents; and
(v) the Operator shall pay the cost for training its own
personnel to maintain the System up to the Specifications; and
<PAGE> 4
(vi) the Operator shall maintain commercial general
liability insurance with minimum limits of $1,000,000 per occurrence for bodily
injury (or death) and property damage liability with limits of at least
$1,000,000 per occurrence [Personal Injury and $1,000,000 General Policy
Aggregate (applicable to Commercial General Liability Policies)] which names I3S
as an additional insured; and
(vii) the Owner and Operator shall use their respective
best efforts to assist I3S in securing access to all occupied and unoccupied
units as necessary to provide the Service so long as I3S shall not enter an
occupied unit without the resident's express approval and I3S shall not enter
any occupied unit unless resident or an adult representative of the resident is
present; and
(viii) the employees, agents, or contractors of I3S
shall have reasonable access, at no charge, to the I3S Property and facilities
of the Operator in connection with and to perform any and all work reasonably
necessary to provide the Service at the I3S Property including but not limited
to installation, inspection, maintenance, repair or removal of equipment, or to
facilitate the provision of the Service to I3S customers; and
(ix) each party's employees, contractors, or
agents will, while on the premises of any other party, comply with all
applicable law and regulations and any reasonable written rules or regulations
of the Owner applicable to all tradesmen or contractors on the premises; and
(x) revenue sharing or other payment to the
Owner for granting I3S access to the I3S Property shall be the responsibility of
the Operator. I3S shall have no obligation to pay any revenue shares,
commissions, or other consideration to the Owner in connection with the
provision of the Service; and
(xi) any and all maintenance or other problems with
respect to the Service will be reported directly to I3S to the point of
contact designated in writing by I3S (the "Contact"); and
(xii) the Owner and Operator will immediately inform the
Contact of any material or recurring maintenance problems brought to their
attention along with the name and address of the subscriber, if any, who made
the complaint; and
(xiii) the Operator will direct the residents to call the
Contact regarding any complaints or technical problems concerning the Service;
and
(xiv) the Owner will provide a secure air-conditioned
space, at no charge, to I3S for the storage of all equipment reasonably
necessary to provide the Service at the I3S Property; and
<PAGE> 5
(xv) the Owner will provide electricity necessary to power
I3S equipment, not to exceed $250 per year; and
(xvi) I3S may record a memorandum of the I3S ROE provided
that I3S ROE is subordinate to any and all leases, mortgages, deeds or trusts
that encumber the I3S Property at any time and that further provided that I3S
shall provide such certificates or other statements as the Owner may request in
writing to acknowledge the subordination of the I3S ROE; and
(xvii) if the Operator breaches its obligations to provide
access to or proper maintenance of the System necessary to provide the Service,
I3S may, at its own expense, take possession of and maintenance responsibility
for the System and continue providing the Services; and
(xviii) the ROE will have a minimum term of seven (7) years;
and
(xix) I3S will make warranties and representations to the
Owner and Operator that are substantially the same as set forth in Sections 5.1,
10.1 and 10.2 below; and
(xx) the parties are excused from performance due to force
majeure, as defined below in Section 14.8.
A sample I3S ROE, approved by the parties, is attached as Exhibit A.
4.2 MDU SURVEY. PCI or the PCI Customer shall use their best
efforts to complete and submit the MDU Survey, annexed as Exhibit B, (or
otherwise provide substantially the same information described in the MDU
Survey) and deliver it to I3S for review and approval before I3S executes the
I3S ROE. I3S and PCI will use their respective best efforts to establish
criteria pursuant to which I3S will be obligated to provide the Service to PCI
or a PCI Customer based on the MDU Survey. Until that time, I3S will have sole
discretion to accept or reject any I3S ROE, provided that once any I3S ROE is
rejected, I3S may not thereafter enter into any contract to provide the Service
at the I3S Property covered by the rejected I3S ROE except through PCI.
4.3 MARKETING. PCI and I3S will consult and develop a joint
marketing strategy designed to promote HSDS hereunder.
ARTICLE 5
AFFIRMATIVE COVENANTS OF I3S
5.1 GENERAL OBLIGATIONS. In consideration of the mutual agreements
of the parties contained herein, I3S covenants and agrees to do and perform, or
cause to be done and performed, the following:
(i) I3S possesses and shall maintain for the
term of this Agreement any and all property, right, title or interest necessary
to lawfully provide the Service as contemplated
<PAGE> 6
in this Agreement the Service, and all such property, right, title and interest
shall remain free and clear of any adverse claims, interests and liens.
(ii) I3S possesses and shall maintain in full
force and effect for the term of this Agreement, all material permits, licenses,
franchise rights, trademarks, trademark rights, trade names, trade name rights
and copyrights which are required to provide the Service.
(iii) With respect to performance hereunder, I3S
agrees to maintain, at all times during the term of this Agreement, as a
minimum, commercial general liability insurance with minimum limits of
$1,000,000 per occurrence for bodily injury (or death) and property damage
liability with limits of at least $1,000,000 per occurrence [Personal Injury and
$1,000,000 General Policy Aggregate (applicable to Commercial General Liability
Policies)] and any additional insurance and/or bonds required by law. Upon
request, I3S agrees to furnish certificates or other acceptable proof of the
foregoing insurance and name PCI as an additional insured and also name such
Owners and Operators as an additional insured who may request it. I3S warrants
that it meets or exceeds all insurance requirements stated herein and those that
are required by the laws in the State of Texas.
(iv) As more specifically described in Exhibits D
and E attached hereto and incorporated herein by reference, I3S shall assume and
pay all operating and capital costs and expenses associated with any and all:
Monthly recurring private Internet exchange points
Monthly recurring switch maintenance
Monthly recurring POP transport
Monthly recurring Dallas network operations center costs (including
installation costs)
Customer support IP technicians and engineers (NOC, Help Desk and
field personnel)
I3S-specific training
Insurance on I3S capital equipment
I3S-specific travel and entertainment
Switch site equipment (including installation costs)
Peering point routers
Private Internet exchange point hardware (including installation
costs)
I3S network infrastructure equipment
Transport facilities
Backbone transport facilities
Monthly recurring local loop costs
Monthly recurring property maintenance (Lce, Router, DSU/CSU)
Monthly recurring IP headend maintenance
CSR platform and services
Internet browser platform user license
MDU property IP equipment (Lce, Router, DSU/CSU)
IP master headend equipment
Non-recurring local loop transport costs
Customer billing and collections
<PAGE> 7
ARTICLE 6
DESCRIPTION OF THE SERVICE
6.1 DESCRIPTION OF THE SERVICE. During the term of this Agreement,
I3S shall provide, or cause to be provided to the residents of I3S Properties,
the Service, more particularly described and set forth in Exhibits D and E
attached hereto and incorporated herein by reference.
ARTICLE 7
DEFINITION OF SERVICE LEVEL STANDARDS
7.1 DEFINITION OF SERVICE LEVEL STANDARDS. Subject to the
conditions, qualifications and limitations set forth herein, including, without
limitation, those set forth in Exhibit F attached hereto and incorporated herein
by reference, during the term of this Agreement, I3S shall offer, or cause to be
offered, the service level standards pertaining to various aspects of the
Service, as more particularly described and set forth in Exhibits D and E
attached hereto and incorporated herein by reference.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING
8.1 REVENUE ALLOCATION. Internet access revenue (the "Revenue")
generated by I3S subscribers at I3S Properties will be paid directly to I3S;
provided, however, that, by the twenty-fifth day of each month I3S shall pay PCI
a revenue sharing fee calculated as a percentage of Revenue for each I3S
Property, prepaid or not, (exclusive of installation charges, customer service
charges, customer equipment sales or leases, other charges "passed through" on a
no-markup basis collected by I3S, and comparable charges) actually collected by
or on behalf of I3S for the immediately preceding month ("Commissionable
Revenues") in accordance with the following tables:
<TABLE>
<CAPTION>
PENETRATION BASE FEE PENETRATION INCENTIVE
<S> <C> <C>
0% to 10% * *
Greater than 10% to 15% * *
Greater than 15% to 20% * *
Greater than 20% to 30% * *
Greater than 30% to 40% * *
Greater than 40% to 50% * *
Greater than 50% * *
</TABLE>
<PAGE> 8
"Penetration" means the total number of I3S subscribers at an I3S
Property divided by the total number of units at the I3S Property. The "Base
Fee" and "Penetration Incentive" are a percentage of the Revenue derived from
the I3S Property for which the Penetration is determined. The respective
"Penetration Incentive" shall be paid only on the basis of the incremental I3S
subscribers who actually subscribe to the Service at the particular applicable
penetration level set forth above.
8.2 CUSTOMER ACCESS PRICING. With the intent to increase Service
penetration at each I3S Property, I3S, in consultation with PCI shall establish
the price at which access to the Service is made available to subscribers. Such
access shall be provided at a price, service quality and content comparable to
the services of companies, which utilize high-speed cable modems to deliver high
speed data service. Prior to the provision of the Service and the execution of
any I3S ROE, I3S shall provide to PCI for PCI's review the proposed pricing
structure and service quality and content standards for the Service to each I3S
Property.
8.3 BRANDING. With respect to the Service, and the promotion
thereof, I3S shall establish the brand names, logos, labels, trademarks, service
marks and other such identifying promotional characteristics pertaining to the
same throughout the term of this Agreement.
ARTICLE 9
SPECIFIC SOFTWARE WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I3S represents and warrants that the
software utilized hereunder (collectively, the "Products") are free and clear of
all liens and encumbrances, and that it has full power, license and authority to
utilize the rights granted to it with respect to such Products without the
consent of any other person or that such consent has been obtained, and that to
the knowledge of I3S the Products utilized hereunder will not infringe or
violate any copyright, trade secret, trademark, patent or other intellectual
property rights of any third party.
9.2 COMPLIANCE WITH APPLICABLE LAWS. I3S represents and warrants
that the provision of the Service pursuant to this Agreement shall be in
compliance with all applicable federal and state laws, rules and regulations.
<PAGE> 9
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I3S shall
defend, indemnify and hold harmless PCI, its directors, officers, shareholders,
employees and agents and its successors and assigns, from and against any and
all claims, demands, actions, liabilities, losses, damages and expenses,
including, without limitation, settlement costs and reasonable attorneys' fees,
arising out of or relating to any actual or alleged infringement of any third
party's trade secrets, trademark, service mark, copyright, patent or other
intellectual property rights (the "Intellectual Property Rights") in connection
with the use of said Intellectual Property Rights hereunder. I3S's obligation
pursuant to the immediately preceding sentence is subject to the following
conditions: (i) PCI shall give I3S prompt written notice of all actions, claims
or threats against PCI of infringement or violation of Intellectual Property
Rights; (ii) PCI shall permit I3S to elect to assume complete control of such
claims at its sole discretion and expense; and (iii) PCI shall cooperate fully
with I3S in defending against claims, including making known or available to the
indemnifying party, upon reimbursement of all costs associated with provision or
reproduction of, all records and document pertaining to claims.
10.2. INDEMNIFICATION. Each party shall indemnify the other against
all liability, loss, damage, and expense resulting from injury to or death of
any person (including injury to or death of their employees) or loss of or
damage to tangible real or tangible personal property (including damage to their
property) or the environment, but only to the extent that such liability, loss,
damage or expense was proximately caused by its breach of this Agreement or
by any negligent act or omission, willful misconduct or violation of law on the
part of the party from whom indemnity is sought ("the indemnitor"), its agents,
employees, subcontractors or assignees. Indemnitor shall have the right to
assume defense of the claim with counsel reasonably acceptable to indemnitee.
Indemnitee shall be entitled to participate in the defense of the claim with its
own counsel at its sole expense.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 CONFIDENTIAL INFORMATION. Information to be held in confidence
shall be clearly marked "Proprietary" or "Confidential." Information which is
conveyed orally shall be deemed confidential only if prior to disclosure it is
indicated as being confidential and written confirmation identifying the
confidential or proprietary information is provided to the receiving party
within ten (10) business days after it was discussed orally.
11.2 RESTRICTIONS. Each party shall use its reasonable best efforts
to maintain the confidentiality of such Confidential Information and not show or
otherwise disclose such Confidential Information to any third parties,
including, but not limited to, independent contractors and consultants, without
the prior written consent of the disclosing party. Each party shall use the
Confidential Information solely for purpose of performing its obligations under
this Agreement.
<PAGE> 10
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations
described in Section 11.2 above, neither party shall have any obligation to
maintain the confidentiality of any Confidential Information which: (i) is or
becomes publicly available by other than unauthorized disclosure by the
receiving party; (ii) is independently developed by the receiving party; or
(iii) is received from a third party who has lawfully obtained such Confidential
Information without a confidentiality restriction. If required by any court of
competent jurisdiction or other governmental authority, the receiving party may
disclose to such authority, data, information or material involving or
pertaining to Confidential Information to the extent required by such order,
provided that the receiving party shall first have used its best efforts to
obtain a protective order reasonably satisfactory to the disclosing party
sufficient to maintain the confidentiality of such data, information or
materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of
Confidential Information to such party's bona-fide employees or agents who have
a need to know such information for purposes of conducting the receiving party's
business. Each party shall notify all employees and agents who have access to
Confidential Information or to whom disclosure is made that the Confidential
Information is the confidential, proprietary property of the disclosing party
and shall instruct such employees and agents to maintain the Confidential
Information in confidence.
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this
Article 11 shall survive the termination of this Agreement for two (2) years
thereafter.
ARTICLE 12
DEFAULT; TERMINATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a
party shall be deemed to be in default under this Agreement:
(a) Material breach of any warranty or misrepresentation by the defaulting
party;
(b) Material failure to perform the defaulting party's obligations
hereunder, including with respect to I3S its failure to (i) maintain the service
standards set forth in Section 7.1 hereof, and (ii) make the payments to PCI set
forth in Section 8.1 hereof
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the benefit of its
creditors, suffering or permitting the appointment of a receiver or similar
officer for its business or assets or availing itself of, or becoming subject
to, any proceeding under the United States Federal Bankruptcy Laws or any
federal or state statute relating to solvency or the protection of the rights of
creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material respect on the
date it was made by the defaulting party.
<PAGE> 11
12.2 REMEDIES. In the event the defaulting party fails to cure any
default set forth hereunder within thirty (30) days, except for defaults
pursuant to Section 12.1(c) which shall have a cure period of ninety (90) days,
after written notice of such default by the non-defaulting party specifying
the acts or omissions constituting the default with reference to the sections of
this Agreement which have allegedly been breached, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against the
defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are
cumulative, but the non-defaulting party is under no obligation to exercise any
such remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or release the
defaulting party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Termination of this Agreement shall not
impair either party's then accrued rights, obligations, liabilities or remedies
hereunder.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE. All notices pursuant to this Agreement shall be in
writing and may be personally delivered or sent by overnight courier or by
Certified or Registered mail. All notices personally delivered shall be
deemed delivered at the time of such delivery. All notices sent by Certified or
Registered mail shall be deemed delivered five (5) days after deposited in the
US mail. All notices sent by overnight courier shall be deemed made one (1)
business day after delivery to such courier service. Any party may designate a
change of address upon ten (10) days written notice.
If to I(3)S, to:
I(3)S, Inc.
1440 Corporate Drive
Irving Texas 75038
Attn: Mr. Jim Price, CEO
with a copy to:
I(3)S, Inc.
1440 Corporate Drive
Irving Texas 75038
Attn: Matt Hutchins, President
If to PCI, to:
Private Cable, Inc.
1909 Avenue G
Rosenberg, Texas 77471
Attn: Robert Vogelsang, CEO
<PAGE> 12
13.2 PUBLIC DISCLOSURES. All media releases, public announcements,
and public disclosures by either party of its employees, agents or
representatives relating to this Agreement or the subject matter hereof,
excluding any announcement beyond the control of this disclosing party, will be
approved by the non-disclosing party in writing prior to release.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the schedules,
attachments and exhibits attached hereto or referred to herein, constitutes the
entire Agreement and understanding among the parties hereto with respect to the
provision of the Service at I3S Properties and is the final expression of their
Agreement on that subject and no evidence of oral or other written promises
shall be binding. All other prior agreements or understandings related to the
subject hereof among the parties, whether written or oral, shall be null and
void and of no further force and effect upon the execution of this Agreement.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
14.2 INCORPORATION BY REFERENCE. The schedules, exhibits and
attachments referred to herein or attached hereto are hereby incorporated in and
to this Agreement and made a part hereof by this reference.
14.3 AMENDMENT; MODIFICATION. This Agreement may not be
supplemented, amended, modified or otherwise altered except by written
instrument executed by all the parties hereto and no course of dealing or trade
usage among or between the parties shall be effective to supplement, amend,
modify or alter this Agreement.
14.4 WAIVER. The failure to enforce or to require the performance
at any time of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either the
validity of this Agreement, any part hereof or the right of any party thereafter
to enforce each and every provision in accordance with the terms of this
Agreement.
14.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
ITS CONFLICTS OR CHOICE OF LAWS.
14.6 CONTINUITY OF CONTRACT. If any severable provision of this
Agreement is deemed invalid or unenforceable by any judgment of a court of
competent jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent, unless to do so would substantially
impair the underlying purposes of this Agreement.
14.7 CAPTIONS. The captions appearing in this agreement are
included solely for
<PAGE> 13
convenience of reference and shall not be construed or interpreted to affect the
meaning or interpretation of this Agreement.
14.8 FORCE MAJEURE. Neither party shall be responsible for any
failure to comply with or for any delay in performance of the terms of this
Agreement, including, but not limited to, delays in delivery, where such failure
or delay is directly or indirectly caused by or results from events of force
majeure beyond the control of either party. These events shall include, but not
be limited to, fire, flood, earthquake, accident, civil disturbance, war, acts
of God, or acts or government.
14.9 HIRING PROHIBITED. During the term of this Agreement and for a
period of one (1) year thereafter, neither party shall solicit for hire or hire
any employee of the other party who has performed services under this Agreement.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy
between the parties of any kind or nature, except in circumstances where
equitable relief is deemed necessary by either party in its sole discretion,
upon the written request of either party, each of the parties will appoint a
designated officer whose task it will be to meet for the purpose of resolving
such dispute or controversy or to negotiate for an adjustment to any provision
of this Agreement needed to resolve such dispute or controversy. Such officers
will discuss the dispute or controversy and negotiate in good faith in an effort
to resolve the dispute or controversy or renegotiate the applicable section or
provision of this Agreement without the necessity of any formal proceeding
relating thereto. No formal proceedings for the judicial or arbitrational
resolution of such dispute or controversy may be commenced until either or both
of the designated officers conclude in good faith that an amicable resolution
through continued negotiation of the matter at issue is not likely to occur.
14.11 BINDING NATURE; ASSIGNMENT. This Agreement will be binding on
the parties hereto, and their respective successors and assigns. Upon prior
written notice to the other party, either party may assign its rights and
delegate its duties under this Agreement; provided however, that the assignee
party must unconditionally assume in writing, and agree to be bound by, the
right, duties and obligations of the assignor party under this Agreement.
14.12 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the
contrary in this Agreement, under no circumstances will either party be deemed
to be in any relationship with the other party carrying with it fiduciary or
trust responsibilities. The parties do not intend for this Agreement or the
relationship established thereby to be considered the formation of a joint
venture or partnership between the parties for any purpose. I3S has the sole
right to supervise, manage, contract, direct, procure, perform or cause to be
performed the day-to-day work to be performed by I3S under this Agreement unless
otherwise expressly provided herein or agreed to by the parties in writing.
14.13 COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if the signature on each counterpart were upon the same
instrument.
<PAGE> 14
14.14 MEMORANDUM OF UNDERSTANDING. The Parties stipulate and agree
that a Memorandum describing the existence of any I3S ROE with respect to each
I3S Property (attached hereto as Exhibit C) be recorded, at I3S' expense, with
the Title for such I3S Property and all liens thereto.
14.15 SUBORDINATION. Each and every I3S ROE is subject and
subordinate to all leases, mortgages, and/or deed of trust which may now or
hereafter affect the I3S Property, to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument or subordination shall be required by
any mortgage, trustee, lessor or lessee. In confirmation of such subordination,
I S shall execute promptly any certificate that PCI, or any Owner or Operator
may request. Notwithstanding the foregoing, the party secured by any deed of
trust shall have the right to recognize the I3S ROE. In the event of any
foreclosure sale under such deed of trust, the I3S ROE shall continue in full
force and effect at the option of the party secured by such deed of trust or the
purchaser under any such foreclosure sale. I S covenants that it will, at the
written request of the party secured by any such deed of trust, execute,
acknowledge and deliver any instrument that has for its purpose and effect the
subordination to said deed of trust of the lien of the I3S ROE.
14.16 SEVERABILITY. The Parties agree that multiple Properties may
become subject to this Agreement. Any default or termination (whether voluntary
or involuntary) by any Party with respect to a particular Property shall operate
as a default or termination only with respect to the Parties' responsibilities
and obligations as they relate to the specific Property or Properties, as the
case may be. Unless otherwise agreed to by the Parties with respect to the
particular default, a default shall be construed, where possible, to exclude
unaffected Properties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
I(3)S, INC. PRIVATE CABLE, Inc.
By: /s/ Matt Hutchins By: /s/ R.L. VOGELSANG
-------------------------- ----------------------------
Matt Hutchins Name: R.L. Vogelsang
President --------------------------
Title: President
-------------------------
Date: 3/2/99 Date: 3/1/99
------------------------ --------------------------
<PAGE> 15
LIST OF EXHIBITS
EXHIBIT A: I3S Right of Entry Agreement
EXHIBIT B: MDU Survey
EXHIBIT C: Sample Memorandum of Existence of Right of Entry Agreement
EXHIBIT D: I3S Capital and Operating Expense Responsibilities
EXHIBIT E: Description of the Services Provided by I3S
EXHIBIT F: Service Level Standards
<PAGE> 16
EXHIBIT A
I3S RIGHT OF ENTRY AGREEMENT
This Agreement is made _______, 199__ between I3S, Inc., 1440 Corporate
Drive, Irving, TX 75038 ("I3S"), and ________________________, whose address is
___________________________________, (the "Operator") and ______________________
whose address is __________________________________________________________ (the
"Owner").
WHEREAS
A. The Owner is the owner or authorized agent for the owner of a
multifamily residential property located at __________________________,
which has _______________ units (the "Property"); and
B. The Operator is the owner or authorized agent for the owner of the
cable distribution facilities (the "System") at the Property used to deliver
video services to the residents (the "Residents"); and
C. I3S can provide high speed internet access and other data services
(the "Service") to the Residents using the System; and
D. The parties wish I3S to provide the Services to the Residents using
the System;
THEREFORE the parties agree as follows:
1. ACCESS. The Owner grants I3S access to the Property to provide the
Service to the Residents. The Owner and Operator shall use their respective best
efforts to assist I S in securing access to all units as necessary. I S shall
not enter an occupied unit without the Resident's express consent and only in
the presence of the Resident or an adult representative of the Resident.
1. OWNER SUPPORT. The Owner will provide secure air-conditioned space to I
S for all equipment reasonably necessary to provide the Service at the Property
(the "Equipment"). The Owner will provide electricity necessary to power the
Equipment, not to exceed $250 per year. I S will have access to the Property and
the Equipment for routine installation, maintenance and marketing on weekdays
from 9 a.m. to 9 p.m., and on Saturdays from 9 a.m. to 5 p.m.. Emergency service
and repair calls can be made at any time, 24 hours a day.
1. I3S EQUIPMENT. I3S shall, at its own expense, install, operate and
maintain the Equipment, keep it in good repair and provide the Service to the
Residents. I3S shall make a good and workmanlike installation of the Equipment
and shall not damage the Property or injure anyone. I3S shall own the
Equipment and may remove it and restore the Property to its original condition
upon the termination of this Agreement, subject to ordinary wear and tear.
<PAGE> 17
1. THE SYSTEM. The Operator grants I3S the use of two (2) video channels
of bandwidth on the System to provide the Service to the Residents. The Operator
shall, at its own expense, install, upgrade, operate and maintain the video
head-end and the System to I3S' specifications (the "Specifications"). The
Operator shall pay the cost for training its own personnel to maintain the
System according to the Specifications.
1. BILLING AND COLLECTING. I3S shall directly bill and collect from any
Resident who receives the Service. Neither the Owner nor the Operator shall have
any liability for I3S subscriber fees. I3S shall set the price for the Service
in consultation with the Operator. I3S shall have no obligation to pay any
commissions or other similar consideration to the Owner or Operator for the
rights granted I3S in this Agreement. Nothing in this Agreement shall preclude
the Operator from receiving consideration from a third party or paying
consideration to the Owner for the rights granted in this Agreement.
1. CONTACT. I3S will establish a point of contact to take any complaints
or questions about the Service (the "Contact"). The Owner and Operator will
immediately inform the Contact about any material or recurring problems with the
Service brought to their attention including the name and address of the
subscriber, if any, who made the complaint.
1. RECORDED MEMORANDUM. I3S may, at its own expense and with the
cooperation of the Owner if necessary, record a memorandum of this Agreement
which shall state that this Agreement is subordinate to any and all leases,
mortgages, deeds or trusts at any time. I3S shall provide such certificates or
other statements as the Owner may request to acknowledge the subordination of
this Agreement.
1. EXCLUSIVITY. The Owner and Operator promise that no high speed internet
or data service that competes with I3S (a "Competitor") will be offered at the
Property, except as required by law or if the Competitor is a telephone company
using telephone lines. The Operator and Owner shall not, to the extent permitted
by law, permit any Competitor to use the System or provide support, directly or
indirectly, to a Competitor. The Operator and Owner shall not accept commissions
or other consideration from a Competitor or allow on premises marketing by a
Competitor.
1. TERM. The term of this Agreement is seven (7) years from the date of
the Owner's signature and renewed automatically for one (1) year terms
thereafter unless either party notifies the other of an intent to not renew
within ninety (90) days of the end of the term by written notice.
1. INDEMNITY. Each party shall indemnify and hold the others harmless from
any and all claims, damages or expenses arising out of any breach by the
indemnifying party of this Agreement. The indemnifying party shall control and
pay for the defense of such claims. The indemnifying party may settle such
claims subject to the indemnified
<PAGE> 18
party's consent which shall not be unreasonably withheld or delayed. The
indemnified party may, but is not obligated to, participate in the defense of
such claims at its own expense.
1. CANCELLATION FOR CAUSE. Any party may cancel this Agreement on written
notice if any other party defaults in performing the material obligations of
this Agreement provided, however, that the defaulting party will first be given
the opportunity to cure the default. The canceling party will specify the
default to the other parties in writing and the defaulting party will have sixty
(60) days to cure the default. If the default is not cured, the other parties
may then cancel this Agreement. Before the Owner or I3S cancels this Agreement
for default by the Operator, I3S shall be given thirty (30) days to cure the
Operator's default and thereby assume the Operator's rights and obligations
under this Agreement.
1. INSURANCE. I3S shall provide Worker's Compensation Insurance for its
employees and require Worker's Compensation Insurance for the employees of all
contractors and subcontractors. The Operator and I3S shall each maintain
separate comprehensive liability insurance in the amount of $1,000,000 covering
their respective operations, contractors and subcontractors. The Operator and
I3S shall, upon request, name each other and the Owner as an additional insured
and provide certificates of insurance.
1. COMPLIANCE. The parties will comply with all applicable laws, codes and
regulations. I3S will comply with any reasonable written rules of the Owner that
apply to all other tradesmen or contractors.
1. FORCE MAJEURE. No party shall be liable for failure to perform all or
part of this Agreement by reason of a force majeure event. These events shall
include, but are not limited to, fire, flood, earthquake, accident, civil
disturbance, war, acts of God, or acts of government.
1. ASSIGNMENT. This Agreement shall benefit and be binding on the
respective assigns, transferees and successors of the parties. Operator or I3S
will assign this Agreement only to a responsible company which at the time of
assignment has the resources necessary to perform under this Agreement. The
Owner will notify new owners of the Property about this Agreement.
1. CONFIDENTIALITY. This Agreement will remain confidential and shall not
be disclosed to third parties except as required by law or to make an
assignment.
<PAGE> 19
1. ENTIRE UNDERSTANDING. This Agreement shall not modify or amend any
other agreement between the Operator and Owner except as expressly set forth
above. This Agreement otherwise contains the entire understanding of the parties
and may not be modified except by a writing signed by each of the parties.
- ---------------------- ----------------------
- -----------------------
I3S Owner Operator
Name: Name: Name:
<PAGE> 20
EXHIBIT B - MDU SURVEY
OPERATOR
NAME
--------------------------------------------------------------------------
CONTACT PERSON
----------------------------------------------------------------
ADDRESS
------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TELEPHONE NO.
------------------------------------------------------------------
FAX NO.
------------------------------------------------------------------------
E-MAIL ADDRESS
------------------------------------------------------------------
OWNER
NAME
--------------------------------------------------------------------------
CONTACT PERSON
-----------------------------------------------------------------
ADDRESS
------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TELEPHONE NO.
------------------------------------------------------------------
FAX NO.
------------------------------------------------------------------------
E-MAIL ADDRESS
-----------------------------------------------------------------
<PAGE> 21
EXHIBIT B - MDU SURVEY
PROPERTY
CONTACT PERSON
-----------------------------------------------------------------
ADDRESS
------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TELEPHONE NO.
-------------------------------------------------------------------
FAX NO.
------------------------------------------------------------------------
E-MAIL ADDRESS
-----------------------------------------------------------------
NUMBER OF UNITS
-----------------------------------------------------------------
NUMBER OF BUILDINGS
------------------------------------------------------------
AGE OF BUILDINGS
----------------------------------------------------------------
CURRENT OCCUPANCY
--------------------------------------------------------------
MONTHLY RENTAL FOR ONE BEDROOM
--------------------------------------------------
MONTHLY RENTAL FOR TWO BEDROOM
--------------------------------------------------
MONTHLY RENTAL FOR THREE BEDROOM
------------------------------------------------
FULL LEGAL DESCRIPTION OF THE PROPERTY SUFFICIENT TO RECORD MEMORANDUM OF RIGHT
OF ENTRY AGREEMENT:
<PAGE> 22
EXHIBIT B - MDU SURVEY
CATV/MATV SITE SURVEY INFORMATION
HOW LONG HAVE YOU BEEN PROVIDING SERVICE AT THIS LOCATION
-------------------------------------------
CHANNEL LINE UP AND PRICING
-------------------------------------------
BASIC PENETRATION
-------------------------------------------
PAY PENETRATION
-------------------------------------------
AGE OF CABLE DISTRIBUTION PLANT
-------------------------------------------
MANUFACTURER AND TYPE OF CABLE
-------------------------------------------
MANUFACTURER AND TYPE OF SPLITTERS AND OTHER CONNECTORS
-------------------------------------------
LOOP THROUGH OR HOME RUN WIRING
-------------------------------------------
REMAINING TERM ON CONTRACT TO SERVE THE PROPERTY
-------------------------------------------
ANY CLAIMS OF BREACH OR DEFAULT ON THE CONTRACT
-------------------------------------------
<PAGE> 23
EXHIBIT B - MDU SURVEY
Certification
I certify that the statements made in this survey are true
and correct and acknowledge that I3S, Inc. may make a substantial investment at
the above-described property in reliance on the this information.
------------------------------------------
Name:
Title:
Company:
Date:
-------------------------------------
<PAGE> 24
EXHIBIT C - MEMORANDUM OF AGREEMENT
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Matthew Hutchins
President
I3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
MEMORANDUM OF EXISTENCE OF
IS RIGHT OF ENTRY
AGREEMENT
A license has been granted by ________________________________________
("Grantor") the owner of record of the premises located at ____________________
_______________________________________________________ to I3S ("Grantee") under
a certain I3S Right of Entry Agreement dated _________________________ by and
between Grantor and Grantee (the "Agreement"). The license permits Grantee,
among other things, to provide high speed data services, as described in the
Agreement, and to engage in any other act or activity contemplated by the
Agreement at the Property described herein. This Agreement runs with the land
and terminates on the earlier of seven (7) years after the above date (with
renewals of one year terms in the absence of written termination) or (ii) any
termination of the Agreement due to breach by any party. Such earlier
termination may be evidenced by the recording of an Affidavit executed by
Grantor stating that such termination has occurred. As used in the Agreement,
the term "Property" means that the real property consisting of approximately
______ units located in the city/town/village of______________, County
of____________, State of _____________________, at the address commonly known as
______________________________________[Name and Address of Apartment Community].
Whose legal description is as follows:
In the event of any conflict between the terms and conditions of this Memorandum
of Existence and the terms and conditions of the Agreement, the Agreement shall
control. The parties agree that the sole purpose of this Memorandum of Existence
is to provide notice of the Agreement.
The undersigned personally warrants and represents that he/she has the authority
to execute this Memorandum on behalf of the Grantor and the information stated
in this Memorandum is true and accurate and acknowledges that I3S is making a
substantial investment at the above-described premises in reliance on the
statements made by the Grantor in this Memorandum.
<PAGE> 25
Executed this ______ day of____________, 199___.
GRANTOR:
---------------------------------
A
----------------------
BY:
------------------------------
NAME:
----------------------------
TITLE:
----------------------------
STATE OF
----------------------
COUNTY OF
---------------------
On ____________, 199___, before me, __________________ personally
appeared _________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument and the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
--------------------- (seal)
GRANTEE: I3S, Inc.
A Texas Corporation
BY:
----------------------
NAME:
-----------------------
TITLE:
-----------------------
STATE OF
-------------------
COUNTY OF
------------------
<PAGE> 26
On, _______________, 199___, before me, ______________, personally
appeared __________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument and the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: ___________________ (seal)
<PAGE> 27
EXHIBIT D
I3S CAPITAL AND OPERATING RESPONSIBILITIES
I3S Responsibilities:
Install, maintain and operate data delivery equipment for each property
offering high speed data service ("HSDS"). Installation and maintenance will
meet or exceed manufacturer's specifications. the Operator will assist I3S with
pre-installation engineering of the CATV infrastructure at the Property and
site survey questionnaires, installation, testing and preparation of maintenance
schedules.
Integrate all data delivery equipment for each property into the I3S
Element Management System portion of its Network Management Platform using SNMP
and RMON. I3S will monitor all data delivery equipment twenty-four hours per
day, seven day per week (24x7).
Assume the cost of the acquisition of I3S-specified data communication
equipment conforming to the I3S design for HSDS and necessary to provide
termination and delivery of HSDS between the Subscriber and the I3S POP in each
Market.
Order, provision, install and maintain local loop pathways between each
property and I3S POP in each Market with a bandwidth of not less than 1.544 Mb/s
(T1). In addition, as the number of Subscribers on each property increases,
scale the local loop bandwidth so that each simultaneously active user averages
approximately 1 Mb/s ninety eight percent (98%) of the time.
Configure and operate all data delivery equipment to efficiently
integrate with the rest of the I3s.net network.
POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I3S Responsibilities:
Acquire, install and maintain data communication equipment at each POP
for the termination and transmission of HSDS from properties to the i3s.net
national network backbone.
I3S will determine the location of its main presence in each Market to
be consistent with its own operational practices (which currently include
co-locating within its carrier's central offices in each Market).
Acquire, install, maintain and operate Internet peering relationships
at public and private Internet Exchange Points (EP) with other Tier 1 Internet
backbone networks throughout the United States.
Acquire, install, maintain and operate computers and software to
provide Network Management and provide Internet services for Subscribers. To
provide these functions, I3S will
<PAGE> 28
employ a combination of locally-distributed-to-the-POP servers as well as
globally centralized servers consistent with its overall network design and
operational practices.
Order, provision, install, maintain and operate data transport/carriage
pathways from each POP, EP and/or NOC with a bandwidth not less than 45 Mb/s
(DS-3) interconnection. In addition, as the number of Subscribers on Market
increases, scale the bandwidth so that each simultaneously active user averages
approximately 1 Mb/s ninety eight percent (98%) of the time. Both parties
acknowledge that the end-to-end performance of HSDS is probabilistic and subject
to anomalous short-lived usage patterns by Subscribers which will affect both
the utilization of the local-loop circuits and the i3s.net national backbone
from time to time.
CUSTOMER HELP LINE
SERVICE AND REQUIRED FEATURES
I3S Responsibilities:
Provide toll free numbers for:
Inquires about the HSDS product
Ordering and scheduling installation of HSDS products
Billing inquiries
Initial technical support inquires
Operate 24x7 customer service call center operation.
Maintain sufficient customer service staff and call center
capacity to connect to Subscribers within 5 minutes of call entering processing
operation.
Resolve billing issues within 24 hours 95% of time.
Resolve property network issues within 24 hours 95% of time.
Develop and publish escalation procedure for Help Desk and
attendants related to network issues.
Provide toll free number for:
Technical support for all HSDS issues
Technical support for Subscriber CPU hardware and
software issues related to HSDS
Technical support for cable modem issues
Answer toll free line consistent with the Operator/I3S service co-brand
<PAGE> 29
Operate 24x7 customer service call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 5 minutes of call entering processing operation.
Resolve technical issues within 24 hours if a phone call is required
95% of time.
Resolve technical issues within 48 hours if a truck roll is required
95% of time.
Develop and publish escalation procedure for Help Desk and attendants
related to network issues.
Develop and publish escalation procedures for the Operator to contact
regarding technical issues related to the network.
Provide training support for the Operator's customer service
representatives (train-the-trainer support).
SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
I3S shall:
Verify that potential Subscribers' personal computers meet the
I3S-established minimum requirements for the supplied software and the HSDS
service.
Make an appointment with each new Subscriber to meet the 13S
installation personnel for the installation of the HSDS in the Subscriber's
unit.
Supply I3S with Subscribers' information required to install, provision
and complete the set up of Subscribers' HSDS service. The Operator and I3S will
jointly develop an appropriate paper-form-based system or automated system to
facilitate this process.
Verify, or cause to be verified, the CATV connection completed to the
Subscriber's specified location exceeds the minimum operational requirements for
the I3S-supplied network interface card (NIC) and the I3S HSDS service.
Verify, or cause to be verified, that all CATV services function
properly after I3S completes installation.
Maintain a sufficient inventory of NICs for the Property and develop
procedures to restock the NICs as used in Subscriber installations.
<PAGE> 30
Issue and install the required number of NICs for the service requested
by the Subscriber.
Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I3S Service Level Agreement.
Install the required NIC(s) in the Subscriber's unit.
Install any required TCP/IP protocols and Internet software suite in
the Subscriber's personal computer.
Offer the Subscriber a brief introduction to the HSCS to be performed
at the time of installation. This introduction will include how to launch the
service, how to find the training material on the i3s.net Web site, how to find
the Subscriber Support Section on the i3s.net Web site and how to call for
technical assistance or support.
Obtain signatures required to verify that installation was executed
properly and to the satisfaction of the Subscriber.
Provide the Operator with a copy of the installation transaction
documentation verifying that the completed installation is ready for billing.
This documentation will include the cable modem delivery receipt, the ISP
contract and the completed work order.
PROCEDURES FOR DETECTION AND NOTICE
OF THE OPERATOR PROPERTY NETWORK OR LOCAL LOOP FAILURES
I3S shall:
Use the CATV system, and certain network management features that it
provides, to monitor the availability and quality of the Operator's property
network (its CATV infrastructure at the Property).
Report to the Operators's designated engineering point of contact any
problems observed by the I3S NOC in the course of operating the CATV system
network management features.
Report to the Operator's designated engineering point of contact any
problems determined by Subscriber contact in the course of operating the
Subscriber Help Desk.
Offer to the Operator a read-only direct computer interface into the
I3S CATV system's network management platform for the purposes of direct
observation of the information produced by the management platform and possible
enhancement of the Operator's Property network operations. If the Operator
elects to implement a read-only direct-computer interface, the Operator will be
responsible for all of the costs associated with such an interface.
<PAGE> 31
EXHIBIT E
DEFINITION OF THE SERVICE,
ALSO REFERRED TO HEREIN AS HIGH-SPEED DATA SERVICES (HSDS)
Features and Requirements
The I3S HSDS includes:
Data Network services that provide transport and peering functions to
the global Internet, including, without limitation:
A broadband access network on MDU properties composed of one or more
headend reference nodes, interfaced with an CATV distribution system at the
Property and one or more network interface cards (NIC) within Subscriber PCs;
A local loop network that connects the headend reference node on each
MDU property to the I3S regional point-of-presence (POP) in each metropolitan
area served by I3S;
A regional point-of-presence network that connects the POP to the
i3s.net national Internet backbone;
A national Internet backbone consisting of broadband communication
facilities for the transport of data among I3S POPs and public and private
Exchange Points where data and Internet routing information will be exchanged
with other networks peered with i3s.net;
A national Network Operations Center (NOC).
Certain computer services that include:
Membership system for user authentication and authorities;
Personalization services for customizing content to user preferences;
Internet mail (SMTP and POP3);
Internet newsgroups (NNTP) composed of approximately 25,000
newsgroups;
Internet World Wide Web (HTTP) services;
Internet chat (IRC and MIRC);
White-pages-style directory services;
Internet locator services;
Conferencing and collaboration bridges;
Streaming multimedia services such as Microsoft's NetShow and
Progressive Network's RealMedia;
Electronic commerce services.
A branded suite of client software that include:
Web browser;
Mail reader;
<PAGE> 32
News reader;
Chat client;
Conferencing and collaboration client;
Appropriate plug-ins and ActiveX controls.
Certain customer service functions that include:
A National Customer Care Center;
A telephone and network-based customer help desk;
A Trouble Reporting facility;
A customer billing system.
Certain multimedia-rich content that showcases the capabilities of HSDS
that includes:
Original content created by I3S;
Aggregated content created by others but licensed by I3S and improved
for uses in a HSDS system;
Aggregated content created by others but licensed by I3S and used
unimproved.
<PAGE> 33
EXHIBIT F
SPECIFICATIONS/SERVICE LEVEL AGREEMENT
INTRODUCTION
This Exhibit entitled "Service Level Agreement" ("SLA") sets out
operation specifications and requirements for the Service, also known as high
speed data services or "HSDS" provided by I3S for the residents or customers of
the Operator (herein sometimes called "Teaming Associate"). The SLA shall
encompass data services originating and terminating within the I3S internetwork
("i3s.net").
The HSDS provided by I3S shall meet the operations specification and
requirements stated herein, which are generally stated in terms of events or
outcomes, rather than terms of specific hardware, software or procedural
requirements. For the purposes of the SLA, i3s.net shall relate to that portion
of the global Internet operated by I3S, originating within end users' customer
premises and terminating within I3S computers or transported and peered at a
public or private Internet Exchange Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall
relate to i3s.net or I3S provided services (or resold services), but shall
exclude customer error, defects in "customer premises equipment" ("CPE"),
defects in customers' computers, defects in distribution coaxial cable, defects
in distribution fiber optics defects in cable television systems and network
problems experienced by destination networks at or beyond Internet Exchange
Points.
PERFORMANCE REQUIREMENTS
PERCENT CUSTOMER SERVICE ORDER BEGINNING COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely beginning of work
on orders from customers for new service or orders to make changes in their
existing service.
The timely beginning parameter is calculated by dividing the total
Customer Service Orders begun on or before the date and clock hour promised to
the customer that the service order would be started by the total number of
service orders initiated in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Customer Service Order Beginning
Commitment Dates Timely Met per month.
PERCENT CUSTOMER SERVICE ORDER COMPLETION COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely completion of work
on orders from customers for new service or orders to make changes in their
existing service and the timely completion of those service orders.
<PAGE> 34
The timely completion parameter is calculated by dividing the total
Customer Service Orders completed on or before the date and clock hour promised
to the customer that the service order would be completed by the total number of
service orders initiated in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Customer Service Order Completion
Commitment Dates Timely Met per month.
PERCENT OF NETWORK AVAILABILITY
This parameter is generally indicative of the availability of the
network to transport and peer customer data at an Internet Exchange Point, or,
in the event that the customer data is to be fulfilled by computers within
i3s.net, generally indicative of the availability of to transport data to the
I3S servers and the availability of the servers.
This parameter is calculated by dividing the number of seconds that the
network is available for each customer by the total number of customer-seconds
in each calendar month and multiplying by 100.
Specifically excluded from the Network Availability calculation shall
be regularly scheduled maintenance windows or ad hoc maintenance windows
scheduled and announced 24 hours in advance in the i3s.net Customer Support Web
Site.
Specifically excluded from the Network Availability calculation shall
be periods of time where the cable television distribution plant (operated by
the Teaming Associate or its designated third party operator) exceed the follow
table of acceptable values:
Amplitude Variation Inband Upstream1 dB/MHz., 5 dB total
Amplitude Variation Inband Downstream
1 dB/MHz., 5 dB total
Group Delay Variation Inband Upstream
200 nsec./MHz., 800 nsec. total
Group Delay Variation Inband Downstream
60 nsec./MHz., 240 nsec. total
Tap to Tap Level Variation
<27 dB
I3S shall exhibit greater than 98% Network Availability per month.
PERCENT CUSTOMER CALLS ANSWERED WITHIN 45 SECONDS BY I3S PERSONNEL
This parameter is based upon the number of customers calls answered
within 15 seconds by a human operator or by an ACD queue greeting during the
hours of operation of the I3S National Customer Care Center and thereafter to be
answered by a customer representative
<PAGE> 35
with 30 seconds. At a minimum, the I3S National Customer Care Center shall
operate from 8:00 a.m. to 5:00 p.m. Central Time, Monday through Friday
exclusive of holidays.
This parameter is calculated by dividing the number of calls answered
with 45 seconds by the total number of calls answered seconds in each calendar
month and multiplying by 100.
I3S shall exhibit greater than 90% of Customer Calls Answered within 45
Seconds per month.
PERCENT OF TROUBLE REPORTS RESOLVED TIMELY
This parameter is related to the number of Trouble Reports resolved
within the following windows:
For Trouble Reports received by I3S at the I3S National Customer Care
Center prior to 2:00 p.m. Central Time, Monday through Friday, excepting
holidays, will be cleared by the end of the next business day.
For Trouble Reports received by I3S at the I3S National Customer Care
Center after 2:00 p.m. Central Time, Monday through Friday, excepting holidays,
will be cleared by noon of the second business day thereafter.
This parameter is calculated by dividing the total trouble reports
cleared on or before the date and clock hour promised to the customer the total
number of Trouble Tickets cleared in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% Trouble Reports Cleared Timely per
month, according to the terms of this section for trouble that can be resolved
by I3S alone.
PERCENT CUSTOMER REPAIR VISIT APPOINTMENTS MET
This parameter is related to the customer commitments made by the I3S
National Customer Care Center for repairs that require a repair visit to
customers' sites or premises.
This parameter is calculated by dividing the total Customer Repair
Visits Appointments met on or before the date and clock hour promised to the
customer by the total number of Customer Repair Visit Appointments initiated in
each calendar and multiplying by 100.
I3S shall exhibit greater than 90% Customer Repair Commitment Met per
month.
<PAGE> 36
PERCENT OF CUSTOMER BILLS PREPARED TIMELY
This parameter is related to the generation of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated and sent to customers within twenty (20) business days of the end of
the billing cycle by the total number Customer Bills generated in each calendar
month and multiplying by 100.
I3S shall exhibit greater than 95% Customer Bills Prepared Timely per
month.
PERCENT OF CUSTOMER BILLS PREPARED ACCURATELY
This parameter is related to the accuracy of Customer Bills for
delivery to customers by mail, electronic mail or credit card billing.
This parameter is calculated by dividing the number of Customer Bills
generated that do not require an adjustment due to a billing error caused I3S by
the total number Customer Bills generated in each calendar month and multiplying
by 100.
I3S shall exhibit greater than 95% Customer Bills Prepared Accurately
per month.
REPORTS
I3S shall undertake commercially reasonable efforts to provide to
Teaming Associates reports within twenty (20) business days of the end of each
calendar month, the reports listed below in this section, each of which may be
provided separately or provided on a consolidated basis:
A report depicting total subscribers, gross new customers and gross
customers terminated separated by product tier and property.
New service orders, Trouble Reports opened and closed or cleared as
appropriate separated by date and property.
Aggregate I3S National Customer Care Center data depicting the
distribution of call waiting time in general and the percent calls answered and
calls abandoned respectively.
Billing summaries describing the date(s) bills were sent to customers,
and the billed revenue disaggregating major categories of service.
<PAGE> 37
HOLIDAYS
New Years Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
And any other holiday recognized by I3S
<PAGE> 1
EXHIBIT 10.18
CONFIDENTIAL TREATMENT REQUESTED
MASTER HIGH SPEED DATA SERVICES
AGREEMENT
THIS MASTER HIGH SPEED DATA SERVICES AGREEMENT (this "Master Agreement")
is entered into as of the 22nd day of June 1999, by and between I(3)S, Inc., a
Texas corporation, with a place of business at 1440 Corporate Drive, Irving
Texas 75038 ("I3S"); and SEREN INNOVATIONS, INC., a Minnesota corporation with a
place of business at 15 South 5th Street, Suite 500, Minneapolis, MN 55402
("SEREN"). I3S and SEREN are hereinafter sometimes individually referred to as a
"party", and collectively as the "parties".
RECITALS
WHEREAS, SEREN is developing multiple franchise cable television systems
(collectively, "MSOs") in various markets throughout the United States;
WHEREAS, I3S provides broadband Internet protocol network Services,
including, without limitation, those high speed data services, which are more
specifically described in the Exhibits attached hereto and incorporated herein
by reference (the "HSDS"), to multiple system franchise cable operators
nationwide; and
WHEREAS, SEREN and I3S desire to exclusively provide HSDS to the Hybrid
Fiber Coaxial System (HFC) Networks owned or operated by SEREN, and listed in
Exhibit C, pursuant to the terms and provisions of this Agreement which, in
part, gives I3S an exclusive right of access to provide HSDS to such HFC
Networks.
NOW, THEREFORE, the parties hereto hereby covenant and agree as follows:
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF SEREN.
AUTHORITY. This Agreement has been duly authorized, executed and
delivered by SEREN and constitutes a valid and legally binding Agreement of
SEREN, and neither the execution and delivery, nor the performance, of the
provisions of this Agreement shall conflict with or result in (a) a breach,
violation or default under the Certificate of Incorporation and Bylaws of SEREN,
if applicable; or any material agreement binding on SEREN that would affect its
obligations hereunder; or (b) the breach or violation of any law, order, rule,
ordinance, regulation, judgement or decree of an governmental authority having
jurisdiction.
1
<PAGE> 2
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of SEREN shall survive the execution and
delivery of this Agreement, and any investigation at any time made by or on
behalf of I3S shall not diminish its rights to rely thereon.
1.2 REPRESENTATIONS AND WARRANTIES OF I3S.
AUTHORITY. This Agreement has been duly authorized, executed and
delivered by I3S and constitutes a valid and legally binding Agreement of I3S,
and neither the execution and delivery, nor the performance, of the provisions
of this Agreement shall conflict with or result in (a) a breach, violation or
default under the Certificate of Incorporation and Bylaws of I3S, if applicable;
or any material agreement binding on I3S that would affect its obligations
hereunder; or (b) the breach or violation of any law, order, rule, ordinance,
regulation, judgement or decree of an governmental authority having
jurisdiction.
PERMITS, LICENSES, ETC. I3S possesses all material permits, licenses,
franchises rights, trademarks, trademark rights, trade names, trade name rights
and copyrights which are required to conduct the business of HSDS.
I3S LICENSES. I3S possesses all requisite licenses from third parties
necessary to provide the HSDS to the HFC Network.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of I3S shall survive the execution and
delivery of this Agreement, and any investigation at any time made by or on
behalf of SEREN shall not diminish its rights to rely thereon.
ARTICLE 2
TERM
2.1 TERM. This Master Agreement shall have an initial term of ten
(10) years from the Effective Date; provided, however, that the initial term may
be automatically extended after the tenth anniversary of the Effective Date for
additional one (1) year terms unless one party provides the other party with
prior written notice, delivered no earlier than 180 days prior to the expiration
of initial term (or any renewal thereof) of this Master Agreement, of the
notifying party's intent to terminate this Master Agreement. Notwithstanding
anything contained in this Section 2.1 to the contrary, with respect to the HFC
Network pertaining to St. Cloud, Minnesota, the initial term of this HFC Network
Agreement shall be seven (7) years from the Effective Date. With respect to each
additional HFC Network that becomes subject to this Agreement, the initial term
of this Agreement pertaining thereto shall be either the later of (i) six (6)
years commencing on the date that the HSDS are first provided at said HFC
Network, or (ii) five (5) years commencing on the date that SEREN completes the
construction of the two-way hybrid fiber coaxial cable distribution plant past
100,000 prospective HSDS subscribers.
2
<PAGE> 3
ARTICLE 3
EXCLUSIVITY
3.1 EXCLUSIVITY. During the term of this Agreement, neither party
shall provide, market or support, or cause to be provided, marketed or
supported, directly or indirectly, a competitive service to HSDS which is
deployed over the I3S national IP backbone to said HFC Network franchise service
area except in accordance with the terms and conditions hereof; provided,
however, that (i) for HFC Networks listed in Exhibit C at the date of signing
this Master Agreement, I3S shall not be precluded from providing HSDS under
other agreements with third parties that have been entered into prior to the
date of signing this Master Agreement; (ii) for future Seren HFC Networks not
listed in Exhibit C at the date of signing this Master Agreement, I3S shall not
be precluded from providing HSDS under other agreements with third parties that
have been entered into prior to the date that said HFC Network(s) is added by
amendment to Exhibit C; and (iii) SEREN shall not be precluded from receiving
long haul IP backbone services from Qwest and Means pursuant to the terms of the
respective agreements between SEREN and said third parties entered into prior to
the date of signing this Master Agreement.
3.2 I3S RIGHT OF FIRST REFUSAL. I3S shall have a right of first
refusal to provide broadband data services not defined as HSDS hereunder in the
event that SEREN decides to offer such services at a HFC Network covered by this
Agreement. In the event that SEREN does not select I3S to provide any such
broadband data services, but either provides them itself or from a third party,
then SEREN and I3S shall agree, in good faith, to establish a mutually
acceptable means of compensation for I3S to the extent that any such broadband
data services require the use of assets owned by I3S hereunder. The decision to
accept or reject any such proposal from I3S or the timing thereof, is totally
within the discretion of Seren.
3.3 SEREN'S RIGHT OF FIRST REFUSAL. SEREN shall have the right to
receive broadband data services not defined as HSDS hereunder from I3S in the
event that I3S decides to offer such services at a HFC Network covered by this
Agreement on terms and conditions mutually acceptable to the Parties.
ARTICLE 4
SEREN'S OBLIGATIONS
4.1 GENERAL OBLIGATIONS. In consideration of the mutual agreements of
the parties contained herein, SEREN expressly covenants and agrees to do and
perform, or cause to be done and performed, the following:
(i) SEREN grants I3S an exclusive right to provide HSDS as more
particularly set forth in Exhibit B attached hereto and incorporated herein by
reference to the HFC Network; and
(ii) SEREN shall, at its own expense, provide and maintain the
equivalent of at least four (4) video channels worth of bandwidth, or as
mutually agreed to by the Parties from time to
3
<PAGE> 4
time, on the cable antennae distribution facilities (the "System") at the HFC
Network headend to provide the HSDS; and
(iii) SEREN shall, at its own expense, operate and maintain the video or
telecommunications headend to the specifications described in Exhibit B (the
"Specifications") sufficient to ensure that the HSDS are properly delivered over
the local loop; and shall assume the operating and capital cost of the
following:
o Monthly recurring local loop costs to the HFC Network
headend;
o Monthly recurring property maintenance (Lce, Router);
o Monthly recurring IP headend maintenance;
o Customer Service Representative platform;
o Internet browser platform user license;
o HFC Network property IP equipment (Lce, Router);
o Non-recurring local loop transport costs;
o Customer billing and collections;
o Subscriber premise equipment installation and maintenance;
o Tier 1 customer care and support; and
o Co-location facilities and HSDS CMTS or xDSLAM, and
related equipment, at each HFC Network headend or
telecommunications central office
(iv) after the initial training by I3S as provided for herein, SEREN
shall pay the cost for training its own personnel to maintain the System up to
the Specifications; and
(v) SEREN shall maintain commercial general liability insurance with
minimum limits of not less than $1,000,000 per occurrence for bodily injury (or
death) and property damage liability with limits of at least $1,000,000 per
occurrence [Personal Injury and $1,000,000 General Policy Aggregate (applicable
to Commercial General Liability Policies)] which names I3S as an additional
insured; and
(vi) on behalf of I3S, SEREN shall secure access to all properties of
SEREN as necessary to provide the HSDS; and
(vii) the employees, agents, or contractors of I3S shall have reasonable
access, at no charge, to the HFC Network and facilities of SEREN in connection
with and to perform any and all work reasonably necessary to provide the HSDS at
the HFC Network, including, but not limited to, installation, inspection,
maintenance, repair or removal of equipment, or to facilitate the provision of
the HSDS to customers; and
(viii) each party's employees, contractors, or agents will, while on the
premises of any other party, comply with all applicable law and regulations and
any reasonable written rules or regulations of SEREN applicable to all tradesmen
or contractors on the premises; and
(ix) all revenue sharing or other payments to SEREN for discharging its
obligations hereunder shall be as set forth herein. I3S shall have no other
obligation to pay any revenue
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shares, commissions, or other consideration to SEREN in connection with the
provision of HSDS; and
(x) any and all maintenance or other problems with respect to I3S'
obligations set forth in Exhibit B (HSDS Service Level Agreement) hereunder will
be reported directly to I3S to the point of contact designated in writing by I3S
(the "Contact") for resolution by I3S; and
(xi) SEREN will provide a secure air-conditioned space, at no charge,
to I3S for the storage of all equipment reasonably necessary to provide the HSDS
at the HFC Network Headend; and
(xii) SEREN will provide electricity necessary to power I3S co-located
equipment; and
4.2 MARKETING. SEREN and I3S will consult and develop a joint
marketing strategy designed to co-brand and promote the HSDS hereunder.
ARTICLE 5
AFFIRMATIVE COVENANTS OF I3S
5.1 GENERAL OBLIGATIONS. In consideration of the mutual agreements of
the parties contained herein, I3S covenants and agrees to do and perform, or
cause to be done and performed, the following:
(i) I3S possesses and shall maintain for the term of this Agreement
any and all property, right, title or interest necessary to lawfully provide the
HSDS as contemplated in this Agreement, and all such property, right, title and
interest shall remain free and clear of any adverse claims, interests and liens.
(ii) I3S possesses and shall maintain in full force and effect for the
term of this Agreement, all material permits, licenses, franchise rights,
trademarks, trademark rights, trade names, trade name rights and copyrights
which are required to provide the HSDS.
(iii) With respect to performance hereunder, I3S agrees to maintain, at
all times during the term of this Agreement, as a minimum, commercial general
liability insurance with minimum limits of $1,000,000 per occurrence for bodily
injury (or death) and property damage liability with limits of at least
$1,000,000 per occurrence [Personal Injury and $1,000,000 General Policy
Aggregate (applicable to Commercial General Liability Policies)] and any
additional insurance and/or bonds required by law. Upon request, I3S agrees to
furnish certificates or other acceptable proof of the foregoing insurance and
name SEREN as an additional insured and also name such Owners and Operators as
an additional insured who may request it. I3S warrants that it meets or exceeds
all insurance requirements stated herein and those that are required by the laws
in the State of Texas.
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(iv) As more specifically described in Exhibit A (description of HSDS
provided by I3S) attached hereto and incorporated herein by reference, I3S
shall assume and pay all operating and capital costs and expenses associated
with any and all:
Monthly recurring private Internet exchange points;
Monthly recurring switch maintenance;
Monthly recurring POP transport;
Monthly recurring Dallas network operations center costs
(including installation costs);
Customer support IP technicians and engineers (NOC
personnel);
I3S-specific training, to include HSDS system launch at the
HFC Network and integration support, customer premise
equipment installation, marketing and sales training for
residential and commercial services, Tier 1 customer care and
support training, and operational procedural training for the
Services;
Insurance on I3S capital equipment;
I3S-specific travel and entertainment;
Switch site equipment (including installation costs);
Peering point routers;
Private Internet exchange point
hardware (including installation costs);
I3S network infrastructure equipment;
Transport facilities to the HFC Network Headend;
Backbone transport facilities;
IP master headend equipment; and
Tier 2 and 3 customer care and IP engineering support
IP Addresses
(v) I3S shall activate a metropolitan Point of Presence within sixty
(60) days of receipt of written notification from SEREN that it is prepared to
commence the delivery of HSDS at a HFC Network.
(vi) Seren shall have operational responsibility for a DS-3 circuit
between I3S' metropolitan Point of Presence in Minneapolis, Minnesota and
SEREN's HFC Network CATV head end in St. Cloud, Minnesota; provided, however,
that I3S shall assume, and SEREN shall no longer pay, the monthly recurring cost
of said DS-3 circuit on the first (1st) day of the immediately succeeding month
that at least 2,500 subscribers are receiving HSDS at the HFC Network for St.
Cloud, Minnesota.
(vii) I3S understands and agrees that the Subscribers of the HSDS are
Seren's customers. I3S agrees that, except as described in Article 3.1, during
the term of this Agreement and for a period of six months during the transition
upon termination period set forth in Section 12.5 hereof, it shall not attempt
to solicit Seren's customers for HSDS or other similar services within the HFC
Network franchise service territory.
(viii) Provide Seren with specific PC hardware and software subscriber
requirements.
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ARTICLE 6
DESCRIPTION OF THE HSDS
6.1 DESCRIPTION OF THE HSDS. During the term of this Agreement, I3S
shall provide, or cause to be provided, to HFC Networks, the HSDS, more
particularly described and set forth in Exhibit A attached hereto and
incorporated herein by reference.
ARTICLE 7
DEFINITION OF HSDS SERVICE LEVEL STANDARDS
7.1 DEFINITION OF SERVICE LEVEL STANDARDS. Subject to the conditions,
qualifications and limitations set forth herein, during the term of this
Agreement, I3S shall use its commercially reasonable efforts to offer, or cause
to be offered, the HSDS level standards pertaining to various aspects of the
HSDS, as more particularly described and set forth in Exhibit B attached hereto
and incorporated herein by reference.
ARTICLE 8
REVENUE ALLOCATION; CUSTOMER ACCESS PRICING; BRANDING
8.1 REVENUE ALLOCATION. With respect to HSDS utilizing HFC cable modem
technology to serve Seren's customers, monthly recurring Internet access revenue
received from HSDS Subscribers at HFC Networks (the "Revenue") will be paid
directly by customers to SEREN; provided, however, that, by the twenty-fifth day
of each calendar month hereafter SEREN shall pay I3S a share of the Revenue in
an amount equal to **** of the Revenue; provided, however, that in no event
shall said share of the Revenue be less than ** per Subscriber per month; and
further provided, however, that in no event shall said share of the Revenue be
less than (i) ** per month upon achieving the first 1000 prospective HSDS
subscribers at an HFC Network, (ii) ** per month upon achieving at least **
prospective HSDS subscribers at said HFC Network, and (iii) ** per month upon
achieving at least ** prospective HSDS subscribers at said HFC Network, and at
all times thereafter, for each municipal cable television headend.
With respect to HSDS utilizing technology other than HFC cable modem
technology to serve Seren customers, monthly recurring Internet access revenue
received from Subscribers (the "Revenue") will be paid directly to SEREN;
provided, however, that, by the twenty-fifth day of each calendar month
hereafter SEREN shall pay I3S a share of the Revenue in an amount equal to ****
** of the Revenue; provided, however, that in no event shall said share of the
Revenue be less than ** per Subscriber per month.
In addition to its ability to terminate as provided for in Article 12,
in the event that I3S fails to meet the SLA standards of Exhibit B, for any
given month, Seren shall be relieved from paying the monthly revenue minimums
identified above.
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8.2 CUSTOMER ACCESS PRICING. With the intent to increase HSDS
penetration at each HFC Network, SEREN, in consultation with I3S shall establish
the price at which access to the HSDS is made available to subscribers.
8.3 BRANDING. With respect to the HSDS, and the promotion thereof, I3S
and SEREN shall mutually establish the brand names, logos, labels, trademarks,
HSDS marks and other such identifying promotional characteristics pertaining to
the same throughout the term of this Agreement.
8.4 RE-EVALUATION OF ECONOMIC TERMS. Thirty-six (36) months after the
Effective Date, and upon the expiration of each twenty-four (24) month period
thereafter, or in the event of any final regulatory or judicial proceedings,
changes or decisions affecting the HSDS at the HFC Network, the parties agree to
renegotiate the Revenue Allocation in good faith in accordance with current
market standards, such that the Revenue Allocation shall be increased or
decreased if either party is economically disadvantaged hereunder, or receiving
an inordinate proportion of the revenue associated with HSDS in relation to its
investment or contribution to the relationship established hereby.
In addition, I3S agrees to decrease its percentage share of Revenue
by * for every * HSDS Subscribers that Seren achieves on an aggregate basis for
all of its HFC Networks, excluding the St. Cloud HFC Network. However, except as
provided for in this Section 8.4 above, in no event shall I3S receive less than
* Revenue Share as provided for herein.
8.5 COMPED SERVICE. I3S understands and agrees that, upon advance
written notice to I3S, Seren shall have the ability to provide comped (i.e.
free) Internet access services to employees, primary and secondary schools,
libraries and local governmental facilities. No Revenue will be due I3S as a
result of such services being offered by Seren.
ARTICLE 9
SPECIFIC SOFTWARE WARRANTIES
9.1 OWNERSHIP; AUTHORITY. I3S represents and warrants that the
software utilized hereunder (collectively, the "Products") are free and clear of
all liens and encumbrances, and that it has full power, license and authority to
utilize the rights granted to it with respect to such Products without the
consent of any other person or that such consent has been obtained, and that to
the knowledge of I3S the Products utilized hereunder will not infringe or
violate any copyright, trade secret, trademark, patent or other intellectual
property rights of any third party.
9.2 SOFTWARE COMPATIBILITY. I3S will accommodate any subscriber
browser (e.g. Netscape, Explorer) or operating systems (Windows, NT, MAC, Unix).
9.3 SEREN'S Y2K REQUIREMENTS. All computer systems and applications,
and all embedded computer components and devices maintain full functionality,
performance, and future maintainability, accurately process date/time data
(including but not limited to, calculating, comparing, sorting, and sequencing)
from, into, between, and throughout the twentieth and twenty-first centuries. In
addition to all other contract requirements, I3S agrees
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that the services and/or equipment provided to Seren under this agreement are
Year 2000 compliant. I3S agrees that its operations will be capable of
continuing an uninterrupted flow of goods and services into and through the year
2000. I3S agrees that the computing software and hardware, supplies, material,
or equipment ("Equipment") purchased, rented, leased or acquired for use by
Seren is compliant with Seren's "Year 2000 Requirements," (defined below) and
said Equipment shall not be accepted in part or whole by Seren unless
specifically disclosed and agreed to by Seren in writing.
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I3S shall defend,
indemnify and hold harmless SEREN, its directors, officers, shareholders,
employees and agents and its successors and assigns, from and against any and
all claims, demands, actions, liabilities, losses, damages and expenses,
including, without limitation, settlement costs and reasonable attorneys' fees,
arising out of or relating to any actual or alleged infringement of any third
party's trade secrets, trademark, HSDS mark, copyright, patent or other
intellectual property rights (the "Intellectual Property Rights") in connection
with the use of said Intellectual Property Rights hereunder. I3S's obligation
pursuant to the immediately preceding sentence is subject to the following
conditions: (i) SEREN shall give I3S prompt written notice of all actions,
claims or threats against SEREN of infringement or violation of Intellectual
Property Rights; (ii) SEREN shall permit I3S to elect to assume complete control
of such claims at its sole discretion and expense; and (iii) SEREN shall
cooperate fully with I3S in defending against claims, including making known or
available to the indemnifying party, upon reimbursement of all costs associated
with provision or reproduction of, all records and document pertaining to
claims.
10.2. INDEMNIFICATION. Each party shall indemnify the other against all
liability, loss, damage, and expense resulting from injury to or death of any
person (including injury to or death of their employees) or loss of or damage to
tangible real or tangible personal property (including damage to their property)
or the environment, but only to the extent that such liability, loss, damage or
expense was proximately caused by its breach of this Agreement or by any
negligent act or omission, willful misconduct or violation of law on the part of
the party from whom indemnity is sought ("the Indemnitor"), its agents,
employees, subcontractors or assignees. Indemnitor shall have the right to
assume defense of the claim with counsel reasonably acceptable to Indemnitee.
Indemnitee shall be entitled to participate in the defense of the claim with its
own counsel at its sole expense.
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ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 CONFIDENTIAL INFORMATION. Information to be held in confidence
shall be clearly marked "Proprietary" or "Confidential." Information which is
conveyed orally shall be deemed confidential only if prior to disclosure it is
indicated as being confidential and written confirmation identifying the
confidential or proprietary information is provided to the receiving party
within ten (10) business days after it was discussed orally.
11.2 RESTRICTIONS. Each party shall use its reasonable best efforts to
maintain the confidentiality of such Confidential Information and not show or
otherwise disclose such Confidential Information to any third parties,
including, but not limited to, independent contractors and consultants, without
the prior written consent of the disclosing party. Each party shall use the
Confidential Information solely for purpose of performing its obligations under
this Agreement. Unless approved in advance by the non-disclosing party, except
for the existence of this Agreement, the terms and provisions of this Agreement
shall remain strictly confidential and shall not be disclosed to any third party
other than a party's attorneys, accountants and other professional advisers.
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described
in Section 11.2 above, neither party shall have any obligation to maintain the
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving party;
(ii) is independently developed by the receiving party; or (iii) is received
from a third party who has lawfully obtained such Confidential Information
without a confidentiality restriction. If required by any court of competent
jurisdiction or other governmental authority, the receiving party may disclose
to such authority, data, information or material involving or pertaining to
Confidential Information to the extent required by such order, provided that the
receiving party shall first have used its best efforts to obtain a protective
order reasonably satisfactory to the disclosing party sufficient to maintain the
confidentiality of such data, information or materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of
Confidential Information to such party's bona-fide employees or agents who have
a need to know such information for purposes of conducting the receiving party's
business. Each party shall notify all employees and agents who have access to
Confidential Information or to whom disclosure is made that the Confidential
Information is the confidential, proprietary property of the disclosing party
and shall instruct such employees and agents to maintain the Confidential
Information in confidence.
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this
Article 11 shall survive the termination of this Agreement for two (2) years
thereafter.
11.6 CONFIDENTIALITY OF TERMS. Unless approved in advance by the
non-disclosing party, except for the existence of this Agreement, the terms and
provisions of this Agreement shall remain strictly confidential and shall not be
disclosed to any third party other than a party's attorneys, accountants and
other professional advisers.
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11.7 SEREN SUBSCRIBERS. Without the prior written consent of
Seren, I3S will not disclose information about Seren customers who are being
offered HSDS or who have subscribed to HSDS. In addition, I3S will not market
any other services to Seren customers without giving Seren prior notification.
I3S shall not reveal the name or addresses of Seren customers to any third party
except as necessary to fulfill its obligation to provide the HSDS. I3S shall not
permit any third party to use the Seren customer names for any purpose unrelated
to this Agreement.
ARTICLE 12
DEFAULT; TERMINATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a
party shall be deemed to be in default under this Agreement:
(a) Material breach of any warranty or misrepresentation by the defaulting
party;
(b) Material failure to perform the defaulting party's obligations hereunder,
including with respect to I3S its failure to maintain the HSDS standards set
forth in Section 7.1 hereof;
(c) The defaulting party's ceasing to conduct business in the normal course,
insolvency, the making of a general assignment for the benefit of its creditors,
suffering or permitting the appointment of a receiver or similar officer for
its business or assets or availing itself of, or becoming subject to, any
proceeding under the United States Federal Bankruptcy Laws or any federal or
state statute relating to solvency or the protection of the rights of creditors;
or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue in any material respect on the
date it was made by the defaulting party.
12.2 REMEDIES. In the event the defaulting party fails to cure any
default set forth hereunder within thirty (30) days, except for defaults
pursuant to Section 12.1(c) which shall have a cure period of ninety (90) days,
after written notice of such default by the non-defaulting party specifying the
acts or omissions constituting the default with reference to the sections of
this Agreement which have allegedly been breached, the non-defaulting party may
terminate this Agreement without further obligation on the part of the
non-defaulting party, and pursue any claims at law or in equity against the
defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are
cumulative, but the non-defaulting party is under no obligation to exercise any
such remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or release the
defaulting party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Termination of this Agreement shall not
impair either party's then accrued rights, obligations, liabilities or remedies
hereunder.
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12.5 TRANSITION UPON TERMINATION. Notwithstanding the termination
of this Agreement, I3S shall maintain its facilities and continue to provide the
HSDS to the HFC Networks for a reasonable period of time (not to exceed six (6)
months from the date of termination) until SEREN has made arrangements with
another Internet service provider, and I3S shall cooperate with SEREN in an
orderly and efficient transition of the Subscribers to any other Internet
service provider designated by SEREN.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE. All notices pursuant to this Agreement shall be in writing
and may be personally delivered or sent by overnight courier or by Certified or
Registered mail. All notices personally delivered shall be deemed delivered at
the time of such delivery. All notices sent by Certified or Registered mail
shall be deemed delivered five (5) days after deposited in the US mail. All
notices sent by overnight courier shall be deemed made one (1) business day
after delivery to such courier HSDS. Any party may designate a change of address
upon ten (10) days written notice.
If to I(3)S, to:
I(3)S, Inc.
1440 Corporate Drive
Irving Texas 75038
Attn: Mr. Jim Price, CEO
with a copy to:
I(3)S, Inc.
1440 Corporate Drive
Irving Texas 75038
Attn: Matt Hutchins, President
If to SEREN, to:
SEREN Innovations, Inc.
15 South 5th Street, Suite 500
Minneapolis, MN 55402
Attn: President
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and
public disclosures by either party of its employees, agents or representatives
relating to this Agreement or the subject matter hereof, excluding any
announcement beyond the control of this disclosing party, will be approved by
the non-disclosing party in writing prior to release.
ARTICLE 14
DISPUTE RESOLUTION
In the event a dispute arise between SEREN and I3S, or the successors
or assigns of either of them, regarding this Master Agreement or any particular
HFC Network Agreement, the
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aggrieved party shall promptly notify the other Party of its intent to invoke
this dispute resolution procedure after such dispute arises. If the Parties
shall have failed to resolve the dispute within ten (10) days after delivery of
such notice, each Party shall, within five (5) days thereafter nominate a senior
officer of its management to meet at any mutually agreed location to resolve the
dispute. Should the Parties be unable to resolve the dispute to their mutual
satisfaction within ten (10) days after such nomination, such dispute shall be
settled by arbitration.
The Party desiring arbitration shall give notice to the other Party in
writing specifying the question or questions to be settled and at the same time
naming an arbitrator. The Party receiving such notice shall within ten (10) days
thereafter give to the other Party a like written notice giving the name of an
arbitrator chosen by it and specifying any additional matter on which an award
is desired. If the Party receiving notice of arbitration fails to name an
arbitrator within ten (10) days, then the second arbitrator shall be appointed
by the American Arbitration Association. Only Parties qualified as specialists
in the matter in controversy will be appointed as arbitrators. The third
arbitrator shall, within ten (10) days of the appointment of the second
arbitrator, be selected by the two arbitrators theretofore appointed. If
arbitrators shall have been appointed by the respective parties and shall have
failed to select the third arbitrator, within the time provided herein, the
third arbitrator shall upon application of either of the parties to the
arbitration, be appointed by the American Arbitration Association within ten
(10) days after receipt of a Party's application to appoint a third arbitrator.
The arbitrators shall proceed immediately to hear and determine the matter in
controversy. Each Party shall be entitled to produce witnesses and appear in
person and by counsel before said arbitrators, but the number of witnesses to be
heard, the length of argument, the time consumed in such hearing, and the
general conduct of the proceedings shall conform to the rules promulgated by the
American Arbitration Association. The arbitrators shall be limited to accepting
the position contended for by either I3S or Seren, without modification, in
making their award. The arbitrators shall be instructed that their awards must
be made within forty-five (45) days of the appointment of the third arbitrator,
subject to any reasonable delay due to unforeseen circumstances. The award of
the arbitrators shall be drawn up in writing and signed by the arbitrators, or a
majority of them, and shall be final and binding on the Parties, and the Parties
shall abide by the award and perform the terms and conditions thereof. The award
of the arbitrators shall be made retroactive to the date the first Party
notified the other Party of its intent to invoke the dispute resolution
procedure. Unless otherwise determined by the arbitrators, the fees and expenses
of the arbitrator named by I3S shall be paid by I3S, the fees and expenses of
the arbitrator named by Seren shall be paid by Seren and the fees and expenses
of the third arbitrator shall be paid in equal proportions by the Seren and I3S.
Save as herein otherwise expressly provided, the rules of the American
Arbitration Association shall apply; provided, however, that wherever and
whenever there is conflict between the provisions of this Article and the
provisions of the said rules, the provisions of this Article shall apply.
Notwithstanding any other remedies, and in the event that either Party
brings legal action upon the other Party for failing to perform any of its
obligations or failing to act in accordance with the provisions of this
Agreement, the Party which prevails in such legal action shall be entitled to
recover all reasonable legal fees incurred with regard to the legal action from
the other Party.
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I3S is obligated to continue providing HSDS as provided for herein
during the pendency of any dispute.
ARTICLE 15
MISCELLANEOUS
15.1 ENTIRE AGREEMENT. This Master Agreement, together with the
schedules, attachments and exhibits attached hereto or referred to herein,
constitutes the entire Agreement and understanding among the parties hereto with
respect to the provision of the HSDS at the HFC Networks and is the final
expression of their Agreement on that subject and no evidence of oral or other
written promises shall be binding. All other prior agreements or understandings
related to the subject hereof among the parties, whether written or oral, shall
be null and void and of no further force and effect upon the execution of this
Agreement. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
15.2 INCORPORATION BY REFERENCE. The schedules, exhibits and
attachments referred to herein or attached hereto are hereby incorporated in and
to this Agreement and made a part hereof by this reference.
15.3 AMENDMENT; MODIFICATION. This Agreement may not be supplemented,
amended, modified or otherwise altered except by written instrument executed by
all the parties hereto and no course of dealing or trade usage among or
between the parties shall be effective to supplement, amend, modify or alter
this Agreement.
15.4 WAIVER. The failure to enforce or to require the performance at
any time of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either the
validity of this Agreement, any part hereof or the right of any party thereafter
to enforce each and every provision in accordance with the terms of this
Agreement.
15.5 GOVERNING LAW. This Agreement, and any claims, counterclaims and
cross suits, shall be governed by and construed in accordance with the local
laws of the state in which the defendant or non-enforcing party resides, without
regard to conflicts of law principles. Each party hereby irrevocably submits to
the jurisdiction of the state or federal courts of the state in which the
defendant or non-enforcing party resides for the resolution of disputes
hereunder.
15.6 CONTINUITY OF CONTRACT. If any severable provision of this
Agreement is deemed invalid or unenforceable by any judgment of a court of
competent jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent, unless to do so would substantially
impair the underlying purposes of this Agreement.
15.7 CAPTIONS. The captions appearing in this Agreement are included
solely for convenience of reference and shall not be construed or interpreted to
affect the meaning or interpretation of this Agreement.
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15.8 FORCE MAJEURE. Neither party shall be responsible for any failure
to comply with or for any delay in performance of the terms of this Agreement,
including, but not limited to, delays in delivery, where such failure or delay
is directly or indirectly caused by or results from events of force majeure
beyond the control of either party. These events shall include, but not be
limited to, fire, flood, earthquake, accident, civil disturbance, war, acts of
God, or acts or government.
15.9 HIRING PROHIBITED. During the term of this Agreement and for a
period of one (1) year thereafter, neither party shall solicit for hire or hire
any employee of the other party who has performed SERVICES under this Agreement.
15.10 PERFORMANCE REVIEW. In the event of any dispute or controversy
between the parties of any kind or nature, except in circumstances where
equitable relief is deemed necessary by either party in its sole discretion,
upon the written request of either party, each of the parties will appoint a
designated officer whose task it will be to meet for the purpose of resolving
such dispute or controversy or to negotiate for an adjustment to any provision
of this Agreement needed to resolve such dispute or controversy. Such officers
will discuss the dispute or controversy and negotiate in good faith in an effort
to resolve the dispute or controversy or renegotiate the applicable section or
provision of this Agreement without the necessity of any formal proceeding
relating thereto. No formal proceedings for the judicial or arbitrational
resolution of such dispute or controversy may be commenced until either or both
of the designated officers conclude in good faith that an amicable resolution
through continued negotiation of the matter at issue is not likely to occur.
15.11 BINDING NATURE; ASSIGNMENT. This Agreement will be binding on the
parties hereto, and their respective successors and assigns. Upon prior written
notice to the other party, either party may assign its rights and delegate its
duties under this Agreement; provided however, that the assignee party must
unconditionally assume in writing, and agree to be bound by, the right, duties
and obligations of the assignor party under this Agreement.
15.12 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the
contrary in this Agreement, under no circumstances will either party be deemed
to be in any relationship with the other party carrying with it fiduciary or
trust responsibilities. The parties do not intend for this Agreement or the
relationship established thereby to be considered the formation of a joint
venture or partnership between the parties for any purpose. I3S has the sole
right to supervise, manage, contract, direct, procure, perform or cause to be
performed the day-to-day work to be performed by I3S under this Agreement unless
otherwise expressly provided herein or agreed to by the parties in writing.
15.13 COUNTERPARTS. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
15.14 SEVERABILITY. The Parties agree that multiple HFC Networks may
become subject to this Agreement. Any default or termination (whether voluntary
or involuntary) by any party with respect to a particular HFC Network shall
operate as a default or termination only
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with respect to the parties' responsibilities and obligations as they relate to
the specific HFC Network or HFC Networks, as the case may be. Unless otherwise
agreed to by the parties with respect to the particular default, a default shall
be construed, where possible, to exclude unaffected HFC Networks.
15.15 COMPLIANCE WITH APPLICABLE LAWS. I3S represents and warrants that
the provision of the HSDS pursuant to this Agreement shall be in compliance with
all applicable federal and state laws, rules and regulations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
I(3)S, INC. SEREN INNOVATIONS, INC.
By: /s/ MATTHEW HUTCHINS By: /s/ GLYNIS HIRSCHBERGER
-------------------------- --------------------------------
Matthew Hutchins Printed Name: Glynis Hirschberger
President ----------------------
Title: President and CEO
-----------------------------
Date: 6/22/99 Date: 6/21/99
------------------------ ------------------------------
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LIST OF EXHIBITS
EXHIBIT A: Description of the High Speed Data Services Provided by I3S
EXHIBIT B: HSDS Service Level Agreement
EXHIBIT C: HFC Network List
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EXHIBIT A
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I3S
The I3S HSDS is a data network that provides transport and peering functions of
Internet Protocol (IP) data traffic, including, without limitation:
o Broadband access networks at the HFC Network composed of one or more
broadband access technologies including but not limited to coaxial or hybrid
fiber coaxial (HFC) cable television distribution systems, twisted-pair
copper-wire-based telephone distribution systems, twisted-pair
copper-wire-based local area network distribution systems and
fiber-optic-based local area network distribution systems;
o Local loop networks that connects the broadband access networks on each HFC
Network to the I3S regional points-of-presence (POPs) in each metropolitan
area served by I3S;
o Regional point-of-presence networks that connects the POPs to the i3s.net
national IP backbone;
o A national IP backbone consisting of broadband communication facilities for
the transport of data among I3S POPs and public and private Exchange Points
where data and Internet routing information will be exchanged with other
networks peered with i3s.net as part of the global Internet;
o A national Network Operations Center (NOC).
o Certain computer services that include:
o Membership system for user authentication and authorities;
o Personalization services for customizing content to user
preferences;
o Internet mail (SMTP and POP3);
o Internet newsgroups (NNTP) composed of approximately 25,000 or
more newsgroups;
o Internet World Wide Web (HTTP) services;
o Internet chat (IRC and MIRC);
o Conferencing and collaboration bridges;
o Streaming multimedia services such as Microsoft's NetShow and
Progressive Network's RealMedia;
o A branded suite of client software that include:
o Web browser;
o Mail reader;
o News reader;
o Chat client;
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o Chat client;
o Conferencing and collaboration client;
o Appropriate plug-ins and ActiveX controls.
o Certain customer HSDS functions that include:
o A National Customer Care Center;
o A telephone and network-based customer help desk;
o A Trouble Reporting facility;
o A customer billing system.
o Certain multimedia-rich content that showcases the capabilities of HSDS that
includes:
o Original content created by I3S;
o Aggregated content created by others but licensed by I3S and
improved for uses in a HSDS System;
o Aggregated content created by others but licensed by I3S and
used unimproved.
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<PAGE> 20
REQUIREMENTS
RELATED TO BROADBAND ACCESS NETWORKS
UTILIZING MULTIPLE BROADBAND ACCESS TECHNOLOGIES (mBAT)
SEREN'S RESPONSIBILITIES
Provide, or cause to be provided, as mutually agreed between the
parties, suitable physical-layer coaxial-cable, twisted-pair
copper-wire, or fiber-optic distribution plant on each SEREN property
that will meet or exceed I3S specifications;
Maintain, or cause to be maintained, physical layer distribution plants
built and owned by SEREN that are used for I3S's HSDS;
Install, maintain and operate data delivery equipment for each HSDS HFC
Network. Installation and maintenance will meet or exceed
manufacturer's specifications and the requirements set forth in the
Agreement. Through itself or its agents, SEREN will assist I3S with
pre-installation engineering planning and HFC Network site survey
questionnaires;
Assume the cost of the acquisition of all data communication equipment
necessary to provide HSDS and to provide termination and delivery of
HSDS between the Subscriber and the I3S POP in each Market;
I3S RESPONSIBILITIES:
Provide technical specifications for suitable physical-layer
distribution plants for I3S's HSDS;
Inspect and accept or reject, according to the mutually agreed
specifications, physical-layer distribution plants proposed by SEREN as
suitable for 13S's HSDS;
Integrate all data delivery equipment for each HFC Network into the I3S
Element Management System portion of its Network Management Platform
using SNMP and/or RMON. I3S will monitor all data delivery equipment
twenty-four hours per day, seven day per week (24x7);
Without limitation on the foregoing or the attached SLA, both parties
acknowledge that the end to end performance of HSDS is probabilistic
and subject to anomalous short lived usage patterns by Subscribers
which will affect both the utilization of the local loop circuits and
the i3s.net national backbone from time to time;
Configure and operate all data delivery equipment to efficiently
integrate with the rest of the i3s.net network;
Provide HSDS transport through the POP to Headend, except as noted
herein.
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ADDITIONAL REQUIREMENTS
RELATED TO BROADBAND ACCESS NETWORKS
UTILIZING CABLE TELEVISION DISTRIBUTION SYSTEMS
SEREN'S RESPONSIBILITIES (THESE RESPONSIBILITIES SPECIFICALLY APPLY TO THE
EXTENT HSDS IS TO BE PROVIDED BY I3S BY MEANS OF AN INTERCONNECTION TO SEREN'S
CATV DISTRIBUTION PLANT AT EACH HFC NETWORK. SEREN SHALL USE ALL COMMERCIALLY
REASONABLE EFFORTS TO PERFORM THESE RESPONSIBILITIES.):
Cause CATV infrastructure to comply with FCC requirements;
Upgrade, or cause to be upgraded, property CATV infrastructure to provide
bi-directional cable delivery to all subscribers;
Cause the upgraded bi-directional CATV infrastructure to exceed the minimal
operational requirements of the I3S cable modem system, which are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MINIMUM CABLE TELEVISION NETWORK VALUE
REQUIREMENTS FOR i3s.net HSDS
- ----------------------------------------------------------------------------------------------------
<S> <C>
Amplitude variations inband
Forward channel 5 dB total
Return channel 5 dB total
- ----------------------------------------------------------------------------------------------------
Group delay variation inband
Forward channel 60 nsec/MHz, 240 nsec total
Return channel 200 nsec/MHz, 800 nsec total
- ----------------------------------------------------------------------------------------------------
Maximum tap to tap variation 27 dB
- ----------------------------------------------------------------------------------------------------
Dynamic range on receiver -15 dBmV to +15 dBmV
- ----------------------------------------------------------------------------------------------------
Maximum return/upstream loss 49 dB
- ----------------------------------------------------------------------------------------------------
Minimum carrier to noise 22 dB
- ----------------------------------------------------------------------------------------------------
Minimum carrier to interference 25 dB
- ----------------------------------------------------------------------------------------------------
</TABLE>
Provide, or cause to be provided, four (4) six MHz (or as mutually agreed to by
the Parties from time to time) video channels within the CATV infrastructure
bandwidth on Internet served properties; two (2) in the spectrum from 54 MHz to
750 MHz and two (2) in the
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5MHz to 50 MHz spectrum; and reserve additional video channels, in the same
spectrums for future expansion as Subscriber penetration at the HFC Network
increases; and
Designate, or cause to be designated, an engineering point of contact for
each cable company operating the cable television distribution system for
I3S Network Operations Center (NOC) to report problems or failures related
to the cable television distribution system twenty-four hours per day, seven
days per week (24x7).
I3S RESPONSIBILITIES:
Use the cable modem system, and certain network management features that
it provides, to monitor the availability and quality of SEREN's property
network (its CATV plant) and the Equipment;
Within (15) fifteen minutes of notice, report to SEREN's designated
engineering point of contact any problems observed by the I3S NOC in the
course of operating the cable modem system network management features;
and
Within (15) fifteen minutes of notice, report to SEREN's designated
engineering point of contact any problems determined by Subscriber
contact in the course of operating the Subscriber Help Desk.
I3S to provide NOC connections and services to monitor end to end
network connections.
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LOCAL LOOP CHARACTERISTICS
SEREN'S RESPONSIBILITIES
Provide, or cause to be provided, proper space, security and power for
Local Loop termination and transmission equipment necessary to provide
Internet delivery and other data services at each HFC Network.
Order, provision, install and maintain local loop communications links
between each HFC Network and I3S POP in each Market with a bandwidth as
mutually agreed to by the Parties.
I3S RESPONSIBILITIES:
Install, maintain and operate local loop termination and transmission
equipment necessary for each property offering HSDS. Installation and
maintenance will meet or exceed manufacturer's specifications and the
requirements set forth in the Agreement. Through itself or its agents,
SEREN will assist I3S with pre-installation engineering planning and site
survey questionnaires;
Integrate all local loop termination and transmission equipment for each
HFC Network into the I3S Element Management System portion of its Network
Management Platform using SNMP and/or RMON. I3S will monitor all local loop
termination and transmission equipment twenty-four hours per day, seven day
per week (24x7);
Assume the cost of the acquisition of all local loop termination and
transmission equipment necessary to provide HSDS and to provide termination
and delivery of HSDS between the Property and the I3S POP in each Market;
Without limitation on the foregoing or the attached SLA, both parties
acknowledge that the end to end performance of HSDS is probabilistic and
subject to anomalous short lived usage patterns by Subscribers which will
affect both the utilization of the local loop circuits and the i3s.net
national backbone from time to time; and
Configure and operate all local loop termination and transmission equipment
to efficiently integrate with the rest of the I3S.net network.
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POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I3S RESPONSIBILITIES:
Acquire, install and maintain data communication equipment at each POP for
the termination and transmission of HSDS from properties to the i3s.net
national network backbone;
I3S will determine the location of its main presence in each Market to be
consistent with its own operational practices (which currently include
co-locating within its carrier's central offices in each Market);
Acquire, install, maintain and operate Internet peering relationships at
public and private Internet Exchange Points (EP) with other Tier 1 Internet
backbone networks throughout the United States;
Acquire, install, maintain and operate computers and software to provide
Network Management and provide Internet SERVICES for Subscribers. To
provide these functions, I3S will employ a combination of
locally-distributed-to-the-POP servers as well as globally centralized
servers consistent with its overall network design and operational
practices; and
Order, provision, install, maintain and operate data transport/carriage
pathways from each POP, EP and/or NOC with a bandwidth not less than 45
mb/s (DS-3) interconnection. In addition, as the number of Subscribers on
Market increases, scale the bandwidth so that each simultaneously active
user averages approximately 1 mb/s ninety eight percent (98%) of the time,
provided however, I3S is not guaranteeing bandwidth throughput from its POP
to subscribers.
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<PAGE> 25
I3S INFORMATION OPERATIONS
CONTENT PRODUCTION; SEREN/BROADBAND NOW!(TM) LAUNCH PAGE
I3S operates, and shall operate for the term of this Agreement, an information
content operation for creating original content or aggregating content created
by others and licensed to I3S for inclusion in the I3S body of content. This
material will consist of but not limited to informational, educational,
recreational, entertainment and business content. This body of content will be
offered to Subscribers of the HSDS product.
Without limitation on paragraph 1 above, I3S will create content as creative
and/or business opportunities present themselves. The I3S content will be
updated as I3S, using its editorial judgment, sees fit, but in no event less
frequently than good industry practice.
Certain portions of this content will be offered to all Subscribers free of
charge (Basic Content). Other portions of the content may be offered to
Subscribers on an optional fee basis for unlimited access to a fixed package of
content (Premium Content). Another certain portion of the content may be offered
to Subscribers on an optional fee basis for access to a specific time-limited
event (Pay-Per-View Content).
In addition to the fees charged customers for content, I3S may solicit and sell
national advertising and other revenue-producing transaction opportunities that
will appear on certain portions of the content.
All fees for premium content, pay-per-view content, national advertising and
revenue-producing transactions shall be determined solely by I3S.
The potential revenue set forth here for content shall not be subject to other
provisions in the Agreement (including attachments) regarding revenue sharing,
fees and pricing.
I3S, or its content partners, will design, produce and update, as necessary, all
content and be responsible for all such costs.
I3S shall initially design, produce and update, as necessary, a customized
launch page (the "Launch Page") for Subscribers, which can be used to market and
promote the HSDS, and, on I3S's standard time and materials rates (or as
otherwise agreed by the parties), SEREN's other SERVICES. In addition, the
Launch Page will include hyperlinks to SEREN's corporate web sites as directed
by SEREN. The Launch Page shall meet the technical, functional and appearance
requirements specified by I3S. I3S shall from time to time update the Launch
Page throughout the Term in accordance with the terms of this Agreement. I3S may
offer Subscribers Launch Pages that are personalized (by property) and that, in
addition to the features described above, may promote the I3S content offerings
and provide direct hyperlinks to the I3S content.
In no event, at any time during the term of this Agreement, shall I3S knowingly
permit or use any (i) content in the SEREN/Broadband Now! web site or within its
information content operations which contains obscene material, sexually
explicit adult programming, or indecent material as defined in Section 47
C.F.R.76.701(g); (ii) material in the SEREN Broadband
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Now! web site soliciting or promoting unlawful conduct; or (iii)
programming in the SEREN/Broadband Now! web site that may or could have been
subject to the Telecommunications Act of 1996, Section 641, relating to the
scrambling of sexually explicit adult video HSDS programming.
CONTENT PUBLISHING PLATFORM
o I(3)S will provide SEREN access to its automated publishing system for
the purposes of SEREN publishing localized content in each of its
geographic markets into the SEREN/BroadbandNOW! information service.
o SEREN's local content will be contained within the brand and Internet
domain of BroadbandNOW!
o SEREN will provide the editorial and advertising content and be
responsible for the costs of its creation.
o SEREN will sell advertising that may be associated with the local
content it creates and keep any resulting revenue.
o I(3)S will provide a Web-based and/or email-based interface for
SEREN's personnel to enter editorial content into the I3S publishing
system.
o I(3)S will provide a workflow process for SEREN to manage and approve
the publication of editorial content.
o I(3)S will provide the use of its standard publishing templates for
publishing SEREN's local content in the BroadbandNOW! pages.
Development of specialized or non-standard publishing templates
requested by SEREN will be at SEREN's expense.
I(3)S CONTENT PHILOSOPHY
o Internet access is always an "open" experience.
o Customers spend time on our network only when it offers a high degree
of value.
o They use our content and services because they want to, not because
they have to.
o We develop content and services that take advantage of the unique
value of the broadband experience rather than trying to rebuild or
replace those services our customers already use and enjoy.
CONTENT DEVELOPMENT STRATEGY
o Bring the best content and services onto our network.
o Focus on a new class of services that are broadband specific or that
are greatly enhanced by broadband.
o Develop original content and a new interface designed specifically for
this medium and this audience, delivering a coherent whole.
STRATEGY: THE BEST OF THE NET
There are some "basics" users expect:
1. Search
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2. News
3. Weather
4. Stock Quotes, etc.
Rather than rebuilding these functions, we enhance the experience of
using them.
STRATEGY: A NEW CLASS OF SERVICES
o There is an emerging new category of services that are broadband only
or that are greatly enhanced by broadband.
o High-bandwidth content and services that were only theorized before
can be delivered now.
o I(3)S is investing in the infrastructure to bring these services
on-network and to integrate them highly with the rest of our offering.
Strategy: Built for Broadband
o I(3)S has developed an original platform and leading edge interface
designed for broadband that brings it all together.
o And developed a new class of content, built from the ground up
specifically for our broadband audience.
Timeline: Version 2.0 - March 1999
o Sections expanded from four to seven, establishing a platform for more
original and aggregated content
o Greatly expanded localization
o Broadcast.com integration
o Backup service
o Portal partner
o Expanded help and customer account management and services
TIMELINE: VERSION 3.0 - Q3/Q4
o CD-ROM library online
o Other Targets/Goals:
1. Online Gaming
2. Expanded audio and video library
3. Web-based email
o With greater depth comes a higher degree of personalization
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LOCALIZATION: LEVEL 1 -- NATIONAL VIEW
o Smaller markets get a national view with access to most or all
services not specifically tailored to their local market
o This is where the competition stops!
Localization: Level 2 -- Localized View
o In larger markets, all services are customized to the local area:
1. Local news, weather, sports, links, etc.
2. Localized libraries of aggregated video, audio, multimedia
content
LOCALIZATION: LEVEL 3 -- ORIGINAL DEVELOPMENT
o Markets with large populations, or markets of strategic importance
also get:
1. Original, exclusive, local content developed specifically
for broadband and specifically for the local market
through two methods:
2. Local I3S teams develop content
3. Local partners develop content exclusively for I(3)S
o Seren shall be entitled to create, author, promote and otherwise
engage in the business related to local content offerings. Within the
Seren/BBnow Homepage, Seren shall be allocated the local area as
mutually agreed to be the Parties. Seren shall be entitled to solicit
and insert advertising and other revenue producing transactions on
local content for its own account in such allocated local area of the
homepage. I3S agrees to facilitate the ability of Seren to create,
update and insert both the local content and advertising originated
by Seren.
o Seren and I3S will form an Editorial Board to ensure continuity
between the Local and National content pages.
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CUSTOMER ADVOCACY CENTER FEATURES
I3S RESPONSIBILITIES
Provide a toll free number for:
Initial technical support inquires
Technical support for all HSDS issues
Technical support for Subscriber CPE issues related to HSDS
Answer toll free line consistent with the SEREN/I3S HSDS co-brand.
Operate 24x7 customer care call center operation.
Maintain sufficient customer services staff and call center capacity to
connect to Subscribers within 1 minutes of call entering processing
operation.
Develop and publish escalation procedure for Customer HSDS
Representatives related to network issues.
Resolve technical issues within 24 hours if a phone call is required 95%
of time, on a monthly basis.
Develop and publish escalation procedures for SEREN to contact regarding
technical issues related to the network.
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SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
SEREN SHALL:
Verify that potential Subscribers' personal computers meet the
I3S-established minimum requirements for the supplied software and the
HSDS;
Make an appointment with each new Subscriber to meet the installation
personnel for the installation of the HSDS in the Subscriber's unit;
Collect the Subscriber information required to install, provision and
complete the set up of Subscribers' HSDS. Seren and I3S will develop an
appropriate paper-form-based system or automated system to facilitate
this process;
Provide, or cause to be provided, coaxial connection to the Subscriber's
specified location;
Verify, or cause to be verified, that the coaxial connection completed to
the Subscriber's specified location exceeds the minimum operational
requirements for the Seren-supplied CPE and the I3S HSD;
Verify, or cause to be verified, and if necessary, promptly (but not more
than a reasonable time frame set by SEREN) perform repairs such that all
access network services function properly (and to not less than the
standards pre-existing I3S HSDS operations) after I3S completes
installation and throughout the provision of HSDS;
Maintain a sufficient inventory of CPE for each Market and develop
procedures to restock CPE as used in Subscriber installations;
Issue and install the required CPE for the HSDS requested by the
Subscriber;
Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I3S HSDS Service Level
Agreement;
Install the required cable modems(s) and have HSDS operational in the
Subscriber's unit within the number of days of a Subscriber's request set
forth in Section 6.4 of the Agreement;
Install any required network interface cards (NICs), TCP/IP protocols and
Internet software suite in the Subscriber's personal computer;
Offer the Subscriber a brief introduction to the HSDS to be performed at
the time of installation. This introduction will include how to launch
the HSDS, how to find the training material on the I3S.net Web site, how
to find the Subscriber Support Section on the I3S.net Web site and how to
call for technical assistance or support;
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<PAGE> 31
Obtain signatures required to verify that each Subscriber installation
was executed properly and to the satisfaction of the Subscriber; and
Provide a copy of the installation transaction documentation verifying
that the completed installation is ready for billing. This documentation
will include the CPE delivery receipt, the ISP contract and the completed
work order.
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EXHIBIT B
HSDS SERVICE LEVEL AGREEMENT
This HSDS Level Agreement is attached and made a part of the Master High Speed
Data Services Right of Access and Marketing Agreement by and between I3S, Inc.
and Seren Innovations, Inc. (the "Agreement"). I3S shall use all commercially
reasonable efforts to perform these responsibilities.
INTRODUCTION
This Exhibit entitled "HSDS Level Agreement" ("SLA") sets out operation
specifications and requirements for HSDS provided by I3S for the residents or
customers of applicable SEREN HFC Networks. The SLA shall encompass data
SERVICES originating and terminating within the I3S internetwork ("i3s.net").
The HSDS provided by I3S shall meet the operations specification and
requirements stated herein, which are generally stated in terms of events or
outcomes, rather than terms of specific hardware, software or procedural
requirements. For the purposes of the SLA, i3s.net shall relate to that portion
of the global Internet operated by I3S, originating within end users' customer
premises and terminating within I3S computers or transported and peered at a
public or private Internet Exchange Point.
For the purposes of the SLA, a "Trouble" or "Trouble Report" shall relate to
i3s.net or I3S provided SERVICES (or resold SERVICES) and the Equipment and
I3S-maintained facilities, but shall exclude customer error, defects in Customer
Premises Equipment ("CPE"), defects in customers' computers, defects in property
cable or wiring plants, defects in fiber optic distribution systems, defects in
cable television distribution systems and network problems experienced by
destination networks at or beyond Internet Exchange Points.
The terms and conditions of this SLA do not limit I3S's obligations set forth
elsewhere in the Agreement, but if there is a conflict with respect to HSDS
obligations between this SLA and the Agreement, this SLA shall control.
PERFORMANCE REQUIREMENTS
PERCENT CUSTOMER HSDS ORDER BEGINNING COMMITMENT DATES TIMELY MET
Except for self-installs, I3S will provide final Remote Provisioning of
Modem within one hour of notification by Seren.
PERCENT CUSTOMER HSDS ORDER COMPLETION COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely completion of work
on orders from customers for new HSDS or orders to make changes in their
existing HSDS and the timely completion of those HSDS orders.
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The timely completion parameter is calculated by dividing the total
Customer HSDS Orders completed on or before the date and clock hour
promised to the customer that the HSDS order would be completed by the
total number of HSDS orders initiated in each calendar month and
multiplying by 100.
I3S shall exhibit greater than 90% Customer HSDS Order Completion
Commitment Dates Timely Met per month.
PERCENT OF NETWORK AVAILABILITY
This parameter is generally indicative of the availability of the network
to transport and peer customer data at an Internet Exchange Point, or, in
the event that the customer data is to be fulfilled by computers within
i3s.net, generally indicative of the availability of to transport data to
the I3S servers and the availability of the servers.
This parameter is calculated by dividing the number of seconds that the
network is available for each customer by the total number of
customer-seconds in each calendar month and multiplying by 100.
Specifically excluded from the Network Availability calculation shall be
regularly scheduled maintenance windows upon 72 hours advance
notification by I3S, or ad hoc maintenance windows scheduled and
announced 24 hours in advance in the i3s.net Customer Support Web Site.
Specifically excluded from the Network Availability calculation shall be
periods of time where the access distribution plant (operated by SEREN or
its designated third party operator) exceed the operational standards set
by I3S for each type of Broadband access technology.
I3S shall exhibit greater than 99.8% Network Availability per month.
I3S to provide latency no greater than 120MS.
Order, provision, install, maintain and operate data transport/carriage
pathways from each POP, EP and/or NOC with a bandwidth not less than 45
mb/s (DS-3) interconnection. In addition, as the number of Subscribers on
Market increases, scale the bandwidth so that each simultaneously active
user averages approximately 1 mb/s ninety eight percent (98%) of the
time, provided however, I3S is not guaranteeing bandwidth throughput from
its POP to subscribers.
PERCENT TIER 2 CUSTOMER CALLS ANSWERED WITHIN 45 SECONDS BY I3S PERSONNEL
This parameter is based upon the number of customers calls answered
within 15 seconds by a human operator or by an ACD queue greeting during
the hours of operation of the I3S National Customer Care Center and
thereafter to be answered by a human customer representative within 30
seconds. At a minimum, the I3S National Customer Care Center
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<PAGE> 34
shall operate from 8:00 a.m. to 5:00 p.m. Central Time, Monday through
Friday exclusive of holidays.
This parameter is calculated by dividing the number of calls answered
with 45 seconds by the total number of Customer Care Center calls
answered in each calendar month and multiplying by 100.
I3S shall exhibit greater than 90% of Customer Calls Answered within 45
Seconds per month.
PERCENT OF TROUBLE REPORTS RESOLVED TIMELY
This parameter is related to the number of Trouble Reports resolved
within the following windows:
o For Trouble Reports received by I3S at the I3S National Customer
Care Center prior to 2:00 p.m. Central Time, Monday through Friday,
excepting holidays, will be cleared by the end of the next business day.
o For Trouble Reports received by I3S at the I3S National Customer
Care Center after 2:00 p.m. Central Time, Monday through Friday,
excepting holidays, will be cleared by noon of the second business day
thereafter.
This parameter is calculated by dividing the total trouble reports
cleared on or before the date and clock hour promised to the customer the
total number of Trouble Tickets cleared in each calendar month and
multiplying by 100.
I3S shall exhibit greater than 90% Trouble Reports Cleared Timely per
month, according to the terms of this section for trouble that can be
resolved by I3S alone.
I3S shall exhibit greater than 90% Customer Repair Commitment Met per
month.
REPORTS
I3S shall provide to SEREN reports within twenty (20) business days of
the end of each calendar month, the reports listed below in this section,
each of which may be provided separately or provided on a consolidated
basis:
A report depicting total subscribers, gross new customers and gross
customers terminated separated by product tier and property.
New HSDS orders, Trouble Reports opened and closed or cleared as
appropriate separated by date and property.
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Aggregate I3S National Customer Care Center data depicting the
distribution of call waiting time in general and the percent calls
answered and calls abandoned respectively.
HOLIDAYS
New Years Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
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EXHIBIT C
HFC NETWORK LISTING
1. Seren's HFC Network serving St. Cloud, Minnesota and related service
areas.
2. Seren's HFC Network serving Contra Costa County, California.
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<PAGE> 1
EXHIBIT 10.19
CONFIDENTIAL TREATMENT REQUESTED
PURCHASE AGREEMENT
THIS AGREEMENT is made as of July 23, 1999 by and between ADAPTIVE BROADBAND
CORPORATION ("Adaptive Broadband"), a Delaware corporation with a principal
office at 1143 Borregas Avenue, Sunnyvale, CA 94089, and I(3)S, INC. ("Buyer"),
a Texas corporation with a principal office at 1440 Corporate Drive, Irving, TX
75038.
RECITALS:
A. Adaptive Broadband is a developer, manufacturer and supplier of wireless
telecommunications equipment.
B. Buyer desires to provide wireless communications network services in
the U.S. ("Territory") for residential non-commercial multiple dwelling
unit ("MDU") markets ("Markets").
C. Adaptive Broadband and Buyer each desire for Adaptive Broadband to sell and
Buyer to purchase such products for use in connection with those services,
all on the terms and conditions set forth in this Agreement.
PROVISIONS:
NOW, THEREFORE, in consideration of the mutual representations, warranties and
covenants contained in this Agreement, the parties agree as follows:
1. SCOPE OF AGREEMENT.
a. Equipment and Services. Buyer agrees to buy and Adaptive Broadband
agrees to sell to Buyer the products described in Exhibit A attached
to this Agreement ("Products") and the services described in Exhibit B
attached to this Agreement ("Services").
b. Purchase Orders. Buyer may issue purchase orders for any Products or
Services ("Purchase Orders") to Adaptive Broadband via mail or
facsimile, in form and content acceptable to Adaptive Broadband.
Purchase orders will be considered accepted by Adaptive Broadband when
expressly acknowledged and accepted by Adaptive Broadband in writing
within the term of this Agreement. Subject to the exception in the
following sentence, the terms and conditions of this Agreement will
govern the relationship between the parties and each Purchase Order.
Therefore, each Purchase Order will automatically be deemed to include
all the terms and provisions of this Agreement, and any contractual
terms and conditions contained in a Purchase Order or its reverse side
will not apply and will be null and void, except to the extent that
Adaptive Broadband expressly and specifically accepts such other or
additional terms and conditions in writing. Buyer shall provide to
Adaptive Broadband firm purchase orders 120 days in advance of Buyer's
intended delivery, which purchase orders will become effective only
upon written acknowledgment and acceptance by Adaptive Broadband.
Buyer may make one change in quantity under a given purchase order,
+/- 20% of the dollar amount under that order, by written notice to
Adaptive Broadband at least 30 days before the delivery date contained
in Adaptive Broadband's order acceptance.
2. PRICING AND PAYMENT.
a. Pricing. All prices are FOB Adaptive Broadband's relevant U.S.
facility or its supplier's dock, as may be specified by Adaptive
Broadband, and are valid for the term of this Agreement. The first
quoted prices for Products and Services are set forth in Exhibit A and
Exhibit B, respectively. For so
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long as Buyer is in material compliance with its material obligations
under this Agreement, the prices set forth in Exhibit A for Products
will be at least as favorable as those offered by Adaptive Broadband
to customers purchasing Products in substantially like quantities on
substantially like delivery schedules.
b. Payment. All payments by Buyer will be made to Adaptive Broadband
pursuant to the payment terms and conditions set forth in Adaptive
Broadband's Standard Terms and Conditions of Sale, attached to this
Agreement as Exhibit C.
3. QUANTITY COMMITMENTS.
a. Firm Commitment. Buyer agrees to purchase a minimum of * AB-Access
units (in any combination of access points and subscriber units)
during the term of this Agreement in accordance with Exhibit A,
provided (i) the field trial verification and Acceptance Test
Procedure described in Section 8 and both Exhibit E and Exhibit F are
completed and materially satisfied in accordance with their terms,
(ii) Adaptive Broadband is in material compliance with the material
provisions of this Agreement, and (iii) Adaptive Broadband receives
FCC certification for the Products.
b. Initial Purchase Order. Buyer will issue a Purchase Order within 30
days of the effective date of this Agreement for one access point and
three subscriber units for use in the field trial verification of the
Product outlined in Exhibit E in accordance with the Acceptance Test
Procedure and parameters set forth in Exhibit F.
c. Forecasts. Each quarter (as specified by Adaptive Broadband from time
to time), Buyer will provide Adaptive Broadband with a non-binding
rolling quarterly forecast covering the period of 12 calendar months
beginning with the quarter in which that forecast is provided. Each
forecast will specify the number of units of Products (separating
access points and subscriber units) which Buyer anticipates it will
purchase during each quarter of that 12-month period.
4. SOFTWARE LICENSE.
a. License. Adaptive Broadband grants to Buyer a royalty-free, perpetual,
and non-exclusive license to use the Software (defined below) within
the Territory and Market in connection with the Products and Buyer's
wireless communications network services. Buyer's right to use the
Software shall be subject to the terms and conditions set out in
Exhibit D.
b. Sub-License. Adaptive Broadband grants to Buyer a royalty-free,
perpetual, and non-exclusive license to sub-license the Software to
Buyer's customers and other parties contracting with Buyer for the
delivery, of broadband wireless data access, each of which utilizes
Products in the Territory and Market in connection with Buyer's
wireless communications network services. When granting to customers
the right to use Software, Buyer shall incorporate in such
sub-license terms that offer no less degree of protection to Adaptive
Broadband's (or its licensor's) interest in the Software as those set
out in Exhibit D.
c. "Software". As used in this Agreement, "Software" means any program in
machine readable code (howsoever provided to Buyer), and intended to
be loaded into the memory of a Product's processor unit(s) which
provides operating instructions and user-related application
instructions (as well as associated documentation used to describe,
maintain and use such programs), incorporated in any of the Products
by Adaptive Broadband or supplied to Buyer by Adaptive Broadband for
use on or in connection with any of the Products; however, Software
shall not mean any source code.
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d. Third Party Software. The Products and Software include software which
is licensed by third parties to Adaptive Broadband ("Third-Party
Software"). Adaptive Broadband will provide Buyer with a copy of the
requirements and restrictions of all licenses which apply to existing
and then future Third-Party Software. Each party ("Licensee") agrees
to defend, indemnify and hold the other ("Other Party") harmless from
and against any loss, damages, costs, fees (including reasonable
attorneys' fees) and expenses awarded against or incurred by the Other
Party as a result of the Licensee's failure to comply with the
requirements and restrictions of Third-Party Software licenses and
sub-licenses applicable to the Licensee pursuant to the terms of the
relevant license or sublicense, or as a result of the Licensee's
failure to comply with the reasonable requests of the Other Party in
the Other Party's efforts to comply with the Third-Party Software
license or sub-license requirements and restrictions imposed upon it.
5. SOFTWARE MAINTENANCE.
a. Notification. Throughout the term of this Agreement and the first 12
months thereafter, each party will promptly notify the other of any
defect or error it becomes aware of in any Product or Software or
documentation.
b. Maintenance. For the 12 months immediately following shipment of
Product and Software ("Software Maintenance Period"), Adaptive
Broadband will provide to Buyer, free of charge, an element management
system and all Software bug fixes which are released by Adaptive
Broadband and made available to the general public solely as a "bug
fix." These will be provided to Buyer for Buyer to load into
previously shipped Products and Adaptive Broadband will provide them
with subsequently shipped Products. Those bug fixes will be governed
by the provisions of this agreement as "Software."
c. Limitations. Adaptive Broadband has no obligation to correct any
defect or error in the Software to the extent it arises from any
improper or unauthorized use or operation of the Software by the Buyer
or its employees or agents, or the adaptation, modification or
alteration of any part of the Software without Adaptive Broadband's
prior consent, or any failure by Buyer to install any corrected
version or any update or improvement of the Software or documentation
supplied by Adaptive Broadband.
d. Third Party Software. Adaptive Broadband will, during the relevant
warranty period, be responsible for maintenance and support of any
Third-Party Software which Buyer may use in conjunction with the
Software or Products. Thereafter, Adaptive Broadband will quote the
price and details for extended warranty coverage upon request.
e. Updates. Buyer acknowledges that updates may involve the use of new
versions of Third-Party Software or operating systems. Adaptive
Broadband shall not be responsible for the cost of any new Third-Party
Software required by Buyer or any related charges if Buyer decides to
utilize an update provided by Adaptive Broadband.
f. Replacements. Buyer shall upon written request by Adaptive Broadband
return to Adaptive Broadband the replaced version of any updated
Software and documentation.
g. Hardware Updates. Subject to Exhibit A's provisions regarding
competitive technology, updated Product hardware may become available
from time to time and will be supplied to Buyer upon Adaptive
Broadband's terms.
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6. GENERAL TERMS AND CONDITIONS.
Adaptive Broadband's Standard Terms and Conditions of Sale is attached to
this Agreement as Exhibit C and is hereby incorporated by reference into
this Agreement and made a part hereof.
7. CHANGES, MODIFICATIONS AND ENHANCEMENTS.
Adaptive Broadband will provide the Product enhancements as and how
described in Exhibit E attached to this Agreement and, with those
enhancements, the Products will be covered under the product warranty set
forth in Exhibit C. Throughout the term of this Agreement, Adaptive
Broadband will maintain the availability of those enhancements in its
then current generally available Product (except as otherwise agreed to by
Adaptive Broadband and Buyer in writing), subject only to materials and
technology availability. Except as otherwise specifically provided in
Exhibit E, any changes, modifications, or enhancements of the Products
requested by Buyer which affects either software or hardware modules
contained therein will be quoted by Adaptive Broadband separately; no
change order will be implemented until the parties mutually agree in
writing to the price for this change. Any changes, modifications, or
enhancements of the Products made by Adaptive Broadband at its own
initiative and made a part of its then standard Product will become part
of the Product without additional charge to Buyer. Any changes,
modifications, or enhancements of the Products made by Adaptive Broadband
at its own initiative which are not made a part of its then Standard
Product but are instead offered as an optional feature or upgrade will be
available to Buyer at an additional agreed upon price.
8. ACCEPTANCE TESTING AND FIELD TRIALS.
a. Exhibit E contains the details of the field trials procedures and
parameters applicable to the Products purchased by Buyer, which tests
will be performed at a Buyer location within the continental United
States. Exhibit F contains the details of the acceptance test
procedures, specifications, and parameters applicable to Products
purchased by Buyer. Adaptive Broadband will give Buyer reasonable
notice of the date of the test and Buyer will make available all
staff, materials and facilities which Adaptive Broadband reasonably
requires for the performance of the test. Buyer may not reject any
Product which has successfully completed all acceptance tests in
accordance with Exhibit F and field trials in accordance with Exhibit
E. If an acceptance test is not successfully completed in accordance
with Exhibit F, and/or if a field trial is not successfully completed
in accordance with Exhibit E, then Adaptive Broadband and Buyer will
mutually agree within the ensuing 10 days on a later date when the
relevant test shall be repeated and the provisions of the relevant
exhibit will apply to each repeat test conducted. The date on which
the field trials are successfully completed in accordance with Exhibit
E is referred to as the "Trial Completion Date."
b. All acceptance tests will be at Buyer's location in Irving, Texas. Any
inspections or testing beyond that those set forth in Exhibit F
(including any secondary or follow-up inspections or tests) or which
otherwise exceed, in scope or duration, those normally provided by
Adaptive Broadband in like circumstances, will be subject to approval
by Adaptive Broadband, be at additional cost to Buyer, may be deemed
by Adaptive Broadband to be an event of force majeure for Adaptive
Broadband's benefit to the extent they affect Adaptive Broadband's
and/or Buyer's other obligations hereunder, and Adaptive Broadband may
impose cancellation or rescheduling charges accordingly.
c. Buyer agrees that it will initiate the acceptance tests sets forth in
Exhibit F within 10 business days after delivery of Adaptive
Broadband's designated final version of the Product enhancements with
appropriate network management support, and Buyer will complete those
acceptance tests within 5 business days thereafter. Buyer agrees that
it will initiate the field trials set forth in Exhibit E within 10
business days after the successful completion of the Exhibit F
acceptance tests, and Buyer will complete those field trials within 90
days thereafter. Those tests and trials which are not completed
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successfully will be repeated as necessary in accordance with the
provisions of this Agreement including without limitation Section
8(a). Subject to the foregoing, Buyer will use commercially reasonable
efforts to promptly, successfully and satisfactorily complete all
tests and trials, and any and all repeat tests and trials.
9. DOCUMENTATION.
Adaptive Broadband will provide to Buyer its standard documentation in
Adaptive Broadband's standard forms, formats, and quantities based on the
size and scope of the relevant order. Additional copies, and any changes in
this documentation required by customization of the Products or software
changes made in response to Buyer requests will be at an additional charge.
10. PRE-APPROVAL SHIPMENTS.
Buyer may desire to have Adaptive Broadband build and ship Products for
actual use in the Territory and Market without Adaptive Broadband having
FCC Product certification and/or without Buyer having a license required
by it as a Product operator, whether from the FCC or other or additional
licensing and approval authorities.
a. In order to induce Adaptive Broadband to do build and ship Products
for actual use in the Territory and Market without Adaptive Broadband
having FCC Product certification, Buyer agrees as follows: (i) Buyer
will assist Adaptive Broadband in any labeling requirements, (ii) If
the Product does not get all requisite approvals, licensing and
certification on the first round and without additional input from
Adaptive Broadband, Buyer will honor Adaptive Broadband's reasonable
requests regarding the scope of the use of those Products until that
requisite approval, licensing and certification is secured, (iii) If
Adaptive Broadband deems it necessary or appropriate by reason of the
approval and/or licensing process for Products to be returned to
Adaptive Broadband, whether for modification or replacement, then all
costs and expenses associated with shipping to Adaptive Broadband and
back to Buyer, as well as all costs and expenses associated with that
modification or replacement, will be borne by Buyer, (iv) These and
any other terms for the premature building and shipping of Products
are binding upon Buyer but are subject to the prior approval,
requirements, and business judgment of Adaptive Broadband in each
instance.
b. In order to induce Adaptive Broadband to do build and ship Products
for actual use in the Territory and Market without Buyer having a
license required by it as a Product operator, whether from the FCC or
other or additional licensing and approval authorities, Buyer agrees
as follows: (i) If Adaptive Broadband deems it necessary or
appropriate by reason of the approval and/or licensing process for
Products to be returned to Adaptive Broadband, whether for
modification or replacement, then all costs and expenses associated
with shipping to Adaptive Broadband and back to Buyer, as well as all
costs and expenses associated with that modification or replacement,
will be borne by Buyer, (ii) If Adaptive Broadband deems it necessary
or appropriate for Adaptive Broadband to send someone on-site to
facilitate the licensing and/or approval process, then all costs and
expenses associate therewith will be borne by Buyer, (iii) Buyer will
defend, indemnify and hold Adaptive Broadband harmless from and
against any and all judgments, fines, amounts paid in settlement,
damages, claims, costs, expenses (including attorneys' fees) and
liabilities incurred and arising out of or related to the premature
shipping and use of Products.
11. CONFIDENTIALITY.
a. Definition of Confidential Information: Each party ("Disclosing
Party") may, either orally, in written form, or otherwise disclose to
the other party ("Recipient") or the Recipient may otherwise obtain
the Disclosing Party's confidential information ("Confidential
Information"). If any of the following
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apply to any information, such information shall not be considered as
Confidential Information: (i) it is or becomes available to the public
through no wrongful act of the Recipient, (ii) it is already in the
possession of the Recipient as evidenced by documentation in the
Recipient's possession, and not subject to any agreement of confidence
between the parties, (iii) it is received from a third party without
any restriction known to the Recipient for the benefit of the
Disclosing Party, or (iv) it is independently developed by the
Recipient without regard to that Confidential Information disclosed by
the Disclosing Party.
b. Use and Care of Confidential Information: Confidential Information
disclosed or obtained hereunder during the term of this Agreement
shall only be used by the Recipient only in the performance of its
obligations or exercise of its rights under this Agreement, and it
shall not be disclosed by the Recipient for a period of three (3)
years from the date of disclosure, except to those employees,
affiliates, advisors, and consultants of the Recipient who have a need
to know and an obligation to treat Confidential Information in
accordance with the provisions of this Agreement. The Recipient may
disclose the Disclosing Party's Confidential Information pursuant to a
requirement of a duly empowered government agency or a court of
competent jurisdiction after due notice and an adequate opportunity to
intervene is given to the Disclosing Party unless such notice is
legally prohibited. Notwithstanding the expiration or early
termination or cancellation of this Agreement, the obligations under
this Section 12(b) shall survive until they expire in accordance with
their terms.
c. Return of Confidential Information: Upon receipt of a written request
from the Disclosing Party, the Recipient shall, at the Disclosing
Party's direction, either return to the Disclosing Party or destroy
all of the Disclosing Party's Confidential Information and so
certify in writing.
12. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
a. By Adaptive Broadband. Adaptive Broadband represents and warrants to
Buyer, and covenants that:
i. Adaptive Broadband has all corporate power and authority to enter
into this Agreement and consummate the transactions contemplated
hereby; and
ii. Adaptive Broadband has all the rights necessary to license the
rights and to supply the Products to Buyer as provided in this
Agreement.
iii. Adaptive Broadband covenants that, for the two year period
beginning the Trial Completion Date and during that two year
period for so long as Buyer is and remains in material compliance
with the material provisions of this Agreement, Adaptive
Broadband will not sell "AB-Access Product With Data Envelope
Interface Enhancements" (defined below) with the Functionalities
(defined below) enabled to either: (A) any company which competes
with Buyer by providing broadband wireless data access to MDUs
and which Adaptive Broadband Knows, at the time it accepts the
relevant purchase order, intends for those Products to be used in
connection with broadband wireless data access services in MDUs
in the United States; or (B) any company which Adaptive
Broadband Knows, at the time it accepts the relevant purchase
order, will re-sell those Products to companies described in
subsection 12(a)(iii)(A) immediately above.
Notwithstanding the foregoing in this Section 12(a)(iii), that
covenant shall not apply to the sale of AB-Access Product With
Data Envelope Interface Enhancements with the Functionalities
enabled to either: (X) any telecommunications service provider
which at the time it seeks to purchase AB-Access Product With
Data Envelope Interface Enhancements Products provides
telecommunications services other than Product services, or (Y)
any other company not specifically included within the class of
companies covered by Section 12(a)(iii)(A) or (B).
As used in this Section 12(a)(iii), Adaptive Broadband "Knows" of
a fact only if one of its corporate officers has timely evidence
of the fact, without any duty to investigate. "AB-Access
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Product with Data Envelope Interface Enhancements" means a
Product configured with the following functionalities
("Functionalities"):
For subscriber unit Products:
o Pass-through forwarding of all upstream traffic
o Isolation of layer 2 data streams for upstream traffic
For access point Products:
o Pass-thru upstream forwarding of all upstream traffic
o Layer two learning bridge functionality applied to all
downstream traffic
o Layer two learning bridge implementation using the
multiplexing of a single 1483 bridge mapping multiple ATM
PVCs among all learned addresses contained in the layer two
bridge table.
iv. Adaptive Broadband shall not utilize, in any manner whatsoever
the corporate names or any trademark or trade name or copyright
rights belonging to Buyer in connection with any equipment or
service without the prior written approval of Buyer. This
requirement of consent will survive the expiration or early
termination of this Agreement.
v. Except as otherwise specifically provided in this Agreement, all
approvals, permits, and authorizations from all applicable
parties which are necessary for the performance by Adaptive
Broadband of its obligations under this Agreement, and in
furtherance of its purposes set forth in the recitals above, will
be timely obtained and maintained by Adaptive Broadband at its
own expense.
vi. Adaptive Broadband is free to make this Agreement and the making
hereof and/or performance hereunder by it or any of its officers,
directors, employees, contractors, consultants, and agents will
not violate the legal and/or equitable rights or interests of
any third party.
b. By Buyer. Buyer represents and warrants to Adaptive Broadband and
covenants that:
i. Buyer has all corporate power and authority to enter into this
Agreement and consummate the transactions contemplated hereby;
ii. Buyer shall not utilize, in any manner whatsoever the corporate
names or any trademark or trade name or copyright rights
belonging to Adaptive Broadband or other Product manufacturers in
connection with any equipment or service without the prior
written approval of Adaptive Broadband or the relevant
manufacturer. This requirement of consent will survive the
expiration or early termination of this Agreement. Buyer will
not contest the validity of any of Adaptive Broadband's or other
Product manufacturer's patents, trademarks, trade names or
copyrights used in connection with Products; and
iii. All approvals, permits, and authorizations from all applicable
parties which are necessary for the performance by Buyer of its
obligations under this Agreement, and in furtherance of its
purposes set forth in the recitals above, will be timely obtained
and maintained by Buyer at its own expense.
iv. Buyer is free to make this Agreement and the making hereof and/or
performance hereunder by it or any of its officers, directors,
employees, contractors, consultants, and agents will not violate
the legal and/or equitable rights or interests of any third
party.
13. TERM AND TERMINATION.
a. Term. This Agreement will be effective as of the date first written
above and will continue for the period ending sixty months after the
Trial Completion Date, subject to earlier termination in accordance
with this Agreement.
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b. Termination. Adaptive Broadband and Buyer each may by written notice
to the other terminate this Agreement:
i. If a receiver is appointed for either party or its property:
ii. If either party becomes insolvent or unable to pay its debts as
they mature in the ordinary course of business or makes an
assignment for the benefit of its creditors:
iii. If any proceedings are commenced by or for either party under
bankruptcy, insolvency, or debtor's relief law, and those
proceedings will not be vacated or set aside or stayed within
ninety (90) days from the date of the commencement thereof:
iv. If either party is sequestered by any government authority:
v. If either party is liquidated, dissolved, or sells all or
substantially all of its assets:
vi. If either party defaults in the performance of any material term
or condition of this Agreement and that default continues
unremedied to the non-defaulting party's satisfaction for a
period of thirty (30) days after notice of default; provided any
deviation from the terms of this Agreement which is required in
order to be in compliance with the applicable laws, rules, or
regulations of any government or subdivision thereof will not be
considered a default hereunder:
c. Upon Expiration or Termination. Upon expiration or early termination
of this Agreement for any reason, and notwithstanding that expiration
or termination:
i. All provisions of this Agreement will survive with respect to
each order accepted by Adaptive Broadband prior to the effective
date of the expiration or termination until each party's
obligations with respect to that order is either satisfied or
waived:
ii. Termination of this Agreement shall be without prejudice to the
rights and remedies of the party which may have accrued to
either party as at the date of termination.
iii. Notwithstanding the expiration or early termination of this
Agreement, Section 11 ("Term and Termination") and the provisions
of Exhibits C ("Terms and Conditions"), D ("Software License and
Sub-Licensing"), and F ("Acceptance Testing") as they apply to
any outstanding Purchase Orders shall remain in full force and
effect and Adaptive Broadband shall still make available in
accordance with the terms hereof Services to which Buyer is
otherwise entitled in respect of Products supplied to Buyer prior
to the date of termination.
iv. Notwithstanding the expiration or early termination of this
Agreement, Section 12 ("Confidential Information") will survive
for a period of 3 years after the date of disclosure.
v. Buyer will within 30 days after expiration or termination return
to Adaptive Broadband in (at Buyer's sole cost and expense) (or
at Adaptive Broadband's request eradicate or destroy): all
literature, manuals and materials supplied to it by Adaptive
Broadband and which are in Buyer's possession; all equipment
provided to it by Adaptive Broadband and which Buyer did not
purchase, in the condition in which it was sent by Adaptive
Broadband; all tangible and intangible embodiments of Adaptive
Broadband intellectual property, including software (except that
which is in Products purchased by Buyer); all Information covered
under Section 3.3; and any other items which Adaptive Broadband
may reasonably request.
14. MISCELLANEOUS.
a. Sole Agreement; Amendment; Waivers. This Agreement (together with its
Exhibits and their attachments which are hereby incorporated into this
Agreement by reference and made a part hereof) contains the entire
understanding between Adaptive Broadband and Buyer with respect to its
subject matter and supersedes all prior discussions, agreements and
understandings between them with respect to that subject matter. All
amendments hereto and all agreements between the parties supplemental
to this Agreement must be in writing and signed by the parties hereto.
The waiver by either party of a breach or violation of any provision of
this Agreement must be in writing and will not operate or be construed
as a waiver of any subsequent breach or violation.
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b. Independent Contractor. Each party acknowledges and agrees that this
Agreement establishes an independent contractor relationship and each
disclaims the existence of any employer/employee relationship or
partnership or joint venture relationship between them. Neither party
has authority to act for, represent, or bind the other and neither
will take or fail to take any action inconsistent with this
paragraph.
c. Liability and Indemnification. (i) Subject to the provisions of
Sections 5, 7, and 12 of Exhibit C, each party ("Indemnifying Party")
agrees to indemnify and hold the other party and its successors and
assigns ("Indemnified Party") harmless from and against any and all
judgments, fines, amounts paid in settlement, damages, claims, costs,
expenses (including reasonable attorneys' fees) and liabilities
actually incurred and arising out of or related to the Indemnifying
Party's breach or threatened breach of this Agreement or any act or
omission by any of the Indemnifying Party and its agents, employees,
successors and assigns. (ii) The extent of Adaptive Broadband's
liabilities to Buyer are solely and exclusively set forth in
sections 5, 7, and 12 of Exhibit C. (iii) Neither Adaptive Broadband
nor Buyer will be liable under this Agreement for any consequential
damage including loss of clientele, loss of business, loss of data, or
loss of profits. Neither party will be entitled to an indemnity for
goodwill or other compensation upon termination of this Agreement at
any time for any reason.
d. Buyer Affiliates. Notwithstanding the provisions of Section 14(d), if
(i) Buyer is or becomes a party to a definitive written agreement
with a third party for the delivery of broadband wireless data access
and that third party can use Products in connection with that
agreement and the delivery of that access, and (ii) Adaptive Broadband
and that third party enter into a separate definitive written
agreement for that third party's purchase of Products for that planned
use, then each Product purchased by that third party under that
separate Adaptive Broadband agreement will be credited towards the
satisfaction of Buyer's quantity purchase obligations under this
Agreement.
e. Severability. If any provision of this Agreement is determined by a
court of competent jurisdiction to be unenforceable or illegal, then
it will be deemed removed from the other provisions of this Agreement
which will remain in effect.
f. Headings. Headings in this Agreement are included for convenience only
and themselves have no force or effect.
g. Publicity. Neither party shall issue any press release or make any
public announcement relating to this Agreement or its subject matter
without the prior written approval of the other; provided that either
party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the
disclosing party will use its best efforts to advise the other party
prior to making the disclosure).
h. Order of Precedence. In the event of conflict between any of the
provisions of this Agreement, the terms set forth above shall govern
over Adaptive Broadband's Standard Terms and Conditions.
i. Governing Law and Related Matters. Any dispute or controversy between
the parties regarding or arising out of this Agreement, an Exhibit or
a purchase order which a party wants to resolve in litigation shall be
brought by that party as follows:
i. If the plaintiff is Adaptive Broadband, then (i) it shall
adjudicate its claim, and Buyer shall adjudicate any related
cross-claims and counter-claims, in Dallas County, Texas, the
jurisdiction, venue, and personal jurisdiction to which, for such
claim or claims, the parties irrevocably consent; and (ii) for
those claims, cross-claims and counter-claims, this Agreement,
the Exhibits
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and related purchase orders shall be construed in accordance with
and governed by the internal laws of the State of Texas without
reference to conflict of laws principles.
ii. If the plaintiff is Buyer, then (i) it shall adjudicate its
claim, and Adaptive Broadband shall adjudicate any related
cross-claims and counter-claims, in Santa Clara County,
California, the jurisdiction, venue, and personal jurisdiction to
which, for such claim or claims, the parties irrevocably consent;
and (ii) for those claims, cross-claims and counter-claims, this
Agreement, the Exhibits and related purchase orders shall be
construed in accordance with and governed by the internal laws of
the State of California without reference to conflict of laws
principles.
Buyer will observe and comply with all applicable governmental laws,
rules and regulations. Buyer will promptly indemnify Adaptive
Broadband for all damages, fines, and related expenses (including
attorneys' fees) resulting from or arising out of Buyer's violation
of any such law, rule or regulation or breach of this paragraph.
j. Notices. Except as otherwise provided in this Agreement, all notices,
requests, and other communications under this Agreement will be in
writing and sent by registered post or facsimile addressed to:
If to Adaptive Broadband, to: If to Buyer, to:
Adaptive Broadband Corporation I(3)S, Inc.
1143 Borregas Avenue 1400 Corporate Drive
Sunnyvale, CA 94089 Irving, TX 75038
Attn: Sr. VP Broadband Systems Attn: President
Fax: (408) 732-4244 Fax: (972) 650-7972
With a copy to: With a copy to:
Adaptive Broadband Corporation I(3)S, Inc.
1143 Borregas Avenue 1440 Corporate Drive
Sunnyvale, CA 94089 Irving, TX 75038
Attn: General Counsel Attn: General Counsel
Fax: (408)732-4244 Fax: (972) 650-7972
Any notice sent by fax shall be deemed to be delivered the next
working day following confirmed transmission, and any notice sent by
post shall be deemed to be delivered five working days following the
date of posting. Either party may change the address under this
section by giving the other party proper notice.
[The rest of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Adaptive Broadband and Buyer each executed and deliver this
Agreement as of the date first written above.
I(3)S, INC. ADAPTIVE BROADBAND CORPORATION
/s/ J. R. PRICE /s/ FRED LAWRENCE
- ------------------------------ ------------------------------
Signature Signature
J. R. Price Fred Lawrence
- ------------------------------ ------------------------------
Print Name Print Name
CEO/CHAIRMAN CHAIRMAN/CEO
- ------------------------------ ------------------------------
Title Title
7/23/99 7/23/99
- ------------------------------ ------------------------------
Date Date
Legal Approval:
--------------------
Date:
-----------------------
Finance Approval:
------------------
Date:
-----------------------
TABLE OF EXHIBITS
Exhibit A - Products, Pricing, and Commitments
Exhibit B - Services and Related Pricing
Exhibit C - Adaptive Broadband's Standard Terms and
Conditions of Sale
Exhibit D - Software License and Sub-License
Exhibit E - Enhancements and Field Trial Verification
Exhibit F - Acceptance Test, Procedures and Parameters
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EXHIBIT A
PRODUCTS, PRICING, AND COMMITMENTS
PRODUCTS: AB-Access UNII point to multi-point radio system (access points and
subscriber units).
AB-Access UNII point-to-point radio system (access points and
subscriber units).
<TABLE>
<CAPTION>
PRICING AND COMMITMENTS: Unit price
- ------------------------ --------------------
subscriber access
Time frame Quantity Commitment* units points
---------- -------------------- ---------- ------
<S> <C> <C> <C>
0-36 months after * units * *
Trial Completion Date
0-60 months after additional * units * *
Trial Completion Date
</TABLE>
*Buyer may purchase any combination of Product subscriber units and access
points so long as in the aggregate it has purchased at least that number of
total units required of it by the end of the relevant period.
*Buyer may purchase and Adaptive Broadband will ship up to * units (in any
combination of subscriber units and access points) through March 31, 2000.
Buyer may purchase and Adaptive Broadband will ship additional units during
that time period only upon Adaptive Broadband's prior consent. Subject to
Buyer's * -unit and cumulative * -unit quantity obligations, there is no
restriction on the number of units Buyer may purchase after March 31.
2000."
1. Notwithstanding anything to the contrary:
(a) If Buyer fails to satisfy its *-unit purchase obligation by the end of
the relevant 36-month period, then with respect to its purchase
deficiency from * units, Buyer shall pay to Adaptive Broadband a
non-refundable amount equal to * of the agreed upon purchase price of
the units it was obligated to but failed to purchase.
(b) If buyer fails to satisfy its * -unit purchase obligation by the end
of the relevant 60-month period, then with respect to its purchase
deficiency from * . Buyer shall pay to Adaptive Broadband a
non-refundable amount equal to the difference between (i) * of the
agreed upon purchase price of the units it was obligated to but failed
to purchase by the end of that 60-month period, less (ii) the amount
Buyer paid (if any) pursuant to Section 1(a) of this Exhibit A.
(c) If Buyer terminates or cancels this Agreement for any reason prior to
purchasing * units, then with respect to its purchase deficiency from
* . Buyer shall pay to Adaptive Broadband a non-refundable amount
equal to * of the agreed upon purchase price of the units it was
obligated to but failed to purchase.
Buyer shall pay these obligations net 30 days after the end of that 36th
month, net 30 days after the end of that 60th month, and net 30 days after
that cancellation or termination date, as appropriate.
2. In any subsequent Product purchase agreement(s) entered into between
Adaptive Broadband and Buyer, Adaptive Broadband will give Buyer credit for
the Products purchased by it under this Agreement in
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determining the quantity discounts applicable to Buyer for Products
purchased by it under that other agreement(s).
3. Throughout the term of this Agreement, Adaptive Broadband agrees to
maintain current Product technology which is competitive in the wireless
broadband data access markets as measured on a bit-per-Hz basis,
dollars-per-bit basis, and the general commercial availability of general
features and functions in the wireless broadband data access markets. To
define and satisfy that obligation, every six months throughout the term
of this Agreement Adaptive Broadband and Buyer shall meet to review Buyer's
upcoming Product technology preferences and Adaptive Broadband's Product
development plans.
If Buyer requests that Adaptive Broadband develop a general Product feature
or function that is generally commercially available in the wireless
broadband data access markets, then Adaptive Broadband will adjust its
Product development schedule accordingly. If Adaptive Broadband at its own
initiative develops a Product feature or function that is not so generally
commercially available, then it will be available to Buyer at an
additional agreed upon price.
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EXHIBIT B
SERVICES AND RELATED PRICING
ENGINEERING SERVICES AND PRICING:
Adaptive Broadband will provide up to * man-days of engineering and
integration services to I(3)S, free of charge, during the field trial
and acceptance test phases contemplated by this Agreement and Exhibit
E. Thereafter, Adaptive Broadband will provide engineering and
integration services at the rate of */day/man, plus materials and
travel, lodging and subsistence expenses.
NON-ENGINEERING, INSTALLATION SUPPORT SERVICES:
* /day/man plus materials and travel, lodging and subsistence
expenses.
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EXHIBIT C
ADAPTIVE BROADBAND'S STANDARD TERMS AND CONDITIONS OF SALE
The following are the terms and conditions under which Adaptive Broadband
Corporation ("ADAP") sells products, except as otherwise agreed to by ADAP in
writing:
1. PRICES AND TAXES. The prices will be those set forth in ADAP's quotation or
bid valid at the time of order. If a quotation has expired, ADAP reserves
the right to extend the validity of the quotation or issue a new quotation
at its discretion. Prices are F.O.B. shipping point (North American orders)
/ EX-WORKS (Incoterms, 1990) ADAP's relevant shipping facility
(International orders), in U.S. dollars and are exclusive of all taxes,
tariffs, duties and fees. In addition to all charges and fees due under any
agreement or order between ADAP and Buyer, Buyer is solely responsible for
and agrees to pay amounts equal to any taxes, tariffs, duties and fees
(however designated) and any interest, fines and penalties (collectively,
"Tax") resulting from or arising out of that agreement or order, exclusive
of taxes based on ADAP's net income. Without limiting the generality of the
foregoing, Buyer is solely responsible for and agrees to pay, either
through the relevant product invoice or a separately issued invoice, all
sales taxes resulting from or arising out of that agreement or order
unless, within 30 days after shipment, ADAP receives export documentation
satisfactory to ADAP evidencing the export of the relevant products out of
the United States. If a Buyer within the United States wishes to have the
agreement or order treated as sales tax exempt, ADAP must receive a resale
or exemption certificate satisfactory to ADAP prior to shipment. Buyer will
pay on ADAP's behalf any Tax levied upon ADAP or reimburse ADAP for any
such Tax paid by ADAP. This Section will apply during and after termination
of any agreement between the parties.
2. ORDERS. No order submitted by Buyer will be deemed accepted by ADAP unless
and until confirmed in writing by ADAP's authorized representative. No
order which has been accepted by ADAP may be canceled by the Buyer except
with the agreement in writing of ADAP and on terms that the Buyer
will indemnify ADAP in full against all loss (including loss of profit),
costs (including the cost of all labor and materials used), damages,
charges and expenses incurred by ADAP as a result of cancellation
including, at a minimum, the terms set forth in Section 10 below.
3. PAYMENT. All payments by Buyer will be made in U.S. dollars in the U.S.
pursuant to one of the following terms, without offset:
Option 1: Confirmed. Irrevocable Letter of Credit acceptable to ADAP and
payable in U.S. dollars at sight upon presentation of documents confirming
shipment (i.e. Invoice, Packing List, Air Waybill) through any major
United States state or national bank. Validity must be at least 120 days
for shipment and 150 days for negotiation of documents: partial shipments
must be allowed: the Letter of Credit value must state F.O.B. shipping
point (North American orders) or EX-WORKS (Incoterms, 1990) ADAP's relevant
shipping facility (International orders). Estimated freight and handling
charges can be provided upon request. All banking charges are to Buyer's
account.
Option 2: 25% down-payment in U.S. dollars at the time of order with the
balance due two weeks prior to shipment. Wire transfer information: Bank of
America, 1850 Gateway Blvd., Concord, CA 93420, ABA# 121000358, Acct Name
Adaptive Broadband Corporation, Acct Number 1233727981. Reference Invoice #
and PO # and Contract #. By Order Of [Buyer's Name]: or such other wire
transfer information as ADAP may indicate.
Option 3: If Buyer continually satisfies ADAP's credit approval process and
requirements and if ADAP provides Buyer with prior written approval of
credit terms, then net 3O days after the relevant invoice date.
If ADAP agrees in writing to Option 3 above or if ADAP agrees in writing to
different or additional payment terms, then:
a. If during the period of performance of an order the financial
condition of the Buyer is determined by ADAP not to justify the terms
of payment specified, ADAP may demand that payment be made in
accordance with one of the two options above.
b. ADAP reserves the right to make deliveries in installments, all
installments to be separately invoiced and paid for by Buyer when due
per invoice without regard to other scheduled deliveries. If shipments
are delayed by the Buyer for any reason, payment will become due from
the date on which ADAP is prepared to make shipment and storage will
be at Buyer's risk and expense.
c. In the event of default in payment by Buyer: (i) ADAP may suspend
performance of its obligations; (ii) Buyer agrees to pay ADAP's
standard late charges plus interest on the delinquent payment from the
due date thereof until such payment and all interest thereon is
received at the rate of 1 1/2% per month, but not in excess of the
lawful maximum (which charges and interest are not in lieu of any
other right ADAP may have for Buyer's breach); and (iii) in the event
of litigation or collection activity arising out of Buyer's
non-payment, Buyer will promptly pay the reasonable costs and
expenses incurred by ADAP, including attorney's fees.
4. DELIVERY, SECURITY INTEREST, DELAYS. Delivery will be F.O.B. shipping
point (North American orders)/ EX-WORKS (Incoterms, 1990) ADAP's relevant
shipping facility (International orders). Freight and handling charges are
to be either remitted in advance or collected under a confirmed,
irrevocable Letter of Credit as outlined above. All shipments are subject
to availability and
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all references to dates are references to delivery F.O.B. shipping point
(North American orders) / EX-WORKS (Incoterms l99O) ADAP's relevant
shipping facility (International orders). Any dates for delivery quoted by
ADAP or provided in an accepted order are approximations only and ADAP will
not liable for delay in shipment for any reason. Title to product transfers
and Buyer assumes all risk of loss upon delivery of product by ADAP to the
initial carrier. Insurance will be provided by ADAP upon request and
collected with freight and handling charges. In the absence of instructions
to the contrary, ADAP on behalf of Buyer, will select the carrier but will
not be deemed thereby to assume any liability in connection with the
shipment nor will the carrier be construed to be an agent of ADAP. Claims
for loss or damage to products in transit must be made to the carrier and
not to ADAP. Buyer will be responsible for all storage, nagging, drayage
and other charges to and at Buyer's site. Buyer hereby grants ADAP a
security interest in the products and all cash and non-cash proceeds
thereof as security for all of Buyer's obligations hereunder. Upon request
by ADAP, Buyer will promptly execute any instrument required to perfect
such security interest, provided that in any event ADAP is hereby appointed
Buyer's attorney-in-fact to do all acts which ADAP deems reasonably
necessary or desirable to perfect and continue to perfect such security
interest and to protect the collateral. ADAP will not be liable for any
damages or penalty for delay in delivery or for failure to give notice of
delay when such delay is due to the elements, acts of God, delays in
transportation, delay in delivery by ADAP's vendors or any other causes
beyond the reasonable control of ADAP. The delivery schedule will be
extended by a period of time equal to the time lost because of such delay.
5. INTELLECTUAL PROPERTY.
If notified promptly in writing of any action (and all prior claims
relating thereto) brought against Buyer alleging that Buyer's use or other
disposition of product infringes a United States patent or copyright or
trade secret, ADAP will defend such action at its expense and will pay the
costs and damages awarded against Buyer in such action, provided that ADAP
will have sole control of and authority with respect to the defense of any
such action and all negotiations for is settlement or compromise. If a
final injunction is obtained in such action against Buyer's use of the
product or if in ADAP's opinion the product is likely to become the subject
of claim or infringement, ADAP will, at its option and at its expense:
procure for Buyer the right to continue using the product: or replace or
modify the same so that they become non-infringing: or accept return of the
product and refund or credit the amount of the original net purchase price,
less a reasonable charge for depreciation and damage. ADAP will not have
any liability to Buyer if the alleged infringement is based upon: (a) use
or sale of the product in combination with other products or devices which
are not made by ADAP; (b) use of the product in practicing any process: or
(c) the furnishing to Buyer of any information, service or other
assistance. No costs nor expenses will be incurred for the account of ADAP
without the prior written consent of ADAP. In no event will ADAP's total
liability to Buyer under or as a result of compliance with the provisions
of this clause exceed the sum paid to ADAP by Buyer for the allegedly
infringing product. The foregoing states the entire liability of ADAP with
respect to alleged infringement of patents and copyrights by the product or
any part thereof or by its operation. This Section states the entire
liability of ADAP for any infringement of patent, copyright, trademark,
trade secret, or other intellectual property rights.
If notified promptly in writing of any action (and all prior claims
relating thereto) brought against ADAP alleging that ADAP's use of or
compliance with Buyer's designs, specifications, or instructions infringes
a United States patent or copyright or trade secret. Buyer will defend such
action at its expense and will pay the costs and damages awarded against
ADAP in such action, provided that Buyer will have sole control of and
authority with respect to the defense of any such action and all
negotiations for its settlement or compromise. No costs nor expenses will
be incurred for the account of Buyer without the prior written consent of
Buyer. The foregoing states the entire liability of Buyer with respect to
alleged infringement of patents and copyrights and trade secrets by the
product or any part thereof or by its operation by reason of ADAP's use of
or compliance with Buyer's designs, specifications or instructions.
6. PRODUCT CHANGES. ADAP reserves the right, without prior approval from but
with notice to Buyer, to make changes to products or their specifications
(a) which do not materially adversely affect the performance of the product
or reduce performance below any contract specification: (b) when required
for purposes of safety: (c) to meet product specifications, or (d) when
required to conform with any applicable statutory or regulatory
requirements. ADAP reserves the right to make product improvements without
incurring any obligation or liability to make the same changes in products
previously manufactured or purchased. ADAP also reserves the right to
modify the availability of models in its product lines based on market
conditions, component availability, and other business considerations: and
to require that Buyer implement and utilize software upgrades as a
condition of maintenance contracts and warranty.
7. WARRANTY
PRODUCT MANUFACTURED BY ADAP:
a. Products manufactured by ADAP are warranted against defects in
material and workmanship for a period of one (1) year from date of
delivery as evidenced by ADAP's packing slip or other transportation
receipt.
b. ADAP's sole responsibility under this warranty will be to either
repair or replace, at its option, any component which fails during the
applicable warranty period because of a defect in material or
workmanship, provided Buyer has promptly reported same to ADAP in
writing. All replaced products and parts will become ADAP's
property.
c. ADAP will honor the warranty at the repair facility designated by
ADAP. It is Buyer's responsibility to return, at its expense, the
allegedly defective product to ADAP. Buyer must obtain a Return
Material Authorization (RMA) number and shipping instructions from
ADAP prior to returning any product under warranty. Transportation
charges for the return of the product to Buyer will be paid by ADAP
within the United States. For all other locations, the warranty
excludes all costs of shipping,
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customs clearance and other related charges. If ADAP determines in
good faith that the product is not defective within the terms of this
warranty, Buyer will pay ADAP all costs of handling, transportation
and repairs at the then prevailing repair rates.
d. All the above warranties are contingent upon proper use of the
product. These warranties will not apply (i) if adjustment, repair, or
product or parts replacement is required because of accident, unusual
physical, electrical or electromagnetic stress, neglect, misuse,
failure of electric power, environmental controls, transportation,
failure to maintained properly or otherwise in accordance with ADAP
specifications, or abuses other than ordinary use, (ii) if the
product has been modified by Buyer or has been repaired or altered
outside ADAP's repair facility unless ADAP specifically authorizes
such repairs or alterations in each instance; or (iii) where ADAP
serial numbers, warranty data or quality assurance decals have been
removed or altered.
e. No person, including any dealer, agent or representative of ADAP is
authorized to assume for ADAP any other liability on its behalf except
as set forth herein. If any payment is due ADAP for services performed
hereunder, it will be subject to the same payment terms as the
original purchase.
PRODUCTS MANUFACTURED BY OTHERS:
For products not manufactured by ADAP, the original manufacturer's or
licensor's warranty will be assigned to Buyer to the extent permitted by
the manufacturer or licensor and is in lieu of any other warranty,
expressed or implied. For warranty information on a specific product, a
written request should be made to ADAP.
ALL PRODUCTS:
THE FOREGOING WARRANTIES AND REMEDIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL
OTHER EXPRESS OR IMPLIED WARRANTIES, OBLIGATIONS, AND LIABILITIES ON THE
PART OF ADAP. EXCEPT FOR THE EXPRESS WARRANTIES STATED HEREIN, ADAP
DISCLAIMS ALL WARRANTIES ON PRODUCTS FURNISHED HEREUNDER. INCLUDING,
WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. ADAP WILL HAVE NO RESPONSIBILITY FOR ANY
PARTICULAR APPLICATION MADE OF ANY EQUIPMENT. Any description of equipment,
whether in writing or made orally by ADAP or its agents, specification
sheets, models, bulletins, drawings, or similar materials used in
connection with Buyer's order are for the sole purpose of identifying the
equipment and will not be construed as an express warranty. Any
suggestions by ADAP or its agents regarding use, application or
suitability of the equipment will not be construed as an express
warranty. No warranties may be implied from any course of dealing
or usage of trade. Buyer agrees that the exclusion of all warranties,
other than those expressly provided herein, is reasonable.
8. ACCEPTANCE OF PRODUCTS. Unqualified acceptance of products will occur
upon delivery, unless ADAP is notified in writing within ten days from
Buyer's receipt that the products do not meet ADAP's specifications or
that Buyer is making a claim for shortages or other errors in delivery.
Failure to give such timely notice constitutes a waiver of all such
claims by Buyer. ADAP's sole obligation for any non-conforming products
will be limited to repair or replacement, at ADAP's option, pursuant to
the provisions of the foregoing warranty clause.
9. INSTALLATION. In the event ADAP agrees with Buyer to install or perform
maintenance on any product(s) to be supplied. Buyer will pay ADAP'S then
current standard charges for such installation or maintenance.
10. CANCELLATION AND RESCHEDULE CHARGES. In the event Buyer defaults, ADAP may
decline to make further shipments and/or may terminate Buyer's order
without affecting ADAP's rights and remedies including, but not limited
to, any right to cancellation charges and quantity price adjustments. If
ADAP continues to make shipments after Buyer's default, ADAP's action
will not constitute a waiver nor affect ADAPs legal remedies. In the
event Buyer (a) cancels any order or portion thereof with the requisite
ADAP consent; or (b) fails to meet any obligation hereunder, causing
cancellation or rescheduling of any order or portion thereof; or (c)
requests a rescheduling of scheduled product and such request is accepted
by ADAP. Buyer agrees to pay ADAP cancellation/reschedule charges as a
percentage of the list price of the canceled/rescheduled product, said
charges having been agreed upon not as a penalty, but as a result of the
difficulty of computing actual damages. Such cancellation/rescheduling
charges may be set by ADAP in its business judgment in each instance. Buyer
may not cancel or reschedule any order or portion thereof after shipment.
11. EXPORT. Regardless of any disclosure made by Buyer to ADAP of an ultimate
destination of the product(s). Buyer will not export, either directly or
indirectly, any product(s) or non-ADAP equipment incorporating such
product(s) without first obtaining a license from the U.S. Department
of Commerce or any other agency or department of the United States
Government, as required. Buyer will use its best efforts to insure that
none of the products will reach any country where U.S. laws would forbid
ADAP to market or distribute the products.
12. DISCLAIMER AND LIMITATION OF LIABILITY.
A. ADAP'S TOTAL LIABILITY IS LIMITED TO THE NET PRICE OF THE PRODUCTS
SOLD HEREUNDER, EXCLUDING ANY CHARGES STATED SEPARATELY FROM THE
PRODUCT PRICE ON THE INVOICE. BUYER'S SOLE REMEDY FOR LIABILITY OF ANY
KIND, INCLUDING NEGLIGENCE, WITH RESPECT TO THE PRODUCTS, SOFTWARE,
AND DOCUMENTATION FURNISHED HEREUNDER IS LIMITED TO THE REQUEST FOR
ADAP, AT ADAP'S OPTION, TO REFUND THAT NET PRICE FOR THE ITEMS AND
MATTERS INVOLVED, EXCEPT THAT IN THE CASE OF A BREACH OF WARRANTY,
BUYER'S SOLE REMEDY IS TO RETURN THE PRODUCT TO ADAP FOR REPAIR OR
REPLACEMENT IN ACCORDANCE WITH THE "WARRANTY" SECTION OF THESE TERMS
AND CONDITIONS.
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B. WITH RESPECT TO SERVICES, ADAP'S LIABILITY FOR ANY SERVICE IS
LIMITED TO THE RE-PERFORMANCE OF THE SERVICE. ADAP DOES NOT WARRANTY
PROPOGATION OR PATH PERFORMANCE. ALL SURVEYS ARE ACCURATE AS OF THE
DATE THE SURVEY WAS CONDUCTED.
C. IN NO EVENT WILL ADAP BE LIABLE TO BUYER, OR WILL BUYER BE LIABLE
TO ADAP, FOR (I) REPROCUREMENT COSTS; (II) INDIRECT, INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES; (III) ANY DAMAGES WHATSOEVER
RESULTING FROM LOSS OF USE, DATA OR PROFITS ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR THE USE OR PERFORMANCE OF ADAP
PRODUCTS, WHETHER IN AN ACTION OF CONTRACT OR TORT, INCLUDING
NEGLIGENCE AND STRICT LIABILITY, EVEN IF THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
D. NO ACTION, WHETHER IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT BY EITHER
PARTY MORE THAN EIGHTEEN (18) MONTHS AFTER THE CAUSE OF ACTION HAS
ACCRUED, EXCEPT THAT AN ACTION FOR NON-PAYMENT MAY BE BROUGHT
WITHIN EIGHTEEN (18) MONTHS OF THE DATE OF LAST PAYMENT.
13. GENERAL PROVISIONS.
a. The rights and obligations under these terms and conditions may not be
assigned without ADAP's prior written consent and any attempt to
do so without such consent will be void.
b. Buyer will pay to ADAP all costs, fees and expenses (including
attorneys' fee) incurred by ADAP in enforcing, or attempting to
enforce, any of its rights under these terms and conditions or any
contract of sale between them.
c. All rights and remedies, whether conferred hereby or by any other
instrument or law will be cumulative and may be exercised singularly
or concurrently. Failure by either party to enforce any contract
terms will not be deemed a waiver of future enforcement of that nor
of any other term. If any provisions of this contract are held invalid
under any applicable law, rule, regulation or treaty, such invalidity
will not affect other provisions of this contract which can be given
effect without the invalid provisions and to this end, the
provisions of this contract are declared to be severable.
Notwithstanding the above, such invalid provision or clause will be
construed, to the extent possible, in accordance with the original
intent of the parties.
d. Any typographical, clerical or other error or omission in any sales
literature, quotation, price list, acceptance of offer, invoice or
other document or information issued by ADAP will be subject to
correction without any liability on the part of ADAP.
e. Where products include radio frequency communications equipment,
certain regulations of telecommunications regulatory authorities
apply. It is the sole responsibility of the Buyer to ensure
compliance with all such regulations and all other applicable
laws and rules and to procure and maintain at its own expense any
relevant license from such regulatory authority to install, operate
and maintain the equipment.
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EXHIBIT D
SOFTWARE LICENSE AND SUB-LICENSE
Set out below are the terms and conditions of the software license granted by
Adaptive Broadband to Buyer. In sub-licensing software to its customers, Buyer
shall incorporate in such sub-licenses terms which offer no less degree of
protection than those set out below:
1. The Software and the documentation are unpublished copyright works and may
be used on any installation with a configuration mentioned in the
Agreement, provided the Software is in use on only one installation at any
one time.
2. Neither the Software nor the documentation may be copied in whole or in
part, except for backup and archival purposes.
3. The copyright notices and trademarks contained in the Software, on the data
medium, and in the documentation as supplied to Buyer must appear on all
copies made by Buyer.
4. Save for Buyer's right to grant sub-licenses to its customers in the
Territory and Market to use the Software in object code form, Buyer may not
transfer part, download, or in other way make available to others the
Software and the documentation delivered to it.
5. Buyer shall not have the right to modify the Software or to create
derivative works based on the Software, save as provided under applicable
laws.
6. No warranty applies if failure of the Software has resulted from misuse or
misappropriation.
If a new release of the Software contains new functions, and Buyer wants to use
these new functions, the new release shall be subject to a supplementary charge.
No license is granted for any new release until Buyer pays associated
additional fees. Buyer will be responsible for costs of software/hardware
upgrades of equipment supplied by third parties to support such new releases.
Any replacement of the Software will be guaranteed for the remainder of the
original warranty period or 3 months, whichever is longer.
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EXHIBIT E
ENHANCEMENTS AND FIELD TRIAL VERIFICATION
APPENDIX E
USE OF ADAPTIVE BROADBAND WITHIN I(3)S DATA ENVELOPE(TM)
This attachment is an analysis of how I(3)S can use the Adaptive Broadband
equipment as part of the I(3)S Data Envelope(TM) product architecture for
delivering broadband access to the Internet over forward deployed Ethernet
switches and other in-unit technologies. Below is a link-by-link and
device-by-device description of a property network architecture, detailing what
operations are required and what operations must not be performed along the
path. At the end is a detailed list of required changes to the Adaptive
Broadband product to satisfy the architectural model as well as other security,
configuration and management items.
[FLOW CHART]
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WORKING FROM THE PC TO THE CPE ROUTER
F 10 Mbps Ethernet
PCs are attached to the Edge Ethernet Switch via 10 Mb Ethernet.
Edge Ethernet Switch
Conforming to the requirements of the Data Envelope(TM), the switch does
not perform any subscriber port (S) to subscriber port (S) switching. All
traffic (broadcast and unicasts) which enters a subscriber port (S) must be
switched out the trunk port (T). The Edge Ethernet Switch will function as
a learning bridge and create a MAC table to identify all MAC addresses out
each port. Multiple PCs (and MAC addresses) may be attached to a hub on a
single switch port.
E 10/100 Mbps Ethernet
The aggregation of traffic from multiple 10 Mbps sources requires a higher
bandwidth trunk.
Adaptive Broadband Subscriber Unit
This device must provide a 10/100 Mbps Ethernet interface at the subscriber
port (S). Any bit presented to S must be sent out T. There is no need to
perform any MAC layer or IP layer analysis. All traffic must be presented
to the router, even IP layer peer to peer traffic.
D 25 Mbps Pt-Mpt Wireless
Adaptive Broadband Access Point
This device must provide a 10/100 Mbps Ethernet interface at the trunk port
(T). Any bit presented to S must be sent out T. All traffic must be
presented to the router, even IP layer peer to peer traffic.
C 10/100 Mbps Ethernet
Hub Ethernet Switch
Conforming to the requirements of the Data Envelope(TM), the switch does
not perform any subscriber port (S) to subscriber port (S) switching. All
traffic (broadcast and unicasts) which enters a subscriber port (S) must be
switched out the trunk port (T). The Hub Ethernet Switch will function as a
learning bridge and create a MAC table to identify all MAC addresses out
each port.
B 10/100 Mbps Ethernet
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Router
The main element in the Data Envelope(TM), all packets transmitted on the
property enter the router for processing, accounting, and forwarding. The
router sees all PCs on the property on the same IP subnet and in the same
broadcast domain. The router can communicate with all PCs via broadcasts or
multicasts, which will be replicated as necessary by the Ethernet switches.
A T1 or greater to POP
WORKING FROM THE CPE ROUTER TO THE PC
A T1 or greater from POP
Router
The main element in the Data Envelope(TM), all packets transmitted on the
property enter the router for processing, accounting, and forwarding. The
router sees all PCs on the property on the same IP subnet and in the same
broadcast domain. The router can communicate with all PCs via broadcasts or
multicasts, which will be replicated as necessary by the Ethernet switches.
The router can ARP for all PCs by sending a Layer 2 broadcast. The ARP
reply is only seen by the router.
B 10/100 Mbps Ethernet
Hub Ethernet Switch
Functioning as a standard Ethernet switch, the switch will flood broadcast
frames and search its MAC table for the correct port to send an outbound
unicast packet. At this layer, the switch will have the MAC address of all
the PCs attached to a downstream switch.
C 10/100 Mbps Ethernet
Adaptive Broadband Access Point
This device must provide a 10/100 Mbps Ethernet interface at the trunk port
(T). Any frame presented to t must be sent out s and vice-versa.
D 25 Mbps Pt-Mpt Wireless
All downstream traffic shares the 25 Mbps data rate.
Adaptive Broadband Subscriber Unit
This device must provide a 10/100 Mbps Ethernet interface at the subscriber
port (S). Any frame presented to T must be sent out S.
E 10/100 Mbps Ethernet
Edge Ethernet Switch
This Ethernet switch will receive all traffic transmitted from the Access
Point on the Pt-Pt PVC to which its Subscriber Unit is attached. The switch
will drop all traffic with a
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<PAGE> 23
destination MAC address which has not been learned on a subscriber
port (S). Any traffic with a destination MAC address learned on a
subscriber port (S) will be forwarded out the appropriate port only.
F 10 Mbps Ethernet
PCs are attached to the Edge Ethernet Switch via 10 Mb Ethernet.
REQUIRED CHANGES TO ADAPTIVE BROADBAND EQUIPMENT TO MEET I(3)S DATA ENVELOPE(TM)
REQUIREMENTS
Access Point
o The Access Point (AP) must function at layer 1 and layer 2 only.
o The AP will support a secure handshake with Subscriber Unit (SU) and/or
encryption of data to SU
o The AP will only connect to an SU with the properly configured PVC to
establish a PVC connection.
o The AP will function as a Layer 2 MAC Learning Bridge. The AB Access Point
equipment will function as a Layer 2 MAC learning bridge, providing Pt-Pt
PVCs to each Subscriber Terminal. The Access Point will correctly implement
the S to T isolated data flow model correctly, ensuring no S to S
communication of broadcast or unicast packets. The Access Point will place
the downstream packet on the correct PVC to be received by only a single
Subscriber Terminal and forwarded to the correct Ethernet switch.
Subscriber Unit
o The SU will not function at Layer 3 for subscriber traffic flow.
o The SU will not learn IP addresses.
o The SU will not require an IP Subnet per SU.
o The SU will function at layer 1 and layer 2 only for subscriber traffic
flow.
o The SU will support a secure handshake with AP and/or encryption of data to
the AP.
o The SU will only connect to an AP with the properly configured PVC to
establish a PVC connection.
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<PAGE> 24
EXHIBIT F
ACCEPTANCE TEST, PROCEDURES AND PARAMETERS
APPENDIX F
ACCEPTANCE TESTING REQUIREMENTS
Revision E
General System tests
Item Description
Number
GS-01 Configuration data is stored locally on each SU and AP device and may
be power cycled, reboot, and begin forwarding traffic appropriately
without communication with the network server or network management
station.
GS-02 Configuration files may be downloaded to an SU or AP device remotely
via secure RUPEE over TCP/IP (Specifically: PVC configuration, IP
address assignments, wireless interface configuration, all firmware
and software).
SU - General tests
Item Description
Number
SU-G-01 The SU builds a bridge table based on Ethernet MAC address only as it
receives packets in the S and T interface of the SU.
SU-G-02 The bridge table may be viewed via network management, direct SNMP to
the SU or through a management station proxy.
SU-G-03 The SU maintains counters for received and transmitted MAC layer
frames and cells.
SU-G-04 The SU will accept all input ethernet traffic on the S interface of
the device on a standard RJ-45 - 10 Mb half-duplex Ethernet
connection.
SU - Upstream from PC tests
Item Description
Number
SU-U-01 Valid upstream unicast packets received on an S interface of the SU
are always forwarded out the T interface of the SU.
SU-U-02 Valid upstream broadcast packets received on an S interface of the SU
are always forwarded out the T interface of the SU.
SU-U-03 Valid upstream multicast packets received on an S interface of the SU
are always forwarded out the T interface of the SU.
SU-U-04 The SU does forward packets with source and destination MAC addresses
on the S interface of the SU out the T interface, and the T interface
only.
SU-U-05 All packets arriving at the S interface of the SU are forwarded out
the T interface of the SU.
SU-U-06 No packets arriving at the S interface of the SU are forwarded back
out the S interface of the SU.
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<PAGE> 25
SU - Downstream to PC tests
Item Description
Number
SU-D-01 Valid downstream unicast packets received on a T interface of the SU
are either:
-Always forwarded out the S interface of the SU (With the
exception of datagrams terminated within the SU itself)
SU-D-02 Valid downstream broadcast packets received on a T interface of the SU
are always forwarded out the S interface of the SU.
SU-D-03 Valid downstream multicast packets received on a T interface of the
SU are always forwarded out the S interface of the SU with the
exception of some management packets addressed to the SU which are not
passed on
SU-D-04 The SU does not forward packets with source and destination MAC
addresses on the T interface of the SU out the S interface; the
packets are discarded.
SU-D-05 No packets arriving at the T interface of the SU are forwarded back
out the T interface of the SU.
AP - General tests
Item Description
Number
AP-G-01 The AP builds a bridge table based on Ethernet MAC address only as it
receives packets in the S and T interface of the SU.
AP-G-02 The bridge table may be viewed via network management, direct SNMP to
the AP or through a management station proxy.
AP-G-03 The AP maintains counters for received and transmitted MAC layer
frames and cells.
AP-G-04 The AP will accept all input ethernet traffic on the T interface of
the device on a standard RJ-45-10 Mb half-duplex Ethernet
connection.
AP - Upstream from PC tests
Item Description
Number
AP-U-01 Upstream unicast packets received on an S interface of the AP are
always forwarded out the T interface of the AP with the exception of
some SU management information packets.
AP-U-02 Upstream broadcast packets received on an S interface of the AP are
always forwarded out the T interface of the AP.
AP-U-03 Upstream multicast packets received on an S interface of the AP are
always forwarded out the T interface of the AP with the exception of
some SU management information packets.
AP-U-04 The AP does forward packets with source and destination MAC addresses
on the S interface of the AP out the T interface, and the T interface
only.
AP-U-05 All packets arriving at the S interface of the AP are forwarded out
the T interface of the AP with the exception of some SU management
information packets.
AP-U-06 No packets arriving at the S interface of the SU are forwarded back
out the S interface of the SU.
AP-U-07 All packets forwarded out the T interface of the AP will be forwarded
out the 10 Mb Ethernet interface identical to the packets received on
the S interface of the SU; no additional headers from the original PC
authored Ethernet packet will be presented.
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<PAGE> 26
AP - Downstream to PC tests
Item Description
Number
AP-D-01 Downstream unicast packets received on a T interface of the AP are
only forwarded out the S interface of the AP if the destination MAC
address is located in the bridge table and designates the S interface
as the interface on which the address was learned
AP-D-02 Downstream broadcast packets received on a T interface of the AP are
always forwarded out the S interface of the AP.
AP-D-03 Downstream multicast packets received on a T interface of the AP are
always forwarded out the S interface of the AP with the exception of
some AP management information packets.
AP-D-04 The AP does not forward packets with source and destination MAC
addresses on the T interface of the AP out the S interface; the
packets are discarded.
AP-D-05 No packets arriving at the T interface of the AP are forwarded back
out the T interface of the AP.
AP 1483 bridge tests
Item Description
Number
AP-BR-01 The 1483 bridge table in any AP must support a minimum of 250
simultaneous bridge entries.
AP-BR-02 As packets are learned from upstream traffic, the MAC address is
placed into a bridge table associated with the PVC on which the packet
was received.
AP-BR-03 Learned MAC addressed must time-out every hour.
AP-BR-04 Entries in an instance of the 1483 bridge tables must capable or being
cleared via network management interaction
AP-BR-05 Downstream packets will consult the bridge table and forward the
packet out the S interface on the appropriate PVC.
AP-BR-06 If a PVC to a SU goes down, the bridge table must be cleared.
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<PAGE> 27
Network Management tests
Item Description
Number
NM-01 A single ADAP NMS will be located in the Irving, TX NOC and can
support up to 100 ADAP Control Servers.
NM-02 The ADAP NMS will communicate with the ADAP Control Servers via a TCP
over IP connection.
NM-03 The ADAP Control Server may be configured to only accept network
management IP connections from a designated subnet and from a discrete
set of IP addresses. All other network management connections are
refused and logged.
NM-04 The ADAP Control Server and ADAP NMS connection must be validated
through a security mechanism, such as shared key.
NM-05 The ADAP Control Server will be located in I3S POPs and communicated
with on-property APs via a TCP over IP connection.
NM-06 The ADAP Control Server will support up to 1000 simultaneous TCP
connections to the APs and maintain a response time of less than 2
seconds.
NM-07 The AP may be configured to only accept network management IP
connections from a designated subnet and from a discrete set of IP
addresses. All other network management connections are refused and
logged.
NM-08 The ADAP Control Server and ADAP NMS connection must be validated
through a security mechanism, such as shared key.
NM-09 The information exchanged, gathered, etc... between the AP and ADAP
Control Server can be controlled, minimized, and tailored.
NM-10 The ADAP Control Server will initiate and establish a session based
UDP over IP connection with each configured AP or SU. UDP packets
which arrive and violate the session flow will be discarded and
logged.
NM-11 An AP will forward network management traffic between the ADAP Control
Server and the designated SU over the specified and designated network
management PVC configured between the AP and SU.
NM-12 The AP and SU connection must be validated through a security
mechanism, such as shared key.
NM-13 An AP can be configured to connect to a primary and a secondary ADAP
Control Server. If the primary is not available after a reasonable
effort, the AP will connect to the secondary.
NM-14 The IP addresses assigned to AP and SU devices for network management
may be changed dynamically and through network management.
NM-15 AP and SU devices are assigned a single IP address for network
management. The IP address may be from the globally non-routable
ranges. An AP and all subordinate SU devices must share a common IP
subnet for network management. All devices must support variable
length subnet masks.
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<PAGE> 1
EXHIBIT 10.20
CONFIDENTIAL TREATMENT REQUESTED
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT WITH I3S
THIS AGREEMENT (this "Agreement") is entered into by and between Waller
Creek Communications, Incorporated, a Texas corporation having a place of
business at 1801 N. Lamar Blvd., Suite M, Austin, Texas 78701 ("Supplier), and
I3S, a corporation having its principal place of business at 1440 Corporate Dr.
Irving, TX 75038. ("Customer"). This Agreement is effective as of the date of
signature of the last party to sign ("Effective Date").
WHEREAS, Supplier operates telecommunications facilities in various
metropolitan areas; and
WHEREAS, Customer desires to have Supplier provide certain
telecommunications services to Customer on its facilities in the geographical
areas served by them; and
WHEREAS, Supplier desires to facilitate the provision of such services to
Customer; and
WHEREAS, Customer shall execute its first order of Supplier's services
simultaneous to the execution of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, Supplier and Customer agree as follows:
-1-
THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND PROPRIETARY AND SHOULD
NOT BE DISCLOSED, COPIED OR DUPLICATED IN ANY MANNER WITHOUT THE WRITTEN
PERMISSION OF WALLER CREEK COMMUNICATIONS.
<PAGE> 2
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
1. DEFINITIONS AND ATTACHMENTS.
A. Attachments.
The following documents are hereby incorporated into and made a part
of this Agreement
1) the document entitled "Dedicated Transport Services" which is
attached hereto and identified as Attachment 1;
2) the document entitled "Subunit Capacity Reservations" which is
attached hereto and identified as Attachment 2;
3) the document entitled "Ordering and Billing Procedures" which is
attached hereto and identified as Attachment 3;
4) the document entitled "Technical Specifications" which is
attached hereto and identified as Attachment 4;
5) the document entitled "Trouble Reporting/Maintenance and Repair"
which is attached hereto and identified as Attachment 5;
6) the document entitled "Services Pricing" which is attached hereto
and identified as Attachment 6; and
7) the document entitled "General Provisions" which is attached
hereto and identified as Attachment 7.
B. Definitions.
The terms used in this Agreement shall have their normal or common
meanings ascribed to them in the telecommunications industry, unless
specifically defined otherwise herein. For purpose of this Agreement, the
following terms shall have the meanings set forth opposite them:
1) End User. "End User" shall mean Customer's subscribers to whom
Customer will provide telecommunications services utilizing, in
part, Services provided by Supplier to Customer.
2) Planned Service Outage. "Planned Service Outage" shall mean a
complete loss of transmit or receive capability occurring on
Supplier's network, caused by mutually agreed upon scheduled
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<PAGE> 3
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
maintenance or planned enhancements or upgrades to either party's
network.
3) Point of Demarcation. "Point of Demarcation" shall mean the
interface (Customer provided DSX jack or other mutually
acceptable equipment) between Supplier's and Customer's equipment
or facilities at Customer's Point of Presence, and the interface
between Supplier and an End User, Local Exchange Carrier Central
Office (LEC CO), or an Interexchange Carrier Point of Presence
(IXC POP).
4) Point of Presence. "Point of Presence" or "POP" shall mean a
specific location where Customer originates and/or terminates its
telecommunications service.
5) Service Date. "Service Date" shall mean the date Service has been
installed, tested, and is available for Customer's use.
6) Service Outage. "Service Outage" shall mean a complete loss of
transmit or receive capability occurring on Supplier's network,
excluding: (a) Planned Service Outages; and (b) periods of loss
due to any Force Majeure Event (as defined in Attachment 7).
7) Services. "Services" shall mean dedicated telecommunications
services, as defined in Attachments 1 and 2, provided by Supplier
and as specifically identified in ordering forms agreed to
pursuant to Attachment 3.
8) Supplier's Equipment. "Supplier's Equipment" shall mean the
telecommunications equipment installed, tested, operated and
controlled by Supplier, necessary for the Services, up to the
Point of Demarcation.
2. SERVICES.
A. Available Services.
Supplier shall provide the Services, identified in the initial service
request and any subsequent service requests that are accepted by Supplier, to
Customer for provision of Customer's telecommunications services. Services
shall include normal installation, maintenance, inspection, repair and testing,
as provided for herein. Supplier reserves the right to substitute, change or
rearrange any of Supplier's Equipment, provided that the quality, cost or type
of Services are not adversely affected. Upon mutual agreement of the parties,
the Services may be
-3-
<PAGE> 4
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
changed from time to time during the term of this Agreement to reflect
additional capabilities and features available from Supplier, in which event
this Agreement shall he modified accordingly.
B. Additional Services.
Additional Services that are not described in Attachments 1 and 2 may
be requested by Customer and will be evaluated by Supplier on an individual
case basis.
3. SERVICE DATE; INSTALLATION.
Upon completion of installation or connection of facilities and/or
equipment for Customer, Supplier shall conduct appropriate tests to demonstrate
that the Services meet the applicable specifications set forth in Attachment 4.
No Services will be placed upon equipment that has not undergone complete
testing, which includes terminal to terminal testing of fiber optic
transmission systems. Upon successful completion of tests, Supplier shall
verbally notify Customer that such Services are available for use. Supplier
shall make the Services available within the standard installation intervals
agreed to by Supplier and Customer. Supplier shall use good faith reasonable
efforts to make the Services available by the date requested by Customer when
such date is earlier: than the standard interval. In the event that Supplier
delays the provision of a particular Service beyond thirty (30) days after the
Customer-requested date or the standard interval date, whichever is later,
Customer may terminate the affected Service without liability.
4. ORDERING PROCEDURES.
Customer and Supplier shall develop mutually agreeable service ordering
procedures pursuant to Attachment 3.
5. BILLING AND PAYMENT.
Customer and Supplier shall follow the billing and payment terms,
conditions and procedures set forth in Attachment 3.
6. CONNECTION
A. Connection of Supplier's Equipment and Customer's equipment will be
performed by Supplier. Supplier shall repair or replace, at its sole cost and
expense, any Customer equipment damaged by Supplier, or its agent, during
connection.
B, In the event that Customer's or an End User's equipment is not
compatible with a Service ordered by Customer, any special interface equipment
or facilities necessary to achieve compatibility shall be the responsibility of
Customer.
-4-
<PAGE> 5
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
7. EQUIPMENT AND INSTALLATION
A. Unless specifically provided for herein, Supplier, or its agent,
shall, at its sole cost and expense, provide, install, maintain, repair,
operate and control Supplier's Equipment.
B. Equipment and service beyond the Point of Demarcation shall be the
responsibility of Customer.
C. Customer and the End User shall provide Supplier, at no cost to
Supplier, access to, and reasonable space, power and environmental conditions
at, the Point of Demarcation, including, but not limited to, roof, window,
equipment, battery and conduit space, air conditioning and fire protection, as
applicable for the particular installation. Where the granting of right-of-way
to Supplier to provide such access requires the consent of third parties,
Customer shall use (and shall cause End Users to use) commercially reasonable
efforts to obtain such consent on behalf of Supplier.
D. Supplier shall arrange for entry to Customer's POP locally and,
whenever possible, shall provide at least two (2) days notice to Customer prior
to entering Customer's POP to install, maintain or repair any of the
equipment. In the event that it is not possible to provide such notice,
Supplier shall provide notice to Customer as soon as practicable, but in all
events prior to entering the POP.
E. Except as set forth in Sections 6.A and 6.B, Supplier shall have no
obligation to install, maintain or repair any equipment owned or provided by
Customer or any End-user.
F. If, on responding to a Customer-initiated service call, Supplier and
Customer jointly determine that the cause of the Service deficiency was a
failure, a malfunction or the inadequacy of End User's or Customer's equipment,
Customer shall compensate Supplier, at Supplier's prevailing rates, for actual
time and materials expended during the service call, $150 per hour during 8 a.m.
to 5 p.m., Monday to Friday and $275 per hour on evenings and weekends.
G. Neither party shall adjust, align, attempt to repair, relocate or
remove the other party's equipment, except as expressly authorized by the other
party.
H. Customer shall be liable for any loss or damage, including theft, to
Supplier's Equipment arising from Customer's or an End User's negligence,
intentional act, willful misconduct or unauthorized maintenance. In the event of
any such loss or damage to Supplier's Equipment, Customer shall reimburse
Supplier for the reasonable cost of repair of Supplier's Equipment, or the
replacement thereof, within thirty (30) days after receipt by Customer of a
written request for reimbursement and substantiation of actual repair or
replacement costs incurred.
I. Supplier shall be liable for any loss or damage, including theft, to
Customer's or an End User's equipment arising from Supplier's negligence,
intentional act, willful misconduct, or unauthorized maintenance. In the event
of any such loss or damage to any such equipment, Supplier shall reimburse
Customer or the End User, as the case may be, for the reasonable cost of
-5-
<PAGE> 6
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
repair of the equipment, or the replacement thereof, within thirty (30) days
after receipt by Supplier of a written request for reimbursement and
substantiation of actual repair or replacement costs incurred.
J. Supplier's Equipment shall remain the sole and exclusive property of
Supplier, and nothing contained herein shall give or convey to Customer, or any
other person, any right, title or interest whatsoever in Supplier's Equipment.
Supplier's Equipment shall at all times be and remain personal property,
notwithstanding that it may be, or become, attached to, or embedded in, realty.
Customer shall not, and will cause each End User to not, tamper with, remove or
conceal any identifying plates, tags or labels identifying Supplier's ownership
interest in Supplier's Equipment. Customer will not, and will cause End Users to
not, cause to be attached to Supplier's Equipment any liens, security interests
or encumbrances.
K. Customer's equipment shall remain the sole and exclusive property of
Customer, and nothing contained herein shall give or convey to Supplier, or any
other person, any right, title or interest whatsoever in Customer's equipment.
Customer's equipment shall at all times be and remain personal property,
notwithstanding that it may be, or become, attached to, or embedded in, realty.
Supplier shall not tamper with, remove or conceal any identifying plates, tags
or labels identifying Customer's ownership interest in Customer's equipment.
Supplier will not cause to be attached to Customer's equipment any liens,
security interests or encumbrances.
8. TROUBLE REPORTING; MAINTENANCE.
The parties shall follow the trouble reporting procedures described in
Attachment 5. Supplier shall properly maintain the Supplier Equipment used to
provide the Services, at no additional charge to Customer.
9. TERM/TERMINATION LIABILITY.
This Agreement shall be in effect for a period of 3 year(s) from the
Effective Date and shall thereafter continue in effect on a year-to-year basis
unless terminated by either party upon ninety (90) days advance written notice
to the other. Upon termination of this Agreement, all rights of Customer to
order new Services shall cease and Supplier shall have no further obligations to
furnish new Services to Customer. In the event of termination of this Agreement.
Services not previously terminated by Customer shall remain in effect for the
term specified in the applicable service request, and the terms and conditions
of this Agreement shall continue to apply to such Services. The Services are
provided on a "take-or-pay" basis, based on the Services ordered by Customer and
ramp-up schedule included in Attachment 6.
-6-
<PAGE> 7
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
10. GOVERNMENTAL AUTHORIZATION.
This Agreement is subject to all applicable federal, state and local laws,
and regulations, rulings, orders and other actions of governmental agencies
("Rules"), including, but not limited to, the Communications Act of 1934, as
amended, the rules and regulations of the Federal Communications Commission
("FCC"), and the obtaining and continuance of any required approval or
authorization of the FCC or any governmental body. Supplier shall use its good
faith reasonable efforts to obtain, retain, and maintain such approvals and
authorizations. If any such Rule adversely affects the Services or requires
Supplier to provide such Services other than in accordance with the terms of
this Agreement, either party may, without liability to the other party,
terminate the affected Service upon prior written notice to the other party.
11. SERVICE GUARANTEES.
A. Out-of-Service Credits.
1) A credit allowance will be given for Service Outages as specified
below. Credit allowances will be expressly indicated and deducted from
Customer's next invoice. A Service Outage begins (for service guaranty) when
Customer reports the Service malfunction to Supplier and the location of the
cause of the Service Outage is determined. A Service Outage ends when the
affected circuit is fully operational and accepted by Customer. A credit will be
given for the time the service outage began until it ended.
2) Out-of-service credits do not apply to Service Outages: (a) caused
by Customer or an End User or a supplier of service to Supplier, i.e. the
Incumbent Local Exchange Carrier; (b) due to failure of power or equipment
provided by Customer or other third parties; (c) during any period in which
Supplier is not given access to the Service premises; (d) which constitute
Planned Service Outages; and (e) due to any Force Majeure Event (as defined in
Attachment 7).
B. Chronic Trouble Service.
A "chronic trouble service" is a particular Service for which two or
more trouble tickets have been opened within a 30-day period and the cause of
each such trouble is determined to be in Supplier's network.
Whenever Customer reports to Supplier that a Dedicated Transport
Service is a chronic trouble service, Supplier shall immediately perform a
detailed investigation and report the findings to Customer. In the event that
another trouble ticket is opened on such Service within a 30-day period after
clearing the most-recent trouble, Customer may disconnect such specific Service
without incurring termination liability. Supplier has no obligation to provide
alternative routing for any transmission capacity provided pursuant to this
Agreement.
-7-
<PAGE> 8
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
12. DEFAULT.
Except for Supplier's obligations to furnish the Services without
interruption, the sole remedies for breach of which obligations are provided for
in Sections II.A. and II.C. herein, and Supplier's obligations to install the
Service by a given date, the sole remedies for breach of which obligations are
provided for in Sections 3 and 11.B. herein, neither party shall be in default
under this Agreement or in breach of any provisions hereof unless and until it
has been given written notice of a breach of this Agreement by the other party
and shall have failed to cure such breach within 30-day period after receipt of
such notice. When a breach cannot reasonably be cured within such 30-day period,
if the breaching party shall proceed promptly to cure the same and prosecute
such curing with due diligence, the time for curing such breach shall be
extended for such reasonable period of time as may be necessary to complete
such curing. Upon the failure to so cure any such breach which is material, the
party giving notice of the material breach may thereupon immediately terminate
this Agreement by providing written notice of termination to the breaching party
and, when Customer is the non-breaching party, without incurring any termination
liability. When Customer is the breaching party, Customer shall be liable for
all termination liability imposed hereunder if Supplier exercises its right to
terminate this Agreement. Except as specifically set forth herein and subject to
the provisions of Attachment 7, "Arbitration," upon default by either party, the
non-defaulting party shall have the right to pursue any or all remedies
available at law and/or equity.
13. MISCELLANEOUS.
This Agreement (including the incorporated Attachments) constitutes the
entire agreement between Supplier and Customer with respect to the Services; all
prior and contemporaneous agreements, representations, statements, negotiations,
and undertakings with respect to the subject matter herein are superseded by
this Agreement. THERE ARE NO AGREEMENTS, WARRANTIES, OR REPRESENTATIONS,
EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH
HEREIN. Neither this Agreement nor any of the provisions hereof may be amended,
altered or added to in any manner except by a document in writing and signed by
an authorized representative of each party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.
"SUPPLIER" "CUSTOMER"
- ---------- ----------
WALLER CREEK COMMUNICATIONS I3S
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------ -------------------------------
Title: Chairman Title: VP Engineering
Dare: 6/17/99 Date: 6-18-99
-8-
<PAGE> 9
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Attachment 1
DEDICATED TRANSPORT SERVICES
SERVICE DESCRIPTIONS
DEDICATED
Each transport Service is dedicated to Customer and is billed a fixed amount
monthly. The entire usable bandwidth for each Service is available to Customer
or its customers for its exclusive use, twenty-four (24) hours a day, seven (7)
days a week.
POINT-TO-POINT
Dedicated Transport Services are available between Customer-designated
locations on a virtual hub point-to-point basis. Virtual Hub Service allows
Customer to aggregate multiple lower capacity transport Services terminating at
multiple locations onto one higher capacity Service terminating at one other
Customer location.
Service may be ordered between Customer's Point of Presence and an End User
("EU") location, between two Customer POP's, between a Customer POP and a LEC
CO, between a customer POP and an IXC POP, or between two EU locations.
CUSTOM SERVICES
Dedicated Transport Services or non-standard configurations not described above
will be evaluated on an Individual Case Basis (ICB).
-9-
<PAGE> 10
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Attachment 2
SUBUNIT CAPACITY RESERVATIONS:
SERVICE DESCRIPTION
NOT APPLICABLE
-10-
<PAGE> 11
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Attachment 3
ORDERING & BILLING PROCEDURES
A. ORDERING VEHICLE.
Initially, orders will be placed through Local Account Executive VIA facsimile.
The parties may mutually establish an interface which allows for "bonded"
ordering by the customer.
B. SERVICE ORDER INTERVALS.
Supplier and Customer will negotiate mutually agreeable service ordering forms
and intervals, and make good faith efforts to establish electronic bonding
arrangements for all ordering and provisioning.
C. STANDARD INSTALLATION INTERVALS
The standard installation interval for all Dedicated Transport Services will be
eleven (11) calendar days. Supplier will provide Service on an individual case
basis based on the requirements and expectations of Customer, as follows: if an
installation interval is requested that is less that the standard eleven (11)
calendar days, Supplier will use good faith reasonable efforts to meet the
requested start of service date, and if Supplier cannot meet the requested start
of service date, then it will negotiate in good faith the earliest start of
service date possible with Customer.
D. BILLING AND PAYMENT
Supplier shall be entitled to commence billing Customer as of the Service Date.
Non-recurring charges shall be paid upon Customer's acceptance of this
Agreement. In the event that Customer delays the use of a particular Service, an
order changing the due date must be issued prior to the original due date, and
be no more than thirty (30) days after the original requested Date, Supplier may
commence billing Customer for the affected Service as of the 31st day of such
change. Supplier shall bill on a current basis all charges incurred by and
credits due to Customer. Customer may receive its bill in 1) a paper format, 2)
a paper format bill summary with a magnetic tape to provide the detailed
information of the bill, 3) magnetic tape only, or a 4) computer disc. Supplier
shall bill in advance charges for all Services to be provided during the ensuing
billing period except for charges associated with Service usage. Adjustments for
the quantities of Services established or discontinued in any billing period
beyond the minimum period established in the FCC tariff 1 will be prorated to
the number of days based on a 30-day month. Supplier will, upon request and if
available, furnish such detailed information as may reasonably be required for
verification of bills.
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WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
All bills for Services provided to Customer by Supplier are due (payment date)
by the next bill date, regardless of the bill media utilized, and are payable in
immediately available funds. If such payment due date would cause payment to be
due on a Saturday, Sunday or legal holiday, payment for such bills will be due
on the last business day preceding such Saturday, Sunday, or legal holiday.
If any portion of the payment is received by Supplier after the payment due
date, or if any portion of the payment is received by Supplier in funds which
are not immediately available to Supplier, then interest on the overdue amounts
shall accrue and be payable by Customer at a rate of 1.5% per month (.000494 per
day) or 18% annually or, if less, the maximum rate permitted by applicable law.
The interest will be applied for the number of days from the payment due date
to and including the date that Supplier actually receives the payment.
E. CLAIMS AND DISPUTES
In the event that a billing dispute occurs concerning any charges billed to
Customer by Supplier, Customer must submit a documented claim for the disputed
amount. Customer will submit all documentation as may reasonably be required to
support the claim. All claims must be submitted to Supplier within one hundred
and twenty (120) days of receipt of billing for those Services. If Customer does
not submit a claim as stated above, Customer waives all rights to file a claim
thereafter.
If the dispute is resolved in favor of Customer and Customer has withheld the
disputed amount, no interest credits or penalties will apply.
If the dispute is resolved in favor of Customer and Customer has paid the
disputed amount, Customer will be credited with interest on such amount by
Supplier at the rate of 1.5% per month (.000494 per day) or 18% annually or, if
less, the maximum rate permitted by law, from the date Supplier received payment
up to and including the date of refund.
If the dispute is resolved in favor of Supplier and Customer has paid the
disputed amount on or before the payment due date, no interest credit or
penalties will apply.
If the dispute is resolved in favor of Supplier and Customer has withheld the
disputed amount, any payments withheld pending settlement of the disputed amount
shall bear interest at the rate of 1.5% per month (.000494 per day) or 18%
annually or, if less, the maximum rate permitted by law, from the payment due
date up to and including the date of payment.
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<PAGE> 13
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Attachment 4
TECHNICAL SPECIFICATIONS
This Attachment provides transmission performance objectives for point-to-point
DS3 and DS1 covering the bi-directional path between two points of termination
("POT").
The transmission performance objectives specified in this standard are based on
End User needs and applications, characteristics of voiceband data modems, and
capabilities of evolving SONET networks. The objectives are considered to be
reasonable criteria for circuit acceptance and restoral.
DS-1 SERVICE
Offered via SONET Networks
A 1.544 Mbps circuit which can accommodate either clear channel B8ZS or
channelized (24 DS-1 channels) AMI, Superframe or Extended Superframe format.
o Availability o > or = 99.99% measured annually
o Bit Error Rate (BER)* o < or = 1Xl0(-9)
o Error Free Seconds o > or = 99.999% measured annually
o Line Code AMI or B8ZS
o Frame Format o Superframe (SF) or Extended Superframe (ESF)
o Mean Time to Repair o 2 hours
DS-3 SERVICE
Offered via SONET Networks
A 44.736 Mbps circuit which can accommodate either clear channel unframed or
B3ZS (28 DS1's, or combinations of DS-1s, DS-2s and/or DS-3s).
o Availability > or = 99.99% Annually
o Bit Error Rate (BER)* < or = 1X10(-9)
o Error Free Seconds > or = 99.999% Annually
o Line Code B3ZS
o Frame Format C-Bit or M13
o Mean Time to Repair 2 hours
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<PAGE> 14
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Attachment 5
TROUBLE REPORTING/MAINTENANCE AND REPAIR
Supplier shall maintain a twenty-four (24) hours a day, seven (7) days a week
point-of-contact for Customer to report to Supplier system trouble reports or
faults. Supplier shall furnish Customer a toll-tree trouble reporting telephone
number that will provide access to Supplier on a 24x7x365 basis.
Supplier shall perform all maintenance functions on Services from the End User
premises to the Point of Demarcation at Customer's facilities twenty-four (24)
hours per day, seven (7) days a week.
REPAIR REPORTING AND REPAIR INTERVALS
Supplier will establish a process with Customer to accept reports relating to
repair or maintenance associated with Services provided by Supplier to Customer.
SCHEDULED MAINTENANCE
Scheduled routine maintenance will be performed during specified Customer
maintenance windows and will be coordinated between Supplier and Customer.
Maintenance which may place the Services in jeopardy or require system down
time will normally be performed during a "Maintenance Window" that is mutually
agreed to between Customer and Supplier. Jeopardy and down time must be
requested by Supplier to Customer within a negotiated time frame as not to
jeopardize Customer's network operations.
Supplier maintenance personnel will notify Customer prior to beginning scheduled
maintenance work and must receive concurrence to proceed.
SYSTEM RESTORATION
Electronic restoration - In the event of an electronic failure, Supplier shall
restore Services to the affected electronics within one and one-half (1.5) hours
of arrival of Supplier's maintenance personnel on site.
Cable restoration - In the event of a cable failure, Supplier shall begin cable
restoration within two (2) hours after the faulty cable is identified. The
failed cable shall be restored not later than four (4) hours after such
identification.
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<PAGE> 15
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Attachment 6
SERVICES PRICING
Supplier shall offer Customer services according the following terms.
MONTHLY RECURRING CHARGES
Recurring charges are based on the number of T-1 equivalents Customer commits
to purchase according to the tiers and ramp-up schedule below, and are assessed
on a "take-or-pay" basis. The monthly recurring rates per T-1 are listed below
as fixed prices per T1. Each T1 provided with DACS and MUXing services by
Supplier will cost an additional * per T1 per month. Fractional months will be
pro-rated based on a 30-day calendar month.
<TABLE>
<CAPTION>
3 Year
------
<S> <C>
> or = 1000 OPTION *
> or = 500 & < 1000 *
> or = 100 and < 500 Option *
</TABLE>
For On-Net Customer ordered services at a DS-3 level, one DS-3 shall be priced
at * times the applicable monthly recurring T-1 price, and one OC-3 shall be
priced at * times the applicable monthly recurring T-1 price. "On-Net Services"
are defined as services to locations where Supplier provides the fiber
transmission medium.
For Off-Net Customer ordered services at a DS-3 level, one DS-3 shall be priced
at * times the applicable monthly recurring T-1 price, and one OC-3 shall be
priced at * times the applicable monthly recurring T-1 price. "Off-Net
Services" are defined as services to locations where Supplier does not provide
the fiber transmission medium.
NON-RECURRING CHARGES
Initial non-recurring charges are assessed at the turn-up of a circuit
purchased by Customer. Initial non-recurring charges are assessed on a per T-1
basis, depending on the contract term, as follows:
<TABLE>
<CAPTION>
3 Year
------
<S> <C>
Initial NRC T-1 *
Initial NRC for DS-3 *
Initial NRC OC-3 *
</TABLE>
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WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
RAMP-UP PERIOD
Customer has a period of 1 year from the date of this Agreement to reach the
committed level of T-1, or T-1 equivalent circuits, provided however, Supplier
activates the Dallas, TX., Ft. Worth, TX., and San Antonio, TX networks before
12/31/99 and Houston, TX network before 3/31/00. If Supplier does activate
these additional markets per this timeline, Customer ramp-up period will
extended for a period of 6 months after all 5 markets are active (Austin,
Dallas, Ft. Worth, San Antonio, Houston). The committed level of T-1 or T-1
equivalent services is 100.
PRICING CONDITIONS
o Customer will not be bound by a contract term for any single T1 or T1
equivalent circuit. The term of this agreement commits Customer to a bulk
number of T1 or T1 equivalent circuits per month over the contract
period. Customer compliance will be determined by the number of T1 or T1
equivalent circuits active on the 30th of each month.
o All "A to Z" circuits ordered by Customer in a city shall originate from a
single "A" location (i.e., Customer's POP). "Z" locations are available to
any location in the city where services are available.
o Supplier's commitment to delivery of DS-3 and OC-3 circuits shall be
subject to availability in the city in which they are requested by
Customer.
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<PAGE> 17
WALLER CREEK COMMUNICATIONS
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Attachment 7
GENERAL PROVISIONS
ARBITRATION: Subject to a party's right to terminate this Agreement pursuant to
Section 12, any dispute arising between Supplier and Customer in connection with
this Agreement, which is not settled to the mutual satisfaction of Customer and
Supplier within thirty (30) days (or such longer period as may be mutually
agreed upon) from the date that either party informs the other in writing that
such dispute or disagreement exists, shall be settled by arbitration conducted
in Austin, Texas in accordance with the Commercial Arbitration Rules of the
American Arbitration Association in effect on the date that such notice is
given. The decision of the arbitrator shall be final and binding upon the
parties and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its case. The cost of arbitration, including the fees and expenses of
the arbitrator, will be shared equally by the parties unless the award otherwise
provides.
ASSIGNMENT: Neither party may specifically and independently assign this
Agreement without the prior written consent of the other party, which consent
shall not be unreasonably withheld, delayed or conditioned; provided, however,
that upon notice, Supplier may assign this Agreement without consent, to any
affiliated entity or successor in interest, whether by merger, reorganization,
or transfer of all or substantially all of its assets. Customer may assign this
Agreement upon notice to Supplier, to any affiliated entity or successor in
interest, whether by merger, reorganization, or transfer of all or
substantially all of its assets provided that the assignee has the financial
resources to meet the payment obligations under this Agreement and expressly
agrees in writing to assume those obligations. Upon receipt of such notice, in
the event Supplier, in its sole discretion, reasonably determines the assignee
does not have the financial resources necessary to meet the payment obligations
hereunder, then any such assignment shall he null and void and Customer shall
remain fully responsible for the obligations under the Agreement.
BANKRUPTCY: If any of the following occurs with respect to either party
("Affected Party"), such party shall be in breach of this Agreement: (i) the
initiation of proceedings by the Affected Party in voluntary bankruptcy; (ii)
the initiation of proceedings against the Affected Party in involuntary
bankruptcy, which proceedings are not dismissed or vacated within ninety (90)
days after their initiation; (iii) the appointment of a receiver or trustee for
the Affected Party; (iv) a general assignment for the benefit of the Affected
Party's creditors; or (v) the insolvency of the Affected Party.
COMPLIANCE WITH LAWS: In performing their obligations under this Agreement, the
parties shall comply with all applicable federal, state, and local laws,
regulations, rules and orders.
CONFIDENTIALITY: Each party may, either orally, in written form, or otherwise,
disclose to the other party, or the other party may otherwise obtain the
disclosing party's, confidential information ("Confidential Information") in
connection with this Agreement. The terms and conditions of this Agreement are
Confidential Information, except that either party shall have the right to
disclose the terms and conditions of this Agreement to its affiliates, provided
that such
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<PAGE> 18
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
affiliates agree to be bound by the provisions of this section. In order to be
Confidential Information, any information disclosed in a tangible form must he
conspicuously marked as being the disclosing party's confidential information,
and any other information must be clearly indicated as being confidential at the
time of disclosure and confirmed as such in writing within ten (10) days after
disclosure; provided, however, that any information that a party may disclose
to the other party, or that a party may otherwise obtain concerning the other
party, in connection with this Agreement, regarding either (a) its business
plan, (b) a party's existing or potential customers, or (c) its networks and
technology, including without limitation, information regarding routing of End
Users' traffic over such networks and existing network hardware and facility
configurations and plans for modifying such configurations, shall be
Confidential Information regardless of whether it is indicated as such at the
time of disclosure, and if it is orally disclosed, regardless of whether it is
subsequently confirmed as such in writing. Regardless of when disclosed or
obtained, Confidential Information shall only be used by the receiving party in
its performance hereunder, and it shall not be disclosed by the receiving party,
except to those officers, directors or employees of the receiving party or its
affiliates with a need to know or to consultants or subcontractors of the
receiving party that have entered into a confidentiality agreement with the
receiving party with respect to the Confidential Information that is at least as
restrictive as this Agreement. If any of the following apply to any information,
such information shall not be Confidential Information: (i) it is or becomes
available to the public through no wrongful act of the receiving party; (ii) it
is already in the possession of the receiving party and not subject to any
prior agreement of confidence between the parties; (iii) it is received by the
receiving party from a third party without restriction for the benefit of the
disclosing party and without breach of this Agreement; (iv) it is independently
developed by the receiving party without regard to any Confidential Information
of the disclosing party: (v) it is disclosed by the receiving party pursuant to
a requirement of a duly empowered government agency or a court of competent
jurisdiction after due notice and an adequate opportunity to intervene is given
to the disclosing party unless such notice is prohibited. Upon termination or
expiration of this Agreement (or the last ASR in effect, if later), the
receiving party shall, at the disclosing party's direction, either return to the
disclosing party or destroy all of the disclosing party's Confidential
Information and so certify in writing. The obligations of this provision will
survive for two (2) years after any termination or expiration of this Agreement
(or the last ASR in effect, if later).
DELAY: Whenever any actual or potential event is delaying or threatening to
delay or interfere with the delivery of Services, Supplier shall so notify
Customer in writing as soon as practicable; provided, however, that such notice
to Customer shall not limit Supplier's obligations to perform under this
Agreement.
FORCE MAJEURE: Supplier shall not be liable or deemed to be in default for any
delay, interruption, or failure in performance under this Agreement resulting
from the following events: acts of God; acts of civil or military authority;
acts of the public enemy; war; accidents, fires, explosions, power surges,
earthquakes, floods, or unusually severe weather; strikes or labor disputes;
delays in transportation or delivery outside the reasonable control of Supplier;
epidemics; and any similar event beyond Supplier's reasonable control ("Force
Majeure Event"). In the event of such delay, interruption, or failure in
performance, Supplier shall as soon as practicable give written notice to
Customer specifying the nature and anticipated duration of the
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<PAGE> 19
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
Force Majeure Event and outlining its recovery plan, if any, Customer may
terminate all or any portion of the affected Services if a Force Majeure Event
continues for sixty (60) days. In the event of such a termination, Customer
shall only be obligated to pay for Services performed through the date of
termination and shall receive from Supplier a full refund of any prepaid
Services not provided by Supplier.
GOVERNING LAW: This Agreement is governed by and subject to the law of the State
of Texas.
INDEMNIFICATION: Each party ("Indemnitor") shall defend, hold harmless, and
indemnify the other and its parent company, affiliates, employees, directors,
officers, partners, and agents (each, an "Indemnitee") from and against all
claims, actions, damages, liabilities, payments made in settlement, costs and
expenses, including reasonable attorneys' fees and expenses, for Indemnitor's
breach of this Agreement, or for damages to any property or bodily injury to or
death of any person arising due to Indemnitor's negligence or willful
misconduct. This provision shall survive the termination or expiration or this
Agreement.
INDEPENDENT CONTRACTORS: The relationship between Supplier and Customer
shall always and only be that of independent contractors.
INFRINGEMENT: Supplier shall defend, indemnify and hold Customer harmless from
and against any claim, suit, or proceeding brought against Customer for any
loss, damage, expense (including reasonable attorneys' fees) or liability
insofar as such claim, suit or proceeding is based upon a claim that Customer's
use of any Services provided by Supplier infringes or constitutes a wrongful use
of any United States patent, or any copyright, trade secret or other
intellectual property right of a third party which is enforceable in the United
States ("Infringement Claim"). Customer shall give Supplier prompt written
notice of any such claim or action. Customer shall give Supplier proper and full
information and assistance to defend or settle any such claim or action. At
Supplier's option, Supplier shall have full control over all of the defenses of
any such action, suit or proceeding. Should Customer desire to have its own
counsel participate in any such claim or action, the cost of such counsel shall
be borne by Customer. If an injunction or order is obtained against Customer's
continued use of the Services due to an Infringement Claim, Supplier shall, at
its expense, use commercially reasonable efforts to either procure for Customer
the right to continue using the infringing Services or replace or modify the
infringing Services in a reasonable manner so that they become non-infringing,
provided that any such modification or replacement does not adversely affect the
functional performance of Customer's use of the Services or, at Customer's
option, cease providing the Services if it is not possible to reasonably modify
or replace the same, in which case Customer shall have no termination liability
with respect to such Services. Notwithstanding the foregoing, Supplier shall
have no obligation to defend or hold harmless Customer against, and shall have
no liability for, any claim based upon the use of the Services with any services
or products not supplied by Supplier if such infringement would have been
avoided by the use of the Services without such other services or products, or
for any claim based upon a modification to the Services made by any party other
than Supplier. This provision shall survive the termination or expiration of
this Agreement.
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<PAGE> 20
WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
INSURANCE: Supplier shall obtain and maintain, at all times during which it is
providing Services hereunder, insurance policies of the kinds and in the
amounts not less than that required by the following or, if greater, by
applicable law:
A. Worker's Compensation Insurance in accordance with the Worker's
Compensation Laws of the states in which Services are provided;
B. Commercial General Liability Insurance, including automobile
insurance, contractual and products/completed operations liability coverage,
with minimum limits as follows:
bodily injury to any one person $1,000,000
bodily injury aggregate per occurrence $1,000,000
property damage in any one accident $ 500,000
property damages aggregate
per occurrence $1,000,000
Upon request of Customer, Supplier shall furnish Customer certificates of such
insurance as proof of coverage and name Customer as loss payee in connection
therewith. Supplier shall use good faith reasonable efforts to notify Customer
no less than thirty (30) days prior to reduction in limits or cancellation of
such insurance.
LIMITATION OF LIABILITY: In no event shall either party be liable to the other
party for any indirect, consequential, special, incidental, reliance, or
punitive damages of any kind or nature whatsoever (including without limitation
lost profits, lost revenues, lost savings, or harm to business), whether or not
foreseeable, whether or not Supplier or Customer had or should have had any
knowledge, actual or constructive, that such damages might be incurred, and
regardless of the form of action. For purposes of this Agreement, damages of
the kinds specified in the preceding sentence which are incurred by a third
party and assessed against Supplier or Customer (including attorneys' fees and
expenses) shall be deemed indirect damages to Supplier or Customer, as
applicable. Each party hereby releases the other party (and such party's
subsidiaries and affiliates, and their respective officers, directors,
partners, employees, agents, and suppliers) from any such claim.
NON-EXCLUSIVE ARRANGEMENT: This Agreement between Supplier and Customer is
non-exclusive. Nothing in this Agreement shall prevent Supplier or Customer from
entering into similar arrangements with any other entities or otherwise
providing services to any entity.
NON-WAIVER: Either party's failure to insist upon strict performance of the
terms of this Agreement or to exercise any rights or remedies hereunder shall
not waive any of its rights to require strict performance of such terms, to
assert any of the same rights, or to rely on any such terms any time thereafter.
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WALLER CREEK COMMUNICATIONS
MASTER SERVICES AGREEMENT
NOTICES: Any notice and similar communications given under this Agreement shall
be in writing, and shall be delivered to the receiving party (i) in person, (ii)
by certified mail with return receipt requested, (iii) by overnight carrier, or
(iv) by facsimile, electronically confirmed and followed up immediately by
regular mail. Notices shall be delivered or sent to the parties' respective
addresses set forth elsewhere in this Agreement or to such other address as the
receiving party may hereafter establish by notice given in the manner prescribed
in this paragraph. A notice shall be deemed given when delivered, if personally
delivered, at the time indicated on the return receipt, if delivered by
certified mail, on the next business day, if delivered via courier, or when
transmitted, if delivered via facsimile.
SEVERABILITY: In the event that one or more of the provisions herein shall for
any reason be held to be illegal or unenforceable, this Agreement shall be
revised only to the extent necessary to make such provision(s) legal and
enforceable; provided, however, that the Agreement, as revised, is consistent
with the parties' original intent.
SURVIVAL: The terms and conditions of this Agreement shall survive the
expiration or termination of this Agreement to the full extent necessary for
their enforcement and for the realization of the benefit thereof by the party in
whose favor they operate.
TAXES: The prices stated in this Agreement do not include any applicable
federal, state, or local taxes. Unless Customer is exempt, Customer shall pay
such applicable taxes upon receipt of an itemized invoice therefor. Customer
shall provide Supplier with appropriate documentation of any exemption.
-21-
<PAGE> 1
EXHIBIT 10.21
MASTER PURCHASE AGREEMENT
CONFIDENTIAL TREATMENT REQUESTED
PRIVILEGED and CONFIDENTIAL
<PAGE> 2
I3S, INC.
MPA
MASTER PURCHASE AGREEMENT
BETWEEN
I3S, INC.
AND
NORTEL NETWORKS INC.
PRIVILEGED and CONFIDENTIAL 2
<PAGE> 3
I3S, INC.
MPA
TABLE OF CONTENTS
ARTICLES:
Article 1 - Definitions
Article 2 - Scope of Agreement
Article 3 - Placement of Orders
Article 4 - Price and Payment
Article 5 - Shipment, Title and Risk of Loss
Article 6 - Testing, Turnover and Acceptance
Article 7 - Order Cancellation
Article 8 - Warranty
Article 9 - Nortel's Additional Obligations
Article 10 - Software License
Article 11 - Liability for Bodily Injury, Property Damage and Patent
Infringement
Article 12 - Remedies and Limitation of Liability
Article 13 - Term and Termination
Article 14 - Confidentiality
Article 15 - Miscellaneous
EXHIBITS:
Exhibit A - Product Annexes Including Lists of Product and Prices
PRIVILEGED and CONFIDENTIAL 3
<PAGE> 4
I3S, INC.
MPA
MASTER PURCHASE AGREEMENT
This Master Purchase Agreement ("Agreement"), effective as of the 15th day of
July, 1999, is entered into by and between I3S, INC. (hereinafter "Company "),
a Texas corporation with offices located at 1440 Corporate Drive, Irving, Texas
75038 and Nortel Networks Inc. (hereinafter "Nortel"), a Delaware corporation
with offices located at 2350 Lakeside Boulevard, Richardson, Texas 75082-4399.
WHEREAS, Company is engaged in providing communication services and products,
and providing and maintaining public and private communication networks; and
WHEREAS, Nortel, in conjunction with Nortel Affiliates, is engaged in the
design, development, manufacture and sale of various products and offers
services associated with such products, which can be used in connection with the
communication services, products and networks of Company; and
WHEREAS, Company wishes to be able to purchase and/or license various products
and services for delivery and installation in the United States from Nortel,
which Company intends to use for its own internal use and not for resale or as
stock in trade, and Nortel is willing to sell and/or license such products to
Company, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties agree as follows:
ARTICLE 1. DEFINITIONS
The following words shall have the meanings set forth below. Words in the
singular shall be held to include the plural and vice versa, and words of gender
shall be held to include the other gender as the context requires.
1.1 "Acceptance" shall mean that either (i) Company has indicated that an
ordered Product is operating substantially in accordance with the applicable
Specification; or (ii) an ordered Product has been deemed to be accepted
pursuant to criteria set forth in Article 6.
1.2 "Applications" shall mean any program, product, service, development
or invention developed by a party using the Building Blocks, including any
modified or created Building Blocks, created by Company.
1.3 "Bay Products" shall mean the Products listed in Attachment 1 to this
Agreement or as may be subsequently identified as data transmission products
designed, manufactured or sold by the Bay Networks division of Nortel Networks.
PRIVILEGED and CONFIDENTIAL 4
<PAGE> 5
I3S, INC.
MPA
1.4 "Building Block(s)" shall mean those Software files provided by Nortel
with Modifiable Software that are manipulatable or which may be created by
Company with such Modifiable Software and which can be used, created or
manipulated by Company to create Applications.
1.5 "Confidential Information" shall mean all information, including
without limitation, specifications, drawings, documentation, know-how and
pricing information, of every kind or description which may be disclosed by one
party to the other party in connection with this Agreement; provided that, the
disclosing party shall clearly mark all such information disclosed in writing as
the confidential or proprietary property of the disclosing party and, in the
case of oral disclosure, the disclosing party shall identify the confidential or
proprietary nature of any such information at the time of such oral disclosure
and shall provide a written summary (labeled as confidential or proprietary) of
the orally disclosed information to the recipient within fifteen (15) business
days following such disclosure.
1.6 "Customer" shall mean entities to whom Company provides communication
services as a result of Company's internal use of the Products.
1.7 "Customer Information" or "CI" shall mean the information provided by
Company to Nortel in order for Nortel to engineer and/or provide the components
of Systems.
1.8 "Documentation" shall mean the documents which Nortel generally makes
available to its customers containing descriptive, operating, installation,
engineering and maintenance information for Products, including Specifications,
as such documents may be amended from time to time.
1.9 "Effective Date" shall mean the date this Agreement becomes effective
which shall be the date first identified above.
1.10 "Extension" shall mean Hardware and/or Software which is engineered by
Nortel and added to an Initial System after the Turnover Date of the Initial
System.
1.11 "Hardware" shall mean, individually and collectively, the Nortel
equipment listed in the Product Annexes of Exhibit A, and shall be deemed to
include any equipment which Nortel adds to its generally available Hardware
price lists or so identifies to Company in a Quotation.
1.12 "Hazardous Material" shall mean any pollutants or dangerous, toxic or
hazardous substances (including without limitation, asbestos) as defined in, or
pursuant to the OSHA Hazard Communication Standard (29 CFR Part 1910, Subpart
Z), the Resource Conservation and Recovery Act (15 USC Section 6901, et seq.),
the Toxic Substances Control Act (15 USC Section 2601, et seq.), the
Comprehensive Environmental Response Compensation and Liability Act (42 USC
Section 9601, et
PRIVILEGED and CONFIDENTIAL 5
<PAGE> 6
I3S, INC.
MPA
seq.), and any other federal, state or local environmental law, ordinance, rule
or regulation or equivalent law or regulation in the location to which the
Product is shipped by Nortel.
1.13 "Initial System" shall mean Hardware and Software, inclusive of a
central processor unit, included in a configuration which Nortel identifies as a
System and which is initially engineered by Nortel and installed at a specific
Installation Site.
1.14 "Installation Site" shall mean the location or facility identified in
an Order at which the applicable Products will be installed.
1.15 "Licensed Software" shall mean the Software which Company has licensed
pursuant to this Agreement.
1.16 "Merchandise" shall mean any Hardware or other parts or components
which are not ordered as part of a System and with respect to which no
engineering, installation or other Services are provided by Nortel as part of
the price of that Merchandise.
1.17 "Modifiable Software" shall mean Software, or a portion of Software
that is identified as such by Nortel in its applicable Documentation, which
Company may have certain rights to modify and potentially create Applications or
Building Blocks in accordance with the applicable Documentation.
1.18 "Non-Licensed Software" shall mean Software for which Company has not
yet obtained a license nor paid applicable right to use fees, but which Software
may be included with Software loads delivered to Company hereunder.
1.19 "Nortel Affiliate" shall mean Nortel's parent corporation, Nortel
Networks Corporation and any corporation controlled directly or indirectly by
Nortel Networks Corporation through the ownership or control of shares or other
securities in such corporation.
1.20 "Nortel Networks Products" shall mean telephony or data transmission
Products manufactured, designed, and sold by Nortel Networks.
1.21 "Order" shall mean a numerically controlled purchase authorization
document issued by Company to Nortel specifying the types and quantities of
Products and Services to be furnished by Nortel.
1.22 "Product(s)" shall mean, individually and collectively, Bay Products
and Nortel Networks Products Hardware, Software, and Documentation.
1.23 "Product Annex" shall mean, with respect to a specific Product,
additional or modified terms and conditions as set forth in Exhibit A, inclusive
of but not limited to
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those that may apply to any Third Party Hardware or Third Party Software, unique
to such Product.
1.24 "Quotation" shall mean a written budgetary or firm price quotation
issued by Nortel to Company for the supply of any Products or Services pursuant
to this Agreement.
1.25 "Service(s)" shall mean, individually and collectively, any of the
services set forth in this Agreement that Company may acquire from Nortel, such
as but not limited to maintenance, engineering, installation, training, data
management, program management, project management, commissioning, testing,
technical assistance Service with respect to Products and installation, and
consulting.
1.26 "Services Software" shall mean that Software and related documentation
made available by Nortel which may be used by Company for estimation, planning
or information purposes.
1.27 "Ship Date" shall mean the date as agreed to by the parties, on which
a Product ordered by Company is shipped from Nortel's facility or, in the case
of Software which is downloaded, the date upon which such Software is to be
downloaded to the System; however, Ship Date shall not mean the date on which
Non-Licensed Software is activated.
1.28 "Software" shall mean (i) computer programs in object code form or
firmware which (a) are owned by, or licensed to, Nortel, (b) reside in Product
memories, tapes, disks or other media, and (c) provide basic logic operating
instructions and user-related application instructions; and (ii) documentation
associated with such computer programs, which may be furnished by Nortel to
Company from time to time, including both Licensed Software and Non-Licensed
Software, but in no event shall Software include source code.
1.29 "Software Release" shall mean Software or revisions to Software
containing problem fixes, new features and/or enhancements.
1.30 "Specifications" shall mean with respect to any Product the
specifications and/or practices set forth in Nortel Networks Practices ("NTPs")
or similar documents published by Nortel which Nortel identifies as the standard
performance specifications and practices for such Product.
1.31 "Statement of Work" shall mean a document that describes the scope,
activities, schedule, prices, deliverables (including, but not limited to, any
drawings, specifications, reports, designs, and test results to be prepared or
produced by Nortel Networks) related to, and/or any additional terms and
conditions pertaining to, such Customized Service(s) as may, from time to time,
be mutually agreed to in writing by Company and Nortel Networks pursuant to this
Agreement.
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1.32 "System" shall mean a configuration of Hardware and Software providing
a specified functionality and includes an Initial System and its Extensions, if
any.
1.33 "Third Party Hardware" shall mean any hardware not of Nortel's
manufacture which shall be deemed to include any such hardware which Nortel adds
to its generally available Third Party Hardware price lists or so identifies to
Company in a Quotation.
1.34 "Third Party Software" shall mean any Software not owned by Nortel
which is included within Licensed Software or Non-Licensed Software.
1.35 "Turnover" shall mean, with respect to any System installed by Nortel,
that Nortel has completed its standard manufacturing test procedures, as
applicable, and that the System is ready for acceptance testing by Company.
1.36 "Turnover Date" shall mean, with respect to any Product installed by
Nortel hereunder, the date on which Nortel provides a notice of Turnover to
Company.
ARTICLE 2. SCOPE OF AGREEMENT
2.1 This Agreement sets forth the terms and conditions under which Company
may order Products and/or Services from Nortel. Company may use the Products
itself, including use to provide services to others, subject to the terms and
conditions of this Agreement. Company expressly represents that it is buying
Products for its own internal use and does not intend to resell the Products.
All Products shall be delivered and installed in the United States.
2.2 To the extent any terms and conditions set forth in this Agreement are
inapplicable to a Product, the applicable terms and conditions and any
additional terms and conditions for such Product shall be set forth in a Product
Annex.
2.3 If specified in a Product Annex as a requirement, Company shall,
fifteen (15) days prior to each calendar quarter, submit to Nortel a
consolidated non-binding forecast of Products that Company anticipates
purchasing or licensing over the next four (4) calendar quarters. In addition to
the type, quantity and cumulative dollar amount of Products, the parties may
agree upon additional information to be included in such forecast.
2.4 All references to prices, charges, fees or other amounts herein shall
be in U.S. dollars and all documentation, correspondence and communication shall
be in the English language.
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ARTICLE 3. PLACEMENT OF ORDERS
3.1 To order Products and/or Services, Company shall submit to such person
as Nortel shall designate, an Order which shall at a minimum specify the
following, if applicable:
(i) the types and quantities of Products and Services to be furnished
by Nortel;
(ii) the applicable prices, charges and fees with respect to such
Products and Services;
(iii) the location or facility to which the Products are to be
delivered;
(iv) the incorporation by reference of this Agreement;
(v) the Installation Site, if known;
(vi) the requested Ship Date and Turnover Date of the System; and
(vii) any other information required under this Agreement to be
included in an Order.
3.2 All purchases pursuant to this Agreement shall be made by means
of Orders issued from time to time by Company and accepted by Nortel in writing
within fifteen (15) days after receipt of the Order. In the event that Nortel
fails to provide its acceptance of an Order in writing within such fifteen (15)
day period, such Order shall be deemed to be accepted; subject to Section 3.3.
Nortel shall have the right to reject any Order, or the applicable portion of
such Order, placed hereunder where Company has a separate agreement with Nortel
for the provision of the Products or Services requested in such Order or the
Order is otherwise not in accordance with this Agreement.
3.3 All Orders issued by Company pursuant to this Agreement shall refer to
and specifically incorporate this Agreement by reference and the terms and
conditions herein shall govern the transaction resulting from such Order;
provided that such Order is accepted or deemed accepted by Nortel. Additional or
conflicting terms and conditions set forth in or otherwise incorporated into
Orders issued by Company, or in any prior Quotations, acknowledgments or other
related documentation issued by any party, shall be considered null and void and
shall have no force or effect. Any additional or conflicting terms and
conditions set forth in or otherwise incorporated into an Order shall, upon
express acceptance of the same in writing by Nortel, and for such Order only,
supersede the terms and conditions contained in this Agreement, including all
Exhibits attached hereto, which are in conflict, but only to the extent of such
conflict.
3.4 Company may at any time request additions, alterations, deductions or
deviations to an Order, subject to the condition that such changes and any
adjustments resulting from such changes, including, but not limited to,
schedules and prices, shall be
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mutually agreed upon and, if so agreed, subsequently detailed in a written
revision to the applicable Order ("Change Order"). Company acknowledges that a
premium charge may be applied by Nortel should Nortel agree to process a Change
Order outside of its standard Order processing cycle for a Product or in the
event that a Change Order requires an additional amount of work (such as
engineering) to be undertaken to comply with such changes.
3.5 If Company desires to receive a budgetary or firm Quotation from
Nortel for a Product or Service, Company shall submit such request in writing to
Nortel's Director, Commercial Marketing, or such other person as designated by
Nortel. The request for Quotation shall include the information listed in
Section 3.1, as applicable.
3.6 Nortel shall respond in writing to requests for budgetary Quotations
and requests for firm Quotations. Unless otherwise specified in the firm
Quotation, such firm Quotation shall be valid for ninety (90) days from the date
of such Quotation. Budgetary Quotations shall be provided for information and
planning purposes only and shall not be considered to be a final or firm
statement binding on either party. The Quotations shall include the following
information:
(i) Budgetary Quotations
(a) preliminary Hardware and Software lists;
(b) the estimated charges for the Products;
(c) the estimated charges for Services requested; and
(d) any other information requested by Company.
(ii) Firm Quotations
(a) the price to be paid by Company for the Products, after
applying the applicable discounts, if any;
(b) fixed charges for Services requested;
(c) complete Hardware and Software lists and project schedules;
and
(d) any other information requested by Company.
3.7 The Ship Date shall be based on Nortel's standard intervals for the
applicable Product; however, the parties shall always mutually agree on the Ship
Date and take into consideration any unique aspect of the applicable project.
3.8 Orders may be issued either electronically, such as through electronic
data interchange, or via traditional manual methods, as mutually agreed to by
the parties.
ARTICLE 4. PRICE AND PAYMENT
4.1 Nortel shall charge Company for each Product and/or Service ordered by
Company in accordance with the prices set forth in each accepted Order, which
prices shall be based upon prices identified in one of (i) a Product Annex; (ii)
a Firm Quotation;
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(iii) Nortel's then current prices; or (iv) as specified elsewhere in this
Agreement or as otherwise mutually agreed in writing.
4.2 Upon thirty (30) days prior written notice to Company, Nortel Networks
reserves the right to change its discount practices, discounts, policies,
programs and Services descriptions at any time. However, prices listed in Order
Acknowledgments for Company's corresponding Orders remain firm and would be
unaffected by the proposed change. Notwithstanding the foregoing, where Company
has executed a firm commitment to purchase certain Products at stated discount
levels, the discounts applicable to such Products covered under the commitment
shall remain firm for the Initial Term.
4.3 For all Orders, Nortel shall invoice Company for Products and Services
as follows, unless otherwise agreed to in writing:
(i) for Systems, whether or not installation has been ordered from
Nortel, one hundred percent (100%) of the price for such System(s)
(including Products and Services related thereto which are included in
the price) on the Ship Date;
(ii) for Merchandise or Documentation provided on a furnish-only
basis, one hundred percent (100%) of the price on the Ship Date; and
(iii) for Orders covering Services only, one hundred percent (100%) of
the price for such Services following completion of performance,
except for recurring support Services which shall be billed quarterly
in advance unless otherwise agreed. Some Services may be subject to
monthly invoicing as set out in a Product Annex or separate Services
agreement. To the extent such Services are to be invoiced differently
than set out in this paragraph (iii), such differences shall be set
forth in the applicable Product Annex or separate Services agreement
and such provisions shall take precedence.
4.4 Each invoice shall be paid in full within thirty (30) days after the
date of such invoice. In the event that Company does not pay an invoice in full
within such thirty (30) day period, then Nortel may charge Company interest on
the outstanding portion of such invoice, from day thirty one (31) forward, at
the rate of one and one half percent (1.5%) simple compound interest per month,
or such lesser amount as may be the maximum permissible rate under applicable
law, until such time as the outstanding invoice is paid. In addition, Company
agrees to pay all collection costs and reasonable legal fees incurred by Nortel
as a result of late payment or non-payment by Company.
ARTICLE 5. SHIPMENT, TITLE AND RISK OF LOSS
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5.1 Prior to the Ship Date, Company shall have the right to reschedule any
pending Orders; provided that (i) a minimum period of notice prior to such Ship
Date is given to Nortel by Company in accordance with the applicable Product
Annex; and (ii) the new Ship Date is within ninety (90) days of the original
Ship Date. However, each Order may only be rescheduled once. Company shall
reimburse Nortel for any storage fees, insurance and demurrage costs incurred
with respect to such rescheduled Orders.
5.2 Risk of loss and damage to Products shall pass to Company upon
delivery to the loading dock at the Installation Site or other delivery location
specified by Company in an Order. Company shall keep such Products fully insured
for the total amount then due Nortel for such Products. Company shall pay
transportation charges, including insurance, associated with the shipment of
Products; provided however, that if the parties agree, Nortel shall prepay
transportation charges, and insurance for delivery of Products to the
Installation Site or other delivery location or other designated receiving point
as specified in an Order. The charges therefor shall be invoiced by Nortel and
paid by Company to Nortel in accordance with Article 4 above.
5.3 Good title to Hardware furnished hereunder, free and clear of all
liens and encumbrances, shall vest in Company upon full payment to Nortel of the
total amount payable by Company for such Hardware and any related Licensed
Software or Services ("Total Fee") furnished by Nortel in connection with such
Hardware. Prior to payment of the Total Fee for the Products and Services in an
Order, Company shall not sell or lease the Hardware, or allow any liens or
encumbrances to attach to the Hardware or Software, or remove the Hardware or
Software from the Installation Site without the prior written consent of Nortel,
such consent not to be unreasonably withheld.
5.4 If Company notifies Nortel prior to a Ship Date that Company does not
wish to receive such Products on the Ship Date, or the Installation Site or
other delivery location is not prepared in sufficient time for Nortel to make
delivery in accordance with such date, or Company fails to take delivery of any
portion of the Products in an Order when shipped, Nortel may place the
applicable Products in storage. In that event, Company shall be liable for all
additional costs thereby incurred by Nortel. Delivery by Nortel of any Products
to a storage location as provided above shall be deemed to constitute delivery
of the Products to Company for purposes of this Agreement, including, without
limitation, provisions for payment, invoicing, passage of risk of loss, and
commencement of the warranty period.
5.5 Until the Total Fee is paid, Company grants to Nortel and/or its
agents a purchase money security interest in the Products in an Order and their
proceeds or such other similar protection as may be available in the applicable
jurisdiction. Company shall cooperate with Nortel in preserving and perfecting
Nortel's security interest in the Products and Company shall promptly (i)
execute and deliver to Nortel such financing statements as Nortel may require;
and (ii) execute and deliver to Nortel such other agreements, documents and
instruments as Nortel may require to perfect and maintain the
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validity, effectiveness and priority of the security interest created or
intended to be created by this Agreement.
5.5.1 Company authorizes Nortel to file one or more financing or
continuation statements and amendments thereto, relating to all or any part of
the Products in an Order without signature of the Company where permitted by
law. A carbon, photographic or other reproduction of any financing statement
covering the Products or any part thereof shall be sufficient as a financing
statement and may be filed as a financing statement.
5.6. Company shall provide Nortel or its subcontractors with access to its
Installation Sites or other Company facilities during the times specified by
Nortel and as are reasonably necessary for Nortel to perform its obligations
hereunder. Nortel shall comply with Company's reasonable site and security
regulations of which Nortel is informed by Company.
5.6.1 All sites at which the Products shall be delivered or installed shall
be prepared by Company in accordance with Nortel's standards, including, without
limitation, environmental requirements. Prior to and during installation,
Company shall ensure the timely and adequate delivery, installation and
functioning of the electrical and communications connections and other
environmental requirements, including but not limited to, HVAC systems specified
in Nortel's instructions, Specifications, Documentation or in a Product Annex.
5.6.2 Company shall provide reasonable working space and facilities,
including heat, light, ventilation, telephones, electrical current, waste
removal and other necessary utilities, for use by Nortel personnel performing
installation or other Services, and adequate secure storage space, if required
by Nortel, for Products and materials. Company shall also provide adequate
security against theft, damage or other loss for the Products while on Company's
Installation Site or other delivery location specified by Company.
5.6.3 Company shall obtain all necessary governmental permits applicable to
Company in connection with the installation, operation, and maintenance of
Products furnished hereunder, excluding any applicable permits required in the
normal course of Nortel's doing business. Any information which Nortel
reasonably requests from Company and which is necessary for Nortel to properly
install or maintain the Products shall be provided by Company to Nortel in a
timely fashion and in a form reasonably specified by Nortel.
ARTICLE 6. TESTING, TURNOVER AND ACCEPTANCE
6.1 If installation Services are ordered by Company, Nortel shall, upon
completion of such installation, test the Products in accordance with Nortel's
Turnover procedures to verify that such Products function substantially in
accordance with the applicable Specifications. Upon completion of such
verification, Nortel shall provide to
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Company a written notice of Turnover. Company shall be permitted an opportunity
to have an appropriately qualified individual in attendance to observe the
performance of such tests, however, the absence of such Company individual for
any reason shall not invalidate the tests nor be a reason for Company to
withhold Acceptance.
6.2 Within ten (10) business days after the Turnover Date, Company shall
either accept the Product in writing by execution of a notice of Acceptance, or
notify Nortel in writing, specifying in reasonable detail those particulars in
which, in Company's opinion, the Product is not in material conformance with the
Specifications. If Acceptance does not occur within such ten (10) days after the
Turnover Date and Company has not indicated to Nortel in writing its basis for
not accepting such Product, then Acceptance shall be deemed to have occurred.
6.3 If Nortel does not install Products furnished hereunder, Nortel shall,
prior to delivery of the Products, perform such factory tests as Nortel
determines to be appropriate in order to confirm that such Products perform
substantially in accordance with the applicable Specifications. Company shall be
deemed to have accepted the Products based upon such tests and Acceptance shall
be deemed to have occurred upon the Ship Date. In the event that Company or any
other entity intends to perform installation of Products, (except for
installation of Products which are not permitted to be installed other than by
Nortel, as specified in the applicable Product Annex or Documentation) Company
or such entity may be required to complete prerequisite training or
certification prior to Company being allowed to install such Products.
6.4 In the event that Company is utilizing any Product in a
revenue-generating capacity, Acceptance shall be deemed to have occurred without
limitation or restriction, upon the date of placement of such Product into
revenue-generating service.
6.5 Products, such as Merchandise, which are purchased separately from a
System, shall be deemed accepted upon the Ship Date. Services which are
purchased separately from a Product shall be deemed to be accepted upon
completion of such Services or upon specific milestones as may be identified in
a Product Annex.
6.6 Company shall not unreasonably withhold Acceptance. Nortel shall
correct any deficiencies identified by Company in the manner described in this
Article whereby such Products do not materially conform to the Specifications.
When Nortel has corrected such deficiencies, Company shall accept the Products
in writing. Company's failure to either accept or provide notice of
non-conformance within the timeframe from the Turnover Date, as prescribed in
Section 6.2, shall constitute Acceptance of the Products.
6.7 Following Acceptance of Products, Company shall execute Nortel's
Acceptance notice, confirming Acceptance without any conditions, restrictions,
or limitations of any nature whatsoever.
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6.8 Acceptance shall not be withheld or postponed due to:
(i) Deficiencies of such Products resulting from causes not
attributable to Nortel, such as, but not limited to (a) material
change or inaccuracy of Customer Information, (b) inadequacy or
deficiencies of any materials, information, facilities or services
provided directly or indirectly by Company and tested in conjunction
with the applicable Products, or spurious outputs from adjacent
material, or (c) other conditions external to the Products which are
beyond the limits specified by Nortel in the Specifications for the
Products; or
(ii) Minor deficiencies or shortages with respect to such Products
which are attributable, in whole or in part, to Nortel, but of a
nature that do not prevent operation of the Products in
revenue-generating service.
6.9 With respect to any deficiencies of the type described in Section
6.8(i), Nortel shall at Company's request and expense assist Company in the
elimination or minimization of any such deficiencies. With respect to any
deficiencies or shortages as described in Section 6.8(ii), Nortel shall, at
Nortel's expense, correct any such deficiencies or shortages within thirty (30)
days of the date of Acceptance or as otherwise agreed by the parties.
6.10 In the event that Company notifies Nortel of non-acceptance of a
Product and Nortel personnel travels to the Installation Site to remedy such
non-acceptance and determines that non-acceptance is due to a deficiency of the
type described in Section 6.8(i), Nortel will invoice Company for Nortel's
investigation of the matter, consisting of the standard labor rate for Nortel's
personnel who travel to the Installation Site and the reasonable travel and
living expenses incurred by such personnel.
ARTICLE 7. ORDER CANCELLATION
7.1 If, prior to the Ship Date, Company cancels all or any part of an
Order, Company shall pay to Nortel a cancellation charge for the Products or
each item of Third Party Hardware or Third Party Software that has been canceled
in accordance with the schedule set forth in the applicable Product Annex.
7.2 Orders for Products that have been shipped may not be canceled.
Furthermore, Orders for Products which Nortel customizes in accordance with a
specific Company request may not be canceled.
ARTICLE 8. WARRANTY
8.1 Nortel warrants that for a period of twelve (12) months from the Ship
Date of a System, the Hardware contained in such System under normal use and
service will be free from defective material and faulty workmanship and shall
comply with the
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applicable Specifications. The warranty period for Merchandise shall be ninety
(90) days from the Ship Date of such Merchandise. The foregoing warranties shall
not apply to items normally consumed during operation of a System such as, but
not limited to, lamps and fuses.
8.2 Nortel warrants that any installation Services performed by Nortel
with respect to a System will be free from defects in workmanship for a period
of twelve (12) months from the completion date of such Services.
8.3 Nortel warrants that any Licensed Software shall function during the
warranty period of the Hardware with respect to which such Licensed Software is
furnished without any material, service-affecting, non-conformance to the
applicable Specifications. Licensed Software that is delivered separately from
Hardware is warranted for a period of twelve (12) months from the applicable
Ship Date. If the Licensed Software fails to so function, Company's exclusive
remedy and Nortel's sole obligation under this warranty is for Nortel to correct
such failure through, at Nortel's option, the replacement or modification of the
Licensed Software or such other actions as Nortel reasonably determines to be
appropriate, all within a reasonable time having regard to all of the
circumstances and failing which the parties agree to negotiate a commercially
reasonable solution. Any modification to the Software not performed by Nortel,
other than with respect to Modifiable Software, shall void this warranty.
8.4 If Hardware is not free from defects in material or workmanship and
fails to comply with the applicable Specifications during the warranty period,
Nortel will repair, replace or modify at its sole option the defective Hardware
so that it substantially complies with the applicable Specifications. The
warranty service shall be performed at the Installation Site or Nortel's
facility as determined by Nortel. If Nortel is unable to repair or modify the
defective Hardware within a reasonable period of time so that such Hardware
conforms to the applicable Specification, Nortel shall replace the defective
Hardware with Hardware that conforms to such Specifications. Replacement
Hardware may be new or reconditioned at Nortel's option. Nortel's sole
obligation and Company's exclusive remedy under the warranty provisions of this
Article with respect to Hardware and installation Services shall be limited to
repair, modification or replacement of the defective Hardware or correction of
the defective installation Services.
8.5 Notwithstanding the foregoing, the warranty period of Hardware which
has been subject to repair or replacement by Nortel shall commence upon the Ship
Date of the repaired or replacement Hardware to Company and shall expire on the
later of ninety (90) days or the last day of the original warranty period with
respect to the Hardware which was repaired or replaced. The warranty period of
Licensed Software which has been corrected, due to a material, service-affecting
non-conformance found in such Licensed Software, shall expire on the later of
ninety (90) days from the Ship Date of the corrected Licensed Software to
Company or the last day of the original warranty period with respect to such
Licensed Software.
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8.6 Nortel warrants that its Products shall comply in all material aspects
with all applicable laws and regulations known to Nortel, which are in force on
the date of acceptance of the applicable Order therefor, which laws or
regulations directly impose obligations upon any manufacturer, seller or, if
applicable, installer of such Products.
8.7 The performance by Nortel of any of its obligations described in this
Article 8 shall not extend the applicable warranty period.
8.8 The warranties set forth in this Article shall not apply to any
Products where the defect or non-conformance is due to (i) accident, fire,
explosion, power failure, power surge or other power irregularity, lightning,
alteration, abuse, misuse or repair not performed by Nortel; (ii) improper
storage; (iii) failure to comply with all applicable environmental requirements
for the Products as specified by Nortel or any other applicable supplier, such
as but not limited to temperature or humidity ranges; (iv) improper performance
of installation, maintenance, operation or other service in connection with the
Products, provided that such service was not performed by Nortel or on Nortel's
behalf; (v) use in conjunction with an incompatible product or a product not
purchased under this Agreement; (vi) any error, act or omission by anyone other
than Nortel; or (vii) where written notice of the defect has not been given to
Nortel within the applicable warranty period. The warranties set forth in this
Article shall not apply to (i) Non-Licensed Software for which the applicable
right to use fees have not been paid; or (ii) Third Party Software or Third
Party Hardware, provided however that Nortel shall assign to Company (to the
extent of Nortel's right to do so) the warranty rights granted to Nortel by the
appropriate vendor of such Third Party Software or Third Party Hardware.
8.9 Unless Nortel elects to repair or replace defective Hardware at
Company's facility, all Hardware to be repaired or replaced, whether in or out
of warranty, shall be de-installed and packed by Company in accordance with
Nortel's instructions. Nortel shall use reasonable efforts to ship repaired or
replacement Hardware within thirty (30) days of receipt of the defective
Hardware. To facilitate the processing of the defective Hardware returned
hereunder, Nortel may ship replacement Hardware prior to Nortel receiving the
defective Hardware. In the event that Company fails to return defective Hardware
and Nortel has shipped such replacement Hardware, Nortel shall invoice Company
at Nortel's applicable then-current prices for such replacement Hardware, thirty
(30) days after the Ship Date of such replacement Hardware. If mutually agreed,
Nortel will make repairs on-site at Nortel's then-current charge for such
repairs.
8.10 If the Hardware returned to Nortel pursuant to Section 8.9 is
determined by Nortel to be beyond repair and is outside the warranty period,
Nortel shall notify Company and if requested Nortel shall sell Company
replacement Hardware at Nortel's then-current prices for such replacement
Hardware.
8.11 Company shall bear risk of loss or damage and shall pay for all
transportation charges for Hardware returned to Nortel, and Nortel shall bear
risk of loss or damage and pay for transportation charges for repaired or
replacement Hardware
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shipped to Company. Title to returned Hardware shall pass to Nortel upon
receipt. Title to replacement Hardware shall pass to Company upon receipt.
8.12 Nortel and Nortel's vendors of Third Party Hardware and Third Party
Software, as appropriate, shall not have any responsibility to Customers for
warranties offered by Company to such Customers and Company hereby indemnifies
and holds harmless Nortel and Nortel's vendors, as appropriate, from any claims,
damages or liabilities arising out of, or relating to, any warranties offered by
Company to such Customers.
8.13 THE WARRANTIES, CONDITIONS AND REMEDIES SET FORTH HEREIN CONSTITUTE
THE ONLY WARRANTIES, OBLIGATIONS OR CONDITIONS OF NORTEL WITH RESPECT TO THE
PRODUCTS AND SERVICES AND ARE COMPANY'S SOLE AND EXCLUSIVE REMEDIES IN THE EVENT
THAT SUCH WARRANTIES OR CONDITIONS ARE BREACHED. THEY ARE IN LIEU OF ALL OTHER
WARRANTIES OR CONDITIONS, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. NORTEL SHALL NOT BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT
LIMITATION LOST REVENUES OR PROFITS OR OTHER ECONOMIC LOSS, OF ANY NATURE
WHATSOEVER ARISING OUT OF NORTEL'S BREACH OF WARRANTY OR CONDITION.
ARTICLE 9. NORTEL'S ADDITIONAL OBLIGATIONS
9.1 Nortel shall make training available to representatives of Company
with respect to the operation, configuration, installation, service, maintenance
and support of the Products at Nortel's then current prices and at Nortel's
facilities, subject to course and class availability.
9.2 Upon request, Nortel shall provide Company with copies of its then
current training catalogue. Upon the request of Company, Nortel shall provide to
Company such training as Company requests, at a time and place mutually agreed
upon and at the prices to be quoted for such training. The cancellation fees set
forth in the training catalogues shall apply.
9.3 Nortel shall include its standard Documentation package, if any, with
each shipment of Products. Nortel shall make the Documentation available on its
choice of media, which may include CD-ROM or other electronic media. Nortel
shall provide Company with any other Documentation that is ordered at its
then-current prices therefor. Documentation provided via Nortel's CD-ROM media
may be printed and copied and Documentation provided in paper format may be
copied, to the extent such Documentation so provides, and only to the extent
such printing or copying is necessary
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for the operation and maintenance of the Products to which the Documentation
pertains. However, Company may not press or burn any copies of CD-ROM discs.
9.4 During the Term of this Agreement, Company may acquire various support
Services from Nortel in connection with the Products that Company acquires from
Nortel under this Agreement. These Services may include, but are not limited to
the following: technical assistance Services, installation Services, Hardware
maintenance Services, Software maintenance Services and parts repair and
replacement Services.
ARTICLE 10. SOFTWARE LICENSE
Nortel Networks Products' Software
10.1 Company acknowledges that the Software may contain programs which have
been supplied by, and are proprietary to, Third Party Software vendors. In
addition to the terms and conditions herein, Company shall abide by any
additional terms and conditions specified in a Product Annex with respect to any
Software provided by any Third Party Software vendor.
10.2 Upon Company's payment to Nortel of the applicable fees with respect
to any Software furnished to Company pursuant to this Agreement, Nortel hereby
grants to Company, subject to the applicable terms and conditions of this
Article 10, a personal, non-exclusive, right and license to use the Licensed
Software furnished to Company, but only in conjunction with Company's use of the
Hardware or the Documentation with respect to which such Licensed Software was
furnished. The duration of such right to use shall last (i) with respect to
Licensed Software furnished in connection with Hardware, for the life of that
Hardware as it may be repaired or modified, and (ii) with respect to Licensed
Software furnished in connection with Documentation, for the duration of
Company's right to use the Documentation. Company shall be granted no title or
ownership rights to the Software, which rights shall remain in Nortel or its
suppliers.
10.3 As a condition precedent to this license and to the supply of Software
by Nortel pursuant to this Agreement, Nortel requires Company to give proper
assurances to Nortel for the protection of the Software. Accordingly, all
Software supplied by Nortel under or in implementation of this Agreement shall
be treated by Company as the exclusive property, and as proprietary and a trade
secret, of Nortel and/or its suppliers, as appropriate, and Company shall: (i)
hold the Software, including, without limitation, any methods or concepts
utilized therein in confidence for the benefit of Nortel and/or its suppliers,
as appropriate; (ii) not provide or make the Software available to any person
except to its employees on a `need to know' basis and then only under
confidentiality obligations; (iii) not reproduce, copy, or modify the Software
in whole or in part except as authorized by Nortel; (iv) not attempt to
decompile, reverse engineer, disassemble, reverse translate, or in any other
manner decode the Software; (v) issue adequate instructions to all persons, and
take all actions reasonably necessary to satisfy Company's
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obligations under this license; and (vi) forthwith return to Nortel, or with
Nortel's consent destroy (a) upon termination of the license for any reason, or
(b) upon receipt of replacement, modified, or updated Software, any magnetic
tape, disc, semiconductor device or other memory device or system memory and/or
Documentation or other material regarding such Software, including, but not
limited to all printed material furnished by Nortel to Company.
10.4 The obligations of Company hereunder shall not extend to any
information or data relating to the Software which is now available to the
general public or becomes available by reason of acts or failures to act not
attributable to Company.
10.5 Nortel may issue updates to the Software from time to time, and upon
Company's payment of applicable right to use fees, if any, shall license such
updates to Company. The right to use fees for such updates do not include the
price of any associated Hardware that may be required to use such updates.
10.6 Neither Company nor any successor to Company's title in the applicable
Hardware shall have the right to (i) assign this license as to the applicable
Licensed Software to any other person who acquires legal title to such Hardware;
or (ii) sublicense the rights herein granted as to such Licensed Software to any
other person who subsequently acquires the right to use such Hardware, unless
agreed to in writing by both Nortel and Company. Such consent shall not be
unreasonably withheld, delayed or conditioned and is subject to the provisions
of Section 15.4.1 hereafter.
10.7 Company shall indemnify and hold Nortel and its suppliers, as
appropriate, harmless from any loss or damage resulting from a breach of this
Article 10. The obligations of Company under this Article 10 shall survive the
termination of the Agreement and shall continue if the Software is removed from
service.
Non-Licensed Software
10.8 Certain Software delivered by Nortel may include Non-Licensed
Software. Non-Licensed Software includes (i) any Software for which the
applicable right to use fees have not been paid; and (ii) Software for which a
periodic right to use fee has expired and the applicable additional periodic
right to use fees have not been paid. Company shall submit to Nortel an Order
for any Non-Licensed Software that Company desires to license or renew.
10.9 When Non-Licensed Software is placed into service, the applicable
right to use fees shall be payable. Company shall also have the option to pay
the applicable right to use fees for any Non-Licensed Software upon installation
of a Software load containing such Non-Licensed Software.
10.10 To ensure Company's proper activation and/or usage of only the
appropriate Software, Company shall complete the appropriate form designated by
Nortel
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prior to the activation and/or usage by Company of any Non-Licensed Software.
Company shall identify all Software desired to be activated and/or used
(including the number of lines or other units activated, if applicable) in each
System and shall transmit such form to Nortel.
10.11 Nortel shall promptly review any form submitted pursuant to Section
10.10 and respond in writing, identifying whether (i) any applicable
prerequisite Hardware or Software is required by Company prior to activation
and/or usage of the applicable Software; or (ii) whether the use of such
Software requires Nortel to determine whether the current System configuration
will require additional elements, such as Hardware, other hardware and/or System
memory, prior to activation and/or usage; or (iii) whether Company can use such
Software without the addition of any additional Hardware or Software.
10.12 Nortel reserves the right to access by remote polling any site in
which Software has been installed to determine which Software has been
activated. Such polling shall be done so as not to unreasonably interfere with
Company's use of the Products.
10.13 Nortel shall issue invoices to Company, in addition to those amounts
previously invoiced, for amounts found to be payable as a result of Company's
activation and/or usage of any Software which Nortel determines as a result of
the remote polling of a site and for which Company has not previously paid the
appropriate right to use fees.
10.14 The warranty period for Software activated later than the original
Ship Date of the Software load shall be for the same period as such original
Software load and shall not be extended to provide for an additional period of
warranty based upon the date individual features or units are activated and/or
utilized by Company or the date Company pays any applicable right to use fees.
Modifiable Software
10.15.1 Notwithstanding anything to the contrary above, and subject to the
provisions of Section 15.4.1 hereafter, upon payment to Nortel of the applicable
fees, Nortel hereby grants to Company, subject to the applicable terms and
conditions of this Article 10, a personal, non-transferable, non-assignable and
non-exclusive right and license to modify Licensed Software which Nortel
identifies as Modifiable Software. Upon the modification or creation of any
Applications, or the modification or creation of any Building Blocks, Nortel
shall have no obligations with regard to warranty under Article 8 or indemnity
under Article 11 for such Applications or Building Blocks.
10.15.2 Nothing contained in Sections 10.16.1 through 10.16.5 shall
transfer, or be deemed to transfer, or contemplate the transfer of, any rights
in or to the Software other than those rights specifically granted herein, and
in particular but without restricting the generality of the foregoing, Nortel
does not in any way transfer any right,
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title or interest in or to the Software or any element constituting a portion
thereof to Company, other than the right of Company to modify or create Building
Blocks and Applications.
10.15.3 For any Building Blocks and Applications created solely by Company,
and for all Company-modified portions of the Nortel-provided Building Blocks
with respect to such modified portion only, Company shall own all forms of
intellectual property rights (including but not limited to patent, trade secret,
copyright and mask rights) pertaining to such Applications, Building Blocks or
portions thereof and shall have the right to file for or otherwise secure and
protect such rights. For all such Company created Applications or Building
Blocks or modified portions of Building Blocks, the parties shall, on a case by
case basis, negotiate in good faith to determine whether Company may desire to
license any such Applications or Building Blocks to Nortel.
10.15.4 For any Applications created solely by Nortel, and for the
Nortel-provided Building Blocks, Nortel shall own all forms of intellectual
property rights (including but not limited to patent, trade secret, copyright
and mask rights) pertaining to such Applications or Building Blocks and shall
have the right to file for or otherwise secure and protect such rights. For all
such Nortel Applications or Building Blocks, Company may license any such
additional Nortel Products upon Nortel making such software generally available
to its customers.
10.15.5 In the event that Company and Nortel intend to jointly create
Applications or Building Blocks, the parties shall mutually agree as to
applicable terms and conditions.
Services Software
10.16.1 With respect to Services Software, Company shall: (i) utilize such
Services Software and the results thereof solely for the purposes described in
Section 1.24; and (ii) comply with additional terms, if any, applicable to such
Services Software as specified in a Product Annex. Nortel may, at any time and
without liability or obligation to Company, modify the Services Software, any
computer equipment of Nortel or suppliers used in connection with such Services
Software, and identification codes, manuals or other information or
Documentation used in connection with the Services Software.
10.16.2 SERVICES SOFTWARE IS PROVIDED AS IS AND WITHOUT WARRANTY OR
CONDITION OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
NORTEL DOES NOT AND CANNOT WARRANT THE PERFORMANCE OR RESULTS THAT MAY BE
OBTAINED BY USING SERVICES SOFTWARE. COMPANY ASSUMES SOLE RESPONSIBILITY FOR THE
SELECTION OF THE SERVICES
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SOFTWARE TO ACHIEVE COMPANY'S INTENDED RESULTS, AND FOR THE INSTALLATION, USE,
AND RESULTS OBTAINED FROM THE SERVICES SOFTWARE. IN NO EVENT SHALL NORTEL BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR OTHER ECONOMIC LOSS,
OF ANY NATURE WHATSOEVER ARISING OUT OF COMPANY'S USE OF SERVICES SOFTWARE.
Bay Products Software
10.17 Notwithstanding the foregoing, with respect to Bay Products Software,
Company may purchase for its internal use, Software licenses and accompanying
documentation to Bay Products Software by placing Orders under this Agreement.
Company's right to use the Bay Products Software is subject to the "shrink-wrap"
license agreement with the Software and in its accompanying documentation
shipped by Nortel Networks to Company ("License Agreement").
10.18 In addition to the terms in Sections 10.3, 10.6 and 10.7, which shall
be applicable to Bay Products Software, Company may not, translate, decompile,
disassemble, use for any competitive analysis, or reverse engineer the Bay
Products Software or its documentation, in any way. Company agrees to not
translate any portion of the Software or associated documentation into any other
format or foreign language without the prior written consent of Nortel Networks.
In no event will Company grant the U.S. Government rights in any Bay Products
Software greater than those set out in subparagraphs (a) through (d) of the
Commercial Computer Software - Restricted Rights clause at FAR 52.227-19 and the
limitations for civilian agencies set out the License Agreement; and
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Software
clause at DFARS 252.227-7013 for agencies of the Department of Defense.
ARTICLE 11. LIABILITY FOR BODILY INJURY, PROPERTY DAMAGE AND PATENT INFRINGEMENT
11.1 A party hereto shall defend the other party against any suit, claim,
or proceeding brought against the other party for direct damages due to bodily
injuries (including death) or damage to tangible property which allegedly result
from the negligence or willful misconduct of the defending party in the
performance of this Agreement. The defending party shall pay all litigation
costs, reasonable attorney's fees, settlement payments and such damages awarded
or resulting from any such suit, claim or proceeding.
11.2 Nortel shall defend Company against any suit, claim or proceeding
brought against Company alleging that the sale to, or use by Company of, any
Products, excluding Third Party Hardware or Third Party Software, furnished
hereunder infringes any patent, trademark or copyright ("Infringement Claim").
Nortel shall pay, subject to
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Section 11.3 below, all litigation costs, reasonable attorney's fees, settlement
payments and damages awarded or resulting from any such suit, claim or
proceeding. With respect to Third Party Hardware or Third Party Software, Nortel
shall assign any rights with respect to infringement of patents granted to
Nortel by the supplier of such items to the extent of Nortel's right to do so.
11.3 Nortel's cumulative liability, pursuant to this Article 11, other than
Section 11.1, and including its costs and expenses incurred in satisfying its
obligations set forth below, shall not exceed one hundred percent (100%) of the
purchase price of the Products giving rise to the Infringement Claim.
11.4 Nortel shall have no liability, in respect of any Infringement Claim
based on the use of a Product in the event that such Product: (i) is
manufactured, designed or supplied by Nortel in accordance with any design or
any special instruction furnished by Company; (ii) is used by Company in a
manner or for a purpose not contemplated or authorized by this Agreement; (iii)
is used by Company in combination with other products not provided by Nortel,
including, without limitation, any software developed solely by Company through
the permitted use of Products furnished hereunder, provided that the
Infringement Claim arises from such combination or the use thereof; or (iv) is
modified by Company where such modification is not authorized by Nortel. In the
excepted cases stated above, Company shall indemnify and hold Nortel harmless
against any loss, cost, expense, damage, settlement or other liability,
including, but not limited to, reasonable attorneys' fees, which may be incurred
by Nortel with respect to any suit, claim, or proceeding described in this
Section 11.5.
11.5 A party shall not be liable for any damages awarded based on the other
party's willful, knowing, or deliberate infringement of a patent, copyright,
trade secret, trademark, or other proprietary right where such infringement
results in a pecuniary damage award; and the infringing party shall indemnify
the non-infringing party with respect to such claim.
11.6 Nortel may provide Company with notice of an actual or potential
Infringement Claim. Nortel shall consult with Company regarding the Infringement
Claim and the course of action to be pursued as a result thereof. In the event
that the parties fail to agree on a satisfactory course of action for dealing
with the matter, Company may either:
(i) return to Nortel the affected portion of the Product(s) in return
for a refund of the depreciated value (as carried on the books of
Company) of the Product(s) so returned; or
(ii) continue to use the Product(s) at Company's own risk.
11.7 Nortel shall not be liable for, and Company shall indemnify Nortel in
respect of any Infringement Claim(s) where Nortel has provided notice to Company
of
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the Infringement Claim(s) and Company elects to continue its use of the
Product(s) covered by the Infringement Claim.
11.8 If as a result of an Infringement Claim, other than those contemplated
in Section 11.6(i) and 11.6(ii) above, an injunction is obtained against
Company's use of any Product, Nortel shall, at Nortel's option:
(i) procure for Company the right to continue using the alleged
infringing Product(s);
(ii) replace or modify the same with equivalent or better Product(s)
so that Company's use is non-infringing; or
(iii) accept return of the affected portion of the Product(s) and
refund to Company the depreciated value (as carried on the books of
Company) of the Product(s) so returned.
11.9 The defense of any claim which is predominantly covered by the
provisions of this Agreement shall be controlled by the party upon whom the
majority of the ultimate liability is likely to be imposed. Such controlling
party shall give the other party a reasonable opportunity to participate in
negotiation or defense of the claim so that such other Party may reasonably
protect its own interests. Neither Party shall be liable for any settlement
obligation incurred without its written consent.
11.10 Company shall waive any and all claims that Company may have against
Nortel that Company may have due to any use by Company of Modifiable Software
and any modification Company may have made to a Product as a result of such use.
Further, Company shall be responsible for any additional hardware, software or
services required as a result of such use.
11.11 THE REMEDIES SET FORTH IN THIS ARTICLE 11 ESTABLISH THE ENTIRE
OBLIGATION OF THE PARTIES IN REGARD TO CLAIMS RELATING TO INTELLECTUAL PROPERTY
RIGHTS INCLUDING CLAIMS DIRECTED TO THE INFRINGEMENT OF PATENTS, COPYRIGHT,
TRADE SECRETS AND OTHER PROPRIETARY RIGHTS. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR OTHER ECONOMIC LOSS OF
ANY NATURE WHATSOEVER, ARISING FROM SUCH INFRINGEMENT CLAIMS AND/OR RELATED
MATTERS, OTHER THAN AS SPECIFICALLY SET FORTH HEREIN.
ARTICLE 12. REMEDIES AND LIMITATION OF LIABILITY
12.1 Nortel shall have the right to suspend its performance, upon written
notice to Company, and forthwith remove and take possession of all Products that
shall have
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been delivered to Company, if, prior to payment to Nortel of any amounts due
pursuant to this Agreement with respect to such Products, Company shall (i)
become insolvent or bankrupt or cease, be unable, or admit in writing its
inability, to pay all debts as they mature, or make a general assignment for the
benefit of, or enter into any arrangement with, creditors; (ii) authorize, apply
for, or consent to the appointment of, a receiver, trustee, or liquidator of all
or a substantial part of its assets or have proceedings seeking such appointment
commenced against it which are not terminated within sixty (60) days of such
commencement; or (iii) file a voluntary petition under any bankruptcy or
insolvency law or under the reorganization or arrangement provisions of the
United States Bankruptcy Code or any similar law of any jurisdiction or have
proceedings under any such law instituted against it which are not terminated
within sixty (60) days of such commencement.
12.2 In the event of any material breach of this Agreement which shall
continue for thirty (30) or more days after written notice of such breach
(including a reasonably detailed statement of the nature of such breach) shall
have been given to the breaching party by the aggrieved party, the aggrieved
party shall be entitled at its option to avail itself of any and all remedies
available at law or equity, except as otherwise limited in this Agreement;
provided, however, that nothing contained in this Section 12.2 or elsewhere in
this Agreement shall make either party liable for any indirect, incidental,
punitive, special, or consequential damages of any nature whatsoever for any
breach of this Agreement whether the claims for such damages arise in tort
(including negligence regardless of degree of fault), contract, or otherwise.
12.3 Nortel shall not be liable for any additional costs, expenses, losses
or damages resulting from errors, acts or omissions of Company, including, but
not limited to, inaccuracy, incompleteness or untimeliness in the provision of
information by Company to Nortel or fulfillment by Company of any of its
obligations under this Agreement. Company shall pay Nortel the amount of any
such costs, expenses, losses or damage incurred by Nortel.
12.4 Any action for breach of this Agreement or to enforce any right
hereunder shall be commenced within two (2) years after the cause of action
accrues or it shall be deemed waived and barred, except any action for
nonpayment by Company of any prices, charges, fees or other amounts payable
hereunder may be brought by Nortel at any time permitted by applicable law, and
Nortel may suspend performance of any of its obligations hereunder until all
such payments are made.
ARTICLE 13. TERM AND TERMINATION
13.1 This Agreement will be in effect from the Effective Date for a period
of five (5) years (the "Original Term"). Thereafter, this Agreement shall
automatically renew for one (1) year terms (each, a "Renewal Period" and
collectively and together with the Original Term, the "Term"), unless either
party provides the other party with written
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notice of its intent not to renew at least sixty (60) days prior to the end of
the Original Term or any Renewal Period.
13.2 Either party may delay performance under this Agreement or terminate
this Agreement, in whole or in part, in the event of a default by the other,
provided that the non-defaulting party so advises the defaulting party in
writing of the event of alleged default and the defaulting party does not remedy
the alleged default within thirty (30) days after written notice thereof. If the
alleged default is not capable of being remedied within thirty (30) days, the
defaulting party must commence to remedy the alleged defaulting within such
thirty (30) day period and provide to the non-defaulting party a plan for timely
remedying the alleged default in order to avoid termination. A default shall
include:
(i) a party's insolvency or initiation of bankruptcy or receivership
proceedings by or against a party or the execution of an assignment
for the benefit of creditors; or
(ii) either party's material breach of any of the terms or conditions
hereof including the failure to make any payment when due.
13.3 The expiration or termination of this Agreement for any cause shall
not release either party from:
(i) any obligations and duties remaining under any Order accepted by
Nortel prior to such expiration or termination;
(ii) any liability which at the time of expiration or termination has
already accrued to the other party, or, which thereafter may accrue in
respect to any event prior to expiration or termination; or
(iii) any liability from any obligation specified in Section 15.18
below to survive expiration or termination.
ARTICLE 14. CONFIDENTIALITY
14.1 Each party which receives the other party's Confidential Information
shall use reasonable care to hold such Confidential Information in confidence
and not disclose such Confidential Information to anyone other than to its
employees and employees of a Nortel Affiliate, as applicable, with a need to
know. A party that receives the other party's Confidential Information shall not
reproduce such Confidential Information, except to the extent reasonably
required for the performance of its obligations pursuant to this Agreement and
in connection with any permitted use of such Confidential Information.
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14.2 Company shall take reasonable care to use Nortel's Confidential
Information only for study, operating, or maintenance purposes in connection
with Company's use of Products furnished by Nortel pursuant to this Agreement.
14.3 Notwithstanding the foregoing, either party shall be free to use that
portion of the Confidential Information which may be retained in intangible form
by those employees who have had access to the Confidential Information, for any
purpose, including use in the development, manufacture, marketing and
maintenance of its products and services. The marketing of any product or
service, including the dissemination of supporting documentation, which
inherently discloses the disclosing party's Confidential Information shall not
be deemed a breach by the recipient of such obligations; provided however, that
ownership of the Confidential Information and all intellectual property rights
to such Confidential Information remain with the disclosing party.
14.4 The obligations of either party pursuant to this Article 14 shall not
extend to any Confidential Information which a recipient can demonstrate through
written documentation was already known to the recipient prior to its disclosure
to the recipient and without confidential obligations was known or generally
available to the public at the time of disclosure to the recipient, becomes
known or generally available to the public (other than by act of the recipient)
subsequent to its disclosure to the recipient, is disclosed or made available in
writing to the recipient by a third party having a bona fide right to do so and
without similar confidentiality obligations, is independently developed by
recipient, or is required to be disclosed by subpoena or other process of law,
provided that the recipient shall notify the disclosing party promptly of any
such subpoena or other process of law requiring disclosure.
ARTICLE 15. MISCELLANEOUS
15.1 Publicity - A party shall not release any advertising or other
publicity relating to this Agreement or the contents hereof wherein such other
party may reasonably be identified without the prior written approval of the
other party. In addition, each party shall take reasonable precautions to keep
the existence and the contents of this Agreement confidential so long as this
Agreement remains in effect and for a period of five (5) years thereafter,
except as may be otherwise expressly provided in this Agreement or as may be
reasonably required to enforce this Agreement by law.
15.1.1 In the event that the Company completes an initial public
offering of its common stock, this Agreement will be considered to be a material
contract which may be required to be disclosed. Nortel Networks understands that
this Agreement may have to be filed with the Securities & Exchange Commission as
part of any filing for an initial public offering. Company will notify Nortel
Networks prior to any such filing and Company shall use their best efforts, to
the extent permissible by the SEC, to protect Nortel Networks confidential
information contained in this Agreement.
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15.2 Applicable Law - The validity, construction and performance of this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Texas, except for its rules with regard to the conflict of laws.
15.3 Effects of Headings - All headings used herein are for index and
reference purposes only, and shall not be given any substantive effect. This
Agreement has been created jointly by the parties and no rule of construction
requiring interpretation against the drafter of this Agreement shall apply in
its interpretation.
15.4.1 Assignment - Other than as explicitly stated below, neither party
may assign or transfer this Agreement or any of its rights hereunder without the
prior written consent of the other party, such consent not to be unreasonably
withheld, delayed or conditioned. A change in control of Company occurs when
ownership or control of more than fifty percent (50%) of the shares of the
Company entitled to elect the board of directors changes during the Term of this
Agreement, and this shall be deemed an assignment hereunder. In such instance,
Nortel shall withhold consent only if control vests in a competitor of Nortel's
as determined by Nortel in its sole discretion. Company's consent shall not be
required for any assignment or transfer by Nortel (i) to any Nortel Affiliate of
all or any part of this Agreement or of Nortel's rights hereunder; or (ii) to
any third party of Nortel's right to receive any monies ("Receivables") which
may become due to Nortel pursuant to this Agreement.
15.4.2 Company hereby consents to the sale of Receivables by Nortel without
the necessity for any further notice and without any qualification on such
consent. Company grants permission for Nortel to disclose the provisions of this
Agreement to purchasers and prospective purchasers of Receivables, or their
affiliates and others with a present or prospective financial interest in such
Receivables, and their respective agents, attorneys, auditors, rating agencies
and other advisors.
15.5 Subcontracting - Nortel may subcontract any of its obligations under
this Agreement, but no such subcontract shall relieve Nortel of primary
responsibility for performance of its obligations.
15.6 Non-Waiver - The failure by either party hereto at any time to require
performance by the other party or to claim a breach of any provision of this
Agreement shall not be construed as affecting any subsequent breach or the right
to require the performance with respect thereto or to claim a breach with
respect thereto.
15.7 Relationship of the Parties - The provisions of this Agreement shall
not be construed to establish any form of partnership, agency or joint venture
of any kind between Nortel and Company, nor to constitute either party as the
agent, employee or legal representative of the other. All persons furnished by
either party to accomplish the intent of this Agreement shall be considered
solely as the furnishing party's employees or agents and the furnishing party
shall be solely responsible for compliance with respect to
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its employees with all laws, rules and regulations involving, but not limited
to, employment of labor, hours of labor, working conditions, workers'
compensation, payment of wages, and withholding and payment of applicable taxes,
including, but not limited to income taxes, unemployment taxes, and social
security taxes.
15.8 Force Majeure - If the performance by a party of any of its
obligations under this Agreement shall be interfered with by reason of any
circumstances beyond the reasonable control of that party, including without
limitation, fire, explosion, acts of God, war, revolution, civil commotion,
unavailability of supplies or sources of energy, power failure, breakdown of
machinery, delays regarding zoning, easements or deed restrictions, any legal
proceedings between parties unrelated to the parties hereto or labor
difficulties, including without limitation, strikes, slowdowns, picketing or
boycotts, then that party shall be excused from such performance for a period
equal to the delay resulting from the applicable circumstances and such
additional period as may be reasonably necessary to allow that party to resume
its performance. With respect to labor difficulties as described above, a party
shall not be obligated to accede to any demands being made by employees or other
personnel.
15.9 Taxes - Company shall at Nortel's direction promptly reimburse Nortel
or pay directly to the applicable government or taxing authority all taxes and
charges arising hereunder, including, without limitation, penalties and
interest, except for taxes computed upon the net income of Nortel. If Company
provides Nortel with a certificate of exemption for the applicable taxes, in a
timely manner, then Nortel shall not invoice Company for such taxes.
15.10.1 Hazardous Materials - Prior to issuing any Order for Services to be
performed at Company's facilities, Company shall identify and notify Nortel in
writing of the existence of all Hazardous Materials which Nortel may encounter
during the performance of such Services, including without limitation, any
Hazardous Materials contained within any equipment to be removed by Nortel.
15.10.2 If Company breaches its obligations pursuant to Section 15.10.1,
(i) Nortel may discontinue the performance of the applicable Services until all
the Hazardous Materials have been removed or abated to Nortel's satisfaction by
Company at Company's sole expense; and (ii) Company shall defend, indemnify and
hold Nortel harmless from any and all damages, claims, losses, liabilities and
expenses, including without limitation, attorney's fees, which arise out of
Company's breach of such obligations.
15.11 Notice - All notices required or permitted to be given hereunder
shall be in writing and shall be deemed given when delivered (i) by hand; or
(ii) by facsimile transmission (confirming the same by mail); or (iii) by
certified or next-day mail addressed as follows:
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I3S, INC.
MPA
If to Company:
I3S, Inc.
1440 Corporate Drive
Dallas, Texas 75038
Attention: JIM PRICE, CHAIRMAN & CEO
Facsimile: 972/650-7972
If to Nortel:
Nortel Networks Inc.
2350 Lakeside Boulevard
Richardson, Texas 75082-4399
Attention: Senior Manager, Contracts Mgmt & Negotiations
Facsimile: (972) 685-3284
Either party hereto may change its address by a notice given to the other party
hereto in the manner set forth above.
15.12 Information and Documentation - Company shall provide any information
and/or documentation that Nortel reasonably requests from Company and that is
necessary for Nortel to properly perform any of its obligations hereunder. Such
information shall be provided in a form reasonably specified by Nortel by the
dates specified by Nortel.
15.13 Export - Company shall not export any Products or technical data
received from Nortel pursuant to this Agreement, or release any such Products or
technical data with the knowledge or intent that such Products or technical data
will be exported or transmitted to any country or to foreign nationals of any
country, except in accordance with applicable U.S. laws and regulations
concerning exporting and with written consent of Nortel. Company shall obtain
all government authorizations, in accordance with applicable law prior to
exporting or transmitting any such Products or technical data.
15.14 Severability - If any provision of this Agreement is declared or
determined to be invalid or unenforceable under applicable law, the remaining
provisions shall continue in full force and effect and the parties shall
substitute for the invalid provision a valid provision which most closely
approximates the economic effect and intent of the invalid provision.
15.15 Modification of Agreement - No addition to or modification of this
Agreement shall be effective or binding on either of the parties hereto unless
reduced to writing and executed by the respective duly authorized
representatives of each of the parties hereto.
15.16 Regulatory Compliance - In the event of any change in the
Specifications or Nortel's manufacturing or delivery processes for any Products
as a result of the imposition of requirements by any government, Nortel may upon
notice to Company,
PRIVILEGED and CONFIDENTIAL 31
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I3S, INC.
MPA
increase its prices, charges and fees to cover the added costs and expenses
directly and indirectly incurred by Nortel as a result of such change.
15.17 Entire Agreement - This Agreement, including the Exhibits and Annexes
which are attached hereto and incorporated herein, comprises all the terms,
conditions and agreements of the parties hereto with respect to the subject
matter hereof and supersedes all previous negotiations, proposals, commitments,
writings, publications and understandings of any nature whatsoever. No Exhibits
or Annexes modified or created subsequent to the execution of this Agreement
shall be deemed to be incorporated into this Agreement unless mutually agreed in
a writing and executed by a duly authorized representative of each party.
Company hereby acknowledges and agrees that it has not relied on any
representations or warranties other than those expressly set forth in this
Agreement.
15.18 Survivorship - Any terms of this Agreement, which by their nature are
intended to survive, including but not limited to Articles 8, 10, 11, 12, 14 and
15 and Sections 4.4, 9.3 and 13.3, shall survive the termination or expiration
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement.
NORTEL NETWORKS INC. I3S, INC.
By: /s/ JOE MANARAS By: /s/ MATTHEW HUTCHINS
------------------------ ----------------------
Name: Joe Manaras Name: Matthew Hutchins
---------------------- --------------------
Title: VP - Counsel Title: President
--------------------- -------------------
Date: 9-24-99 Date: 7-15-99
---------------------- --------------------
PRIVILEGED and CONFIDENTIAL 32
<PAGE> 33
I3S, INC.
PRODUCT ANNEX A.1
ATTACHMENT 1
EXHIBIT A
PRODUCT ANNEX A.1
BAY PRODUCTS
The supplemental terms and conditions provided below shall apply to Products
provided by the Bay Networks division of Nortel Networks and shall take
precedence over any conflicting terms and conditions specified, in the Sections
noted below or elsewhere, in the Agreement.
ARTICLE 1, SECTION 1.5
With respect to the definition of "Confidential Information" the following shall
apply:
"Diagnostics, Software and Software Documentation" shall be added to and
included within the definition of "Confidential Information".
ARTICLE 1, SECTION 1.16
With regard to the definition of "Merchandise", the following shall apply:
"For purposes of this Agreement, Bay Products shall be considered to be
'Merchandise'."
ARTICLE 1, SECTION 1.30
With regard to the definition of "Specifications" the following shall apply:
"Company may provide Nortel Networks with written design specifications for
new products to be developed for Company ("Company Specifications") by
Nortel Networks. If Nortel Networks agrees to undertake the design project,
it will accept or modify Company Specifications in writing, and in doing
so, will undertake to design and manufacture those products in conformity
with the Company Specifications or as revised in writing and mutually
agreed to by the parties."
Article 2, Scope of the Agreement
With regard to the scope of the Agreement the following shall apply:
2.1.1 During the Original Term, Company commits to purchase and/or license,
as applicable, and take delivery of the Products and Services including,
without limitation, those described in Attachment 1, Bay Products, or as
otherwise described by Nortel Networks in a firm Quotation in the minimum
dollar amount
PRIVILEGED and CONFIDENTIAL 33
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I3S, INC.
PRODUCT ANNEX A.1
ATTACHMENT 1
of **** ** (the "Commitment Amount")
as more specifically described hereafter.
<TABLE>
<CAPTION>
By Year End: Dollar Volume of Nortel Orders:
------------ ------------------------------
<S> <C>
June 30, 2000 *
June 30, 2001 *
June 30, 2002 *
June 30, 2003 *
June 30, 2004 *
Total: *
</TABLE>
Commitment Amount purchases shall include a) direct Orders by Company
for Products and Services; and, b) indirect Orders for Products and
Services listed in Attachment 1 or by Firm Quotation that 1) are from
third parties, including Company's customers, who submit an Order
("Third Party Order"); and, 2) are from third parties who do not have a
written contractual agreement with Nortel to purchase the Products
listed on Attachment 1 as amended from time to time; and, 3) that
Company has certified to the third party that they purchase the
Products. In addition, the Commitment Amount purchases may also include
orders from third parties for Products and Services which do not meet
all of the above three criteria but where, in the sole discretion of
Nortel Networks (which discretion shall be reasonably exercised),
Nortel Networks determines that the Company was instrumental in
securing a particular order on behalf of Nortel Networks. The prices,
charges and fees for the Products shall be paid in accordance with
Article 4 of the Agreement.
2.1.2 In the event that Company does not satisfy each year's Commitment
Amount set forth in Section 2.1.1. of this Product Annex A.1, upon the
expiration of each year, Nortel shall invoice Company for, and Company
shall pay to Nortel Networks, an amount equal to the price difference
obtained by: (i) subtracting the total prices paid by Company for all
Products purchased by Company during the respective year, excluding any
and all Orders cancelled during the year pursuant to Article 7 of the
Agreement, from that year's Commitment Amount to arrive at an annual
shortfall amount ("Shortfall Amount"); and (ii) multiplying the annual
Shortfall Amount by **** ** to arrive at the amount to be invoiced to
Company ("Shortfall invoice"). Upon Nortel Networks sale of at least
**** ** of its equity position in Company, the Shortfall Amount, if
any, occurring thereafter shall be multiplied by **** ** to arrive at
the amount to be included in the Shortfall Invoice. Company shall pay
to Nortel Networks the entire invoiced amount within thirty (30) days
after the date of the Shortfall Invoice.
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I3S, INC.
PRODUCT ANNEX A.1
ATTACHMENT 1
2.1.2.(a) In the event that Company has paid a Shortfall Invoice
from a prior year, and in a subsequent year orders sufficient
Products to satisfy both the current year's annual Commitment
Amount and the prior year's Shortfall Amount, then Company shall
earn a product credit equal to the amount of the Shortfall
Invoice paid by Company. The product credit shall be applied to
reduce the prices to be paid by Company for invoices applicable
to Products purchased after the product credit is earned.
2.1.2(b) In the event that Company exceeds its annual commitment
amount in a given year ("Carryover Amount"), the succeeding
year(s) commitment amount shall include any Carryover Amount plus
additional purchases made during the year in determining if
Company met its annual Commitment Amount for that year.
2.1.3 During the Original Term, Company may purchase any of the Bay
Products listed on Attachment 1 to this Product Annex A.1 or any
other Products including Third Party Hardware or Third Party Software,
listed in a Firm Quotation. Company shall pay the prices, charges and
fees for each such Product listed in Attachment 1, or in a Firm
Quotation or a then-current price list, subject to the application of
the Product Group Discount for the respective Products listed in
Attachment 1. Nortel Networks shall invoice Company the prices,
charges and fees for each such Order after first deducting the
applicable Product Group Discount from the List Price. If a Firm
Quotation issued by Nortel Networks includes Products not listed in
Attachment 1, Nortel Networks shall, as part of the Firm Quotation,
identify the Product Group Discount or other discount to be applied to
any Order submitted by Company.
ARTICLE 2, SECTION 2.3
With regard to the subject of forecasts, the following shall apply:
Company shall submit a non-binding forecast to Nortel Networks, in
accordance with Section 2.3 of the Agreement.
ARTICLE 2, SECTION 2.5
With regard to the subject of exclusivity, the following paragraphs
shall be added to the Agreement:
2.5 In consideration of Nortel Networks pricing of its Products and
Services as set forth and described in Attachment 1 or as otherwise
provided in a Firm Quotation, Company shall use commercially
reasonable efforts to utilize Nortel Networks as its Preferred
Provider of any telecommunications or data equipment manufactured or
offered for sale by Nortel Networks, and for network management and
other professional services offered by Nortel Networks. For
PRIVILEGED and CONFIDENTIAL 35
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I3S, INC.
PRODUCT ANNEX A.1
ATTACHMENT 1
purposes of this Agreement, Preferred Provider shall mean that the
Company will strive to utilize Nortel Networks equipment that 1) has
the performance capability and other specifications required by
Company in building its network and providing services to its
customers; and 2) has performance and other specifications that are
comparable to other companies that are manufacturing similar
equipment; and, 3) is comparably priced to the products offered by
other vendors.
ARTICLE 2, SECTION 2.6
2.6 A Product or Design Project shall materially conform, or be in
substantial compliance with Nortel Networks Specifications or Company
Specifications when: a) the delivered Product meets ninety-five
percent (95%) of Nortel Networks Specifications or Company's
Specifications, as applicable; and, 2) where the deficiencies, if any,
are minor deficiencies as described in Section 6.8.(ii) of the
Agreement.
ARTICLE 3, Section 3.7
With regard to the subject of standard intervals for Bay Products the following
shall apply:
"The standard interval between Order acceptance and Ship Date for
forecasted Bay Products is four (4) weeks. The Ship Date with respect
to non-forecasted Bay Products shall be based upon standard intervals
for the applicable Product, and shall be established and confirmed in
the Order acknowledgement issued to Company."
ARTICLE 4, SECTION 4.2
With regard to the subject of pricing and discounts, Section 4.2 of the
Agreement shall be deleted in its entirety and restated as follows:
"Nortel Networks' prices for Bay Products and Services are those set
out in Nortel Networks' then-current standard price list ("Price
List"), less the applicable discount specified in Attachment 1 to this
Product Annex A.1 or in a firm Quotation."
ARTICLE 4, SECTION 4.4, PARAGRAPH (i)
With respect to the subject of invoicing for annual fees for maintenance
Services for Bay Products, the following shall apply:
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I3S, INC.
PRODUCT ANNEX AA
ATTACHMENT 1
"Annual maintenance Services provided by Nortel Networks with respect
to Bay Products are subject to invoice and payment at the beginning of
the annual maintenance term."
ARTICLE 5, SECTION 5.1
With respect to the subject of Order cancellation and the rescheduling of Ship
Date(s) for Orders of Bay Products, the following shall apply:
"Company may cancel or reschedule any order, without charge, by
delivering written notice to Nortel Networks at least thirty (30) days
prior to the Ship Date. Orders canceled by Company by delivery of
written notice within thirty (30) days of a Ship Dates may be subject
to a fifteen percent (15%) restocking charge by Nortel Networks.
Company may not cancel or reschedule any Order, in whole or in part,
less than fifteen (15) days prior to the corresponding Ship Date
unless mutually agreed to by the parties."
ARTICLE 8, SECTION 8.1.1
With regard to the subject of Bay Products warranty, the following shall apply:
"Third Party Software or Third Party Hardware shall be covered under
the warranty for Bay Products, provided that the Products are included
in the Price List. Products specified on the Price List as being sold
"AS IS" shall have no warranty. Nortel Networks does not warrant that
any item of Bay Products Software is error-free or that its use will
be uninterrupted. Nortel Networks is not obligated to repair or remedy
any Bay Products Software defect if such defect was remedied in a
subsequent software release otherwise available to Company. In that
event, Company may purchase the software release upgrade as the remedy
for such defect.
ARTICLE 8, SECTION 8.3
Section 8.3 of the Agreement shall be deleted in its entirety and restated as
follows:
"8.3 Nortel Networks warrants that each item of Bay Products
Software, as delivered or updated by Nortel Networks and properly
installed and operated on the Hardware or other equipment it is
originally licensed for, will function substantially as described in
its then-current user documentation during its respective warranty
period which begins on the Ship Date. If any item of Bay Products
Software fails to so perform during its warranty period, as the sole
remedy, Nortel Networks will at its discretion provide a suitable
fix, patch or workaround for the problem, to be provided within three
(3) months from the date of the first notice of defect. For specific
Third Party Software included on the Price List which is distributed
by Nortel Networks as a licensee of third parties,
PRIVILEGED and CONFIDENTIAL 37
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I3S, INC.
PRODUCT ANNEX A.1
ATTACHMENT 1
any such additional warranty terms offered by such third parties to
end-users may apply and any such warranty may be assigned to Company
pursuant to Section 8.8 of the Agreement."
8.3.1 If requested by Company, Nortel Networks may design and
develop a Product for Company's use based upon written Company
Specifications or a Statement of Work outlining the various
functions and scalability requirements of the equipment or
software ("Design Project"). If Nortel Networks accepts the
Design Project, it will undertake to design and manufacture the
Product in conformity with such specifications and, upon delivery
of the Product, Nortel Networks warranty set forth in Section 8.3
shall apply to such Product.
8.3.2 If the Product delivered does not meet Company
Specifications and Company so notifies Nortel, then within five
(5) days of receipt of notice of defect, Nortel will advise
Company whether Nortel Networks will accept a return of the
defective Product at Nortel Networks' sole expense, or will
attempt to repair or correct the defect, or will provide
replacement Nortel Products. If the Product substantially
complies with, or materially conforms to Company Specifications
but otherwise fails to function as anticipated by Company, Nortel
Networks reserves the right to invoice Company for its
engineering and design costs incurred in manufacturing the
Product to Company Specifications.
ARTICLE 10, SECTION 10.12
With regard to the subject of remote polling, the following applies:
The right to remote poll shall not apply to Bay Networks Products
or Third Party Equipment.
ARTICLE 14, SECTION 14.3
Section 14.3 of the Agreement shall be inapplicable with respect to Bay Networks
Products.
ARTICLE 15, SECTION 15.17
With regard to the subject of prior agreements, the following shall apply:
"Company and Nortel recognize the existence of a Master Lease
Agreement ("Lease Agreement") dated October 7, 1998 between Company
and Bay Networks USA Inc. n/k/a Nortel Networks Inc. The Lease
Agreement shall not
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I3S, INC.
PRODUCT ANNEX A.1
ATTACHMENT 1
be rescinded by the execution of this Agreement, but the Lease
Agreement shall continue in full force and effect according to its
terms. Except to the extent the terms of the Lease Agreement are
inconsistent with this Agreement, the obligations of the parties shall
be governed by this Agreement. The Commitment Amount described in
Section 2.1.1 of this Product Annex A.1 is in addition to any Bay
Products purchased and received by the Company prior to the date of
this Agreement."
PRIVILEGED and CONFIDENTIAL 36
<PAGE> 1
EXHIBIT 10.22
CONFIDENTIAL TREATMENT REQUESTED
HIGH SPEED DATA SERVICES
RIGHT-OF-ENTRY AGREEMENT
THIS HIGH SPEED DATA SERVICES RIGHT-OF-ENTRY AGREEMENT (this
"Agreement") is entered into as of the 14th day of October, 1999 ("Effective
Date"), by and between I(3)S, Inc., a Texas corporation, with a place of
business at 1440 Corporate Drive, Irving, Texas 75038 ("I(3)S"); and Forest City
Residential Management, Inc., an Ohio corporation with a place of business at
1200 Terminal Tower, Cleveland, Ohio 44113-2203 ("Forest City") as Agent for
Wisconsin Park Associates Limited Partnership, a Maryland Limited Partnership
("Wisconsin Park"). I(3)S and Forest City are hereinafter sometimes individually
referred to as a "party", and collectively as the "parties".
RECITALS
WHEREAS, Forest City currently owns and manages that certain
multiple dwelling unit community (the "Property") commonly known as The Grand
and located at 5801 Nicholson Lane, North Bethesda, Maryland 20852.
WHEREAS, Wisconsin Park is the record owner of the Property;
WHEREAS, I(3)S provides broadband Internet protocol network
services, including, without limitation, high speed data services, as more
specifically described in Exhibits D and E attached hereto and incorporated
herein by reference (the "Service"), to multiple system franchise cable
operators ("MSO's"), private cable operators ("PCO's"), and real estate owners
and developers, nationwide; and
WHEREAS, Forest City and I(3)S desire I(3)S to provide the Service
to the Property and its residents pursuant to the terms and conditions of this
Agreement.
NOW, THEREFORE, the parties hereto hereby covenant and agree as
follows:
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 REPRESENTATIONS AND WARRANTIES OF FOREST CITY.
AUTHORITY. This Agreement has been duly authorized, executed and
delivered by Forest City and constitutes a valid and legally binding agreement
of Forest City, and neither the execution and delivery of nor the performance of
the provisions of this Agreement shall conflict with or result in a breach,
violation or default under the Certificate of Incorporation and Code of
Regulations of Forest City, if applicable; or any material agreement binding on
Forest City that would affect its obligations hereunder.
<PAGE> 2
SOLVENCY. Forest City is in a solvent condition and no bankruptcy or
insolvency proceedings are pending or contemplated by or against it.
1.2 REPRESENTATIONS AND WARRANTIES OF I(3)S.
AUTHORITY. This Agreement has been duly authorized, executed and
delivered by I(3)S and constitutes a valid and legally binding agreement of
I(3)S, and neither the execution and delivery of nor the performance of the
provisions of this Agreement shall conflict with or result in (a) a breach,
violation or default under the Certificate of Incorporation and Bylaws of I(3)S,
if applicable; or any material agreement binding on I(3)S that would affect its
obligations hereunder; or (b) the breach or violation of any law, order, rule,
ordinance, regulation, judgment or decree of an governmental authority having
jurisdiction.
PERMITS, LICENSES, ETC. I(3)S possesses and will continue to possess
for the term of this Agreement and any extensions all material permits,
licenses, franchise rights, trademarks, trademark rights, trade names, trade
name rights, copyrights and other governmental approvals or authorizations and
all requisite licenses or other approvals or authorizations from third parties,
which are necessary and required to conduct the business of the Service, to
perform its obligations under this Agreement and to install, maintain and
operate any equipment or facilities at the Property, and all such property,
right, title and interest, shall remain free and clear of any adverse claims,
interests and liens. Notwithstanding the foregoing, liens created by financing
shall not be considered a violation of this section.
COMPLIANCE. I(3)S is in compliance and will remain in compliance
for the term of this Agreement and any extensions with all applicable federal,
state and local laws, rules, orders, ordinances, codes and regulations.
SOLVENCY. I(3)S is in a solvent condition and no bankruptcy or
insolvency proceedings are pending or contemplated by or against it.
1.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by or on behalf of I(3)S or Forest City shall survive the
execution and delivery of this Agreement, and any investigation at any time made
by or on behalf of Forest City or I(3)S respectively, shall not diminish its
rights to rely thereon.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall have an initial term of three (3) years
from the Effective Date; provided, however, that the initial term may be
automatically extended after the third anniversary of the Effective Date for
additional one (1) year terms unless one party provides the other party with
ninety (90) days prior written notice of the notifying party's intent to
terminate this Agreement upon the expiration of the term then in effect.
<PAGE> 3
ARTICLE 3
MARKETING EXCLUSIVITY; LICENSE
3.1 EXCLUSIVITY. Subject to any other entity's right under law to
provide internet access services, the right granted to I(3)S hereunder to
provide the Service at the Property during the term of this Agreement shall be
exclusive. Subject to all applicable laws, rules, regulations, codes,
ordinances, orders and the like of any federal, state, or local authority or
agency, and provided I(3)S is not in default under this Agreement, Forest City
shall exclusively market the Service at the Property and shall not perform any
marketing activities for any entities providing similar high speed Internet
access services at the Property. Further, Forest City shall not receive any
compensation related to high speed Internet access services from a provider of
similar high speed Internet access services at the Property.
3.2 LICENSE. Forest City grants to I(3)S and I(3)S accepts from Forest
City a license for the term of this Agreement and any extensions to use that
portion of the property set forth in Exhibit A ("Licensed Premises") for the
installation, operation, maintenance and removal of the I(3)S Equipment (as
hereinafter defined), to access the remainder of the Property in accordance with
Forest City's Property rules and regulations to market and sell the Service and
to install, operate, maintain and remove subscriber-related facilities; and to
use, operate and maintain the Forest City Equipment (as hereinafter defined).
The license granted herein and the Licensed Premises shall not be expanded nor
utilized for any other purposes or for the provision of any other services
without Forest City's prior written consent which shall be at Forest City's sole
discretion. I(3)S's access and its use of the Licensed Premises shall not
interfere unreasonably with the quiet use and enjoyment of the Property by its
residents. This Agreement and the license granted hereby are subject to all
liens, claims, encumbrances and other matters now or hereafter affecting title
to the Property. I(3)S's access to the Property and the Forest City Equipment
shall be arranged and controlled by on-site management.
ARTICLE 4
FOREST CITY'S OBLIGATIONS
4.1 Forest City shall use all commercially reasonable efforts to assist
I(3)S in securing access to all occupied and unoccupied units as necessary to
provide the Service so long as I(3)S shall not enter an occupied unit without
the resident's express approval and I(3)S shall not enter any occupied unit
unless a resident or an adult representative of the resident is present;
4.2 Forest City shall use best efforts to report known maintenance or
other problems with respect to the Service directly to I(3)S to the point of
contact designated in writing by I(3)S (the "Contact") including the name and
address of the subscriber, if any, who made the complaint;
4.3 Forest City will direct the residents to call the Contact regarding
any complaints or technical problems concerning the Service;
<PAGE> 4
4.4 Forest City will provide a secure air-conditioned space not to
exceed four (4) feet by four (4) feet, at no charge, to I(3)S for the storage of
I(3)S Equipment (as hereinafter defined) reasonably necessary to provide the
Service at the Property.
4.5 Forest City will allow I(3)S to interconnect with the existing
dedicated telecommunications distribution system ("Forest City Equipment") for
the delivery of the Service at the Property and to residents subject to Section
6 of this Agreement.
4.6 Forest City will provide electricity necessary to power the I(3)S
Equipment (as hereinafter defined) and the Forest City Equipment.
4.7 MARKETING. Forest City agrees to supply I(3)S with a move-in,
move-out list which includes tenant phone numbers as they appear on record on a
monthly basis; to include I(3)S marketing material as approved by Forest City in
tenant leasing packages; to assist in the taking and forwarding of order forms
as supplied by I(3)S: and to allow I(3)S to display Forest City approved
marketing materials on-site at locations approved by Forest City. I(3)S agrees
it will use the tenant information list strictly for I(3)S's own marketing
purposes of the Service at the Property and will perform phone solicitation
between the hours of 9 a.m. and 7 p.m. Further, I(3)S covenants and agrees it
will not provide this list or any information appearing thereon to any third
party.
4.8 Forest City agrees that I(3)S will have access to the Property and
the I(3)S Equipment and Forest City Equipment for routine installation,
maintenance and marketing on weekdays from 9 a.m. to 9 p.m., and on Saturdays
from 9 a.m. to 5 p.m. Emergency service and repair calls can be made at any
time, 24 hours a day, consistent with Property rules and regulations.
ARTICLE 5
INSURANCE; MECHANIC'S LIENS
5.1 INSURANCE. I(3)S agrees to maintain, at all times during the term
of this Agreement, at a minimum, commercial general liability insurance with
minimum limits of $1,000,000 per occurrence for bodily injury (or death) and
property damage liability with limits of at least $1,000,000 per occurrence
[Personal Injury and $1,000,000 General Policy Aggregate (applicable to
Commercial General Liability Policies)] and any additional insurance and/or
bonds required by law. I(3)S agrees to furnish certificates or other acceptable
proof of the foregoing insurance and to name Forest City as an additional
insured. I(3)S warrants that it meets or exceeds all insurance requirements
stated herein and those that are required by the laws of the state where the
Property is located. I(3)S shall provide Worker's Compensation Insurance for its
employees and require Worker's Compensation Insurance for the employees of all
contractors and subcontractors.
5.2 MECHANIC'S LIENS. I(3)S shall not permit any mechanic's liens or
other liens to he placed upon the Property, the Licensed Premises, or the Forest
City Equipment. In the event any lien is so attached, it shall be immediately
paid, released or bonded over by I(3)S in a manner acceptable to Forest City.
Notwithstanding the foregoing, Forest City shall have the right, but
<PAGE> 5
not the obligation, to discharge the same and in such event I(3)S shall
immediately reimburse Forest City for the same upon demand.
ARTICLE 6
I(3)S EQUIPMENT; INSPECTION AND ACCEPTANCE
6.1 INSTALLATION. I(3)S shall install, at its sole cost and expense
(including all costs associated with establishing and maintaining Internet
backbone and local telecommunications connectivity via fully managed data
circuits), all equipment and facilities necessary to provide the Service in
accordance with the service level standards and speed and performance criteria
set forth in attached Exhibits D and E to residents of the Property ("I(3)S
Equipment") with the exception of the Forest City Equipment. A complete list of
the I(3)S Equipment is set forth in Exhibit B attached hereto and incorporated
herein by reference. I(3)S shall use its best efforts to complete Installation
and fully activate the Service such that same is available to all units at the
Property for subscription within sixty (60) days of the Effective Date, but in
no event shall the completion and activation exceed ninety (90) days.
6.2 MAINTENANCE AND OPERATION. I(3)S shall maintain, upgrade as
necessary, repair, replace and operate, the 1(3)S Equipment at its sole cost and
expense, throughout the term of this Agreement and any extensions such that
I(3)S can deliver the Service in accordance with the service level standards and
speed and performance criteria set forth in attached Exhibits D and E. I(3)S
shall also maintain and repair the Forest City Equipment at Forest City's sole
cost and expense, provided however, should such cost and expense exceed $500.00
I(3)S shall first obtain written approval of Forest City. Should the I(3)S
Equipment or should I(3)S's provision of the Service create any unreasonable
interference with the equipment or the provision of service by any other
telecommunications providers already serving the Property, Forest City shall
have the right but not the obligation to terminate this Agreement without
penalty or liability; provided that I(3)S will be afforded a fifteen (15) day
period following written notice of the interference to eliminate or correct such
interference.
6.3 INSPECTION AND ACCEPTANCE. I(3)S acknowledges and agrees that on or
before the Effective Date it had a complete opportunity to inspect the Forest
City Equipment to confirm to the complete satisfaction of I(3)S that the Forest
City Equipment has the characteristics and meets all specifications and
requirements necessary for I(3)S upon the interconnection of the I(3)S Equipment
with the Forest City Equipment to deliver the Service in accordance with the
service level standards and speed and performance criteria set forth in attached
Exhibits D and E. I(3)S's installation of its Equipment and its interconnection
of same with the Forest City Equipment will constitute I(3)S's agreement that
the Forest City Equipment is acceptable for such purposes. Without limiting the
foregoing, I(3)S acknowledges and agrees that Forest City has made no
representations or warranties as to the condition of the Licensed Premises, the
Property or the Forest City Equipment and that I(3)S is relying on its own
inspection in entering into this Agreement. Forest City HEREBY DISCLAIMS, AND
I(3)S HEREBY WAIVES ANY AND All EXPRESS OR IMPLIED WARRANTIES OF ANY KIND
WHATSOEVER, WHETHER STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED
PREMISES,
<PAGE> 6
THE PROPERTY AND THE FOREST CITY EQUIPMENT (INCLUDING WITHOUT LIMITATION THE
WARRANTY OF FITNESS FOR A PARTICULAR USE) AND WARRANTIES ARISING FROM COURSE OF
DEALING OR USAGE OR TRADE.
6.4 OWNERSHIP. Forest City owns and will continue to own the Forest
City Equipment throughout the term of this Agreement and any extensions. I(3)S
owns and will continue to own the I(3)S Equipment throughout the term of this
Agreement and any extensions; provided however that, upon the expiration of
twenty-four (24) months after the Effective Date, Forest City shall have the
option, to be exercised by written notice to I(3)S within one hundred and twenty
(120) days thereafter, to acquire ownership of the I(3)S Equipment for a jump
sum equal to the undepreciated capital cost of such Equipment as reflected on
the books and records of I(3)S. In connection therewith, I(3)S shall deliver to
Forest City a bill of sale assigning and conveying the I(3)S Equipment to Forest
City "as is," "where is," and "with all faults" with the exception that at the
time of such assignment and conveyance I(3)S will warrant that the I(3)S
Equipment is still sufficient to meet the service level standards and speed and
performance criteria set forth in attached Exhibits D and E. Notwithstanding
anything herein to the contrary, I(3)S shall continue to maintain and operate
the I(3)S Equipment and the Forest City Equipment for the term of this Agreement
and any extensions. Should Forest City not exercise its option to acquire the
I(3)S Equipment, I(3)S shall remove it and restore the Property to its original
condition upon the expiration or earlier termination of this Agreement, subject
to ordinary wear and tear. Any I(3)S Equipment not so removed within thirty (30)
days shall be deemed abandoned in favor of Forest City.
ARTICLE 7
DESCRIPTION OF THE SERVICE; COMPETITIVE STANDARDS
7.1 DESCRIPTION OF THE SERVICE. During the term of this Agreement and
any extension, I(3)S shall provide the Service to the residents of the Property
as more particularly described and set forth in Exhibits D and E attached hereto
and incorporated herein by reference. Notwithstanding anything in this Agreement
or its Exhibits, including Exhibits D and E, to the contrary, the right granted
to I(3)S to provide the Service does not include any right to provide
multichannel video programming services or telephony services separate from or
as part of the Service. The Service, both recurring and nonrecurring elements,
shall be provided at the sole cost and expense of I(3)S. Forest City shall not
be responsible in any manner for any costs associated with the provision of the
Service or for any fees or charges unpaid by subscribers to the Service. Any
subscription or other agreements entered into between I(3)S and any resident
shall automatically terminate or expire upon the termination or expiration of
this Agreement.
7.2 COMPETITIVE STANDARDS. During the term of this Agreement and any
extensions, I(3)S represents that the quality and quantity of the services,
functions and features comprising the Service and the subscription rates,
charges and fees for both recurring and nonrecurring elements of the Service are
and will remain comparable to and competitive with the services, functions and
features and the subscription rates, charges and fees for both recurring and
nonrecurring elements generally offered by other providers of high speed
Internet access services in the geographic area
<PAGE> 7
of the Property which is generally known as the Washington Metropolitan
Statistical Area, provided however, that I(3)S shall not have to be competitive
with any provider operating without a meaningful net margin in order to gain
subscribers.
7.3 VIRTUAL PRIVATE NETWORK. I(3)S agrees to provide Forest City at no
charge unlimited unrestricted broadband connectivity access from the Property to
the I(3)S net national network backbone for the term of this Agreement and any
extensions for one (1) office site and two (2) employee resident units at the
Property.
ARTICLE 8
REVENUE ALLOCATION; BRANDING
8.1 REVENUE ALLOCATION. I(3)S shall directly bill and collect from any
resident of the Property who subscribes to the Service. Forest City shall have
no responsibility or liability for the failure of any subscriber to pay such
fees. For purposes of this Agreement, "Revenue" shall mean gross amounts
received from resident subscribers for all recurring and nonrecurring elements
of the Service, excluding only installation charges, taxes or any other amounts
paid to any city, county, state or federal authority, customer equipment sales
or leases, or other charges "passed through" to resident-subscribers on a
no-markup basis. By the twenty-fifth day of each month, I(3)S shall pay Forest
City a revenue sharing fee calculated as a percentage of the Revenue actually
collected by or on behalf of I(3)S for the immediately preceding month in
accordance with the following tables:
<TABLE>
<CAPTION>
PENETRATION REVENUE SHARE
<S> <C>
0% to 10% *
Greater than 10% to 15% *
Greater than 15% to 20% *
Greater than 20% to 30% *
Greater than 30% to 40% *
Greater than 40% to 50% *
Greater than 50% *
</TABLE>
"Penetration" means the total number of I(3)S subscribers at the
Property divided by the total number of units available for lease at the
Property.
Should Forest City exercise its option in Section 6.4 to acquire
ownership of all I(3)S on-property equipment including without limitation all
Ethernet switches and on-property router, the Revenue Share shall be in
accordance to the following table for the remainder of the term of this
Agreement and any extensions:
<PAGE> 8
<TABLE>
<CAPTION>
PENETRATION REVENUE SHARE
<S> <C>
0% to 10% *
Greater than 10% to 15% *
Greater than 15% to 20% *
Greater than 20% to 30% *
Greater than 30% to 40% *
Greater than 40% to 50% *
Greater than 50% *
</TABLE>
I(3)S and Forest City agree to enter into good faith negotiations to
include Net Advertising and E-commerce revenue sharing in the definition of
Revenue within eighteen (18) months from the Effective Date.
8.2 BRANDING. With respect to the Service, and the promotion thereof,
I(3)S shall establish the brand names, logos, labels, trademarks, service marks
and other such identifying promotional characteristics pertaining to the same
throughout the term of this Agreement and any extensions; provided however, that
I(3)S will not use any brand names, logos, labels, trademarks, service marks and
the like belonging to or associated with Forest City or its affiliates without
Forest City's prior written approval which may be withheld in Forest City's sole
discretion. All rights not expressly granted hereunder by a party are expressly
reserved to such party and its licensors.
8.3 AUDIT. I(3)S shall keep, maintain and preserve for at least one (1)
year following the termination or expiration of this Agreement accurate records
relating to I(3)S's payment obligations hereunder. Forest City shall have the
right to inspect such records at least once during any calendar year at I(3)S's
place of business or such other place agreed upon during normal business hours.
I(3)S shall promptly pay Forest City any shortfall disclosed by such audit but
such payment date shall not exceed fifteen (15) days. Should any audit disclose
a shortfall greater than five percent (5%), I(3)S shall pay the reasonable costs
of the audit.
ARTICLE 9
SPECIFIC SOFTWARE WARRANTIES; SUBSCRIBER END USER AGREEMENT
9.1. OWNERSHIP; AUTHORITY. I(3)S represents and warrants that the
software utilized hereunder (collectively, the "Products") are free and clear of
all liens and encumbrances, and that it has full power, license and authority to
utilize the rights granted to it with respect to such Products without the
consent of any other person or that such consent has been obtained, and that to
the knowledge of I(3)S the Products utilized hereunder will not infringe or
violate any copyright, trade secret, trademark, patent or other intellectual
property rights of any third party. I(3)S hereby agrees to indemnify, defend and
hold Forest City harmless in accordance with Section 10.l in connection with
such representation and warranty.
9.2 SUBSCRIBER END USER AGREEMENT. Forest City shall not be
responsible or liable in any manner under any circumstances for any subscriber
noncompliance with any applicable
<PAGE> 9
end user license agreement. I(3)S agrees that, notwithstanding Forest City's
marketing or other promotional support, ownership of the Forest City Equipment
or potential ownership of the I(3)S Equipment, or any other provision of this
Agreement, I(3)S is the sole party responsible for or liable in connection with
the provision of the Service to resident-subscribers. Forest City shall not be
responsible for any claims whatsoever arising out of or in any way connected
with the Service, the I(3)S Equipment, the Forest City Equipment, data or
information transmitted to subscribers via the Internet, or the failure of any
subscriber to receive or transmit data or information via the Internet and I(3)S
hereby agrees to indemnify, defend and hold Forest City harmless in accordance
with Section 10.1 in connection with such claims.
ARTICLE 10
INDEMNIFICATION
10.1 INTELLECTUAL PROPERTY RIGHTS INDEMNIFICATION. I(3)S shall defend,
indemnify and hold harmless Forest City, its parent, subsidiaries, affiliates,
directors, officers, shareholders, employees and agents and its successors and
assigns, from and against any and all claims, demands, actions, liabilities,
losses, damages and expenses, including, without limitation, settlement costs
and reasonable attorneys' fees through appeal, arising out of or relating to any
actual or alleged infringement of any third party's trade secrets, trademark,
service mark, copyright, patent or other intellectual property rights (the
"Intellectual Property Rights") in connection with the use of said Intellectual
Property Rights hereunder. I(3)S's obligation pursuant to the immediately
preceding sentence is subject to the following conditions: (i) Forest City shall
give I(3)S prompt written notice of all actions, claims or threats against
Forest City of infringement or violation of Intellectual Property Rights, (ii)
Forest City shall permit I(3)S to and I(3)S will assume complete control of such
claims at its sole expense; and (iii) if reasonable out-of-pocket expenses and
attorneys' fees through appeal are paid by I(3)S. Forest City shall cooperate
fully with I(3)S in defending against such claims, including making known or
available to I(3)S, upon reimbursement of all costs associated with provision or
reproduction of, all records and document pertaining to such claims.
10.2. INDEMNIFICATION OF FOREST CITY. In addition to Section 10.1 and
other indemnity provisions set forth in other Sections of this Agreement, I(3)S
shall indemnify, defend and hold Forest City, its parent, subsidiaries,
affiliates, directors, officers, shareholders, employees and agents and its
successors and assigns, from and against any and all claims, demands, actions,
liabilities, losses, damages and expenses, including, without limitation,
settlement costs and reasonable attorneys' fees through appeal, arising out of
or relating to (i) the installation, maintenance, repair, operation, malfunction
or removal of the I(3)S Equipment; (ii) the maintenance, repair, operation or
malfunction of the Forest City Equipment unless Forest City does not pay for
such maintenance, repair or replacement pursuant to section 6.2; (iii) the
provision of the Service, including Service interruptions; (iv) I(3)S's failure
to comply with all applicable federal, state and local laws or to obtain all
licenses, permits or other authorizations necessary to provide the Service and
operate the I(3)S Equipment and the Forest City Equipment; (v) I(3)S's breach of
any material provision of this Agreement or any representation or warranty; and
(vi) any loss of or damage to real or tangible personal property, including the
Property, the
<PAGE> 10
Licensed Premises and the Forest City Equipment, or injury to or death of any
person (including injury to or death of their employees) caused by I(3)S's
negligence, willful misconduct or violation of law, or by its agents, employees,
subcontractors or assignees. I(3)S's obligation hereunder is subject to the
following conditions: (i) Forest City shall give I(3)S prompt written notice of
all actions, claims or threats against Forest City; (ii) Forest City shall
permit I(3)S to and I(3)S will assume complete control of such claims at its
sole expense; and (iii) if reasonable out-of-pocket expenses and attorneys' fees
through appeal are paid by I(3)S, Forest City shall cooperate fully with I(3)S
in defending against such claims, including making known or available to I(3)S,
upon reimbursement of all costs associated with provision or reproduction of,
all records and document pertaining to such claims.
10.3 INDEMNIFICATION OF I(3)S. Forest City shall indemnify, defend and
hold I(3)S harmless against all liability, loss, damage, and expense resulting
from a breach of Forest City's representations, warranties or a material
provision of the Agreement, or injury to or death of any person (including
injury to or death of their employees) or loss of or damage to real or tangible
personal property, including the I(3)S Equipment or the Forest City Equipment,
caused by Forest City's gross negligence, willful misconduct or violation of law
or by its agents, employees, subcontractors or assignees. Forest City's
obligation hereunder is subject to the following conditions: (i) I(3)S shall
give Forest City prompt written notice of all actions, claims or threats against
I(3)S (ii) I(3)S shall permit Forest City to assume complete control of such
claims at its sole expense; and (iii) if reasonable out-of-pocket expenses and
attorneys' fees through appeal are paid by Forest City, I(3)S shall cooperate
fully with Forest City in defending against such claims, including making known
or available to Forest City, upon reimbursement of all costs associated with
provision or reproduction of, all records and document pertaining to such
claims.
10.4 LIMITED LIABILITY. NEITHER PARTY SHALL BE LIABLE OR OBLIGATED
UNDER ANY SECTION OF THIS AGREEMENT OR UNDER CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL, OR EQUITABLE THEORY FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS.
ARTICLE 11
PROTECTION OF PROPRIETARY RIGHTS
11.1 CONFIDENTIAL INFORMATION. Information to be held in confidence
shall be clearly marked "Proprietary" or "Confidential." Information which is
conveyed orally shall be deemed confidential only if prior to disclosure it is
indicated as being confidential and written confirmation identifying the
confidential or proprietary information is provided to the receiving party
within ten (10) business days after it was discussed orally.
11.2 RESTRICTIONS. Each party shall use its reasonable best efforts to
maintain the confidentiality of such Confidential Information and not show or
otherwise disclose such Confidential Information to any third parties,
including, but not limited to, independent contractors and consultants, without
the prior written consent of the disclosing party. Each party shall use the
Confidential Information solely for the purpose of performing its obligations
under this Agreement.
<PAGE> 11
11.3 AUTHORIZED DISCLOSURES. Notwithstanding the obligations described
in Section 11.2 above, neither party shall have any obligation to maintain the
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving party;
(ii) is independently developed by the receiving party; or (iii) is received
from a third party who has lawfully obtained such Confidential Information
without a confidentiality restriction. If required by any court of competent
jurisdiction or other governmental authority, the receiving party may disclose
to such authority, data, information or material involving or pertaining to
Confidential Information to the extent required by such order, provided that the
receiving party shall first have used its best efforts to obtain a protective
order reasonably satisfactory to the disclosing party sufficient to maintain the
confidentiality of such data, information or materials.
11.4 LIMITED ACCESS. Each party shall limit the use and access of
Confidential Information to such party's bona-fide employees, attorneys,
financial advisors or agents who have a need to know such information for
purposes of conducting the receiving party's business. Each party shall notify
all employees and agents who have access to Confidential Information or to whom
disclosure is made that the Confidential Information is the confidential,
proprietary property of the disclosing party and shall instruct such employees
and agents to maintain the Confidential Information in confidence.
11.5 CONTINUING OBLIGATIONS. Each party's obligations under this
Article 11 shall survive the termination of this Agreement for two (2) years
thereafter.
11.6 CONFIDENTIALITY OF TERMS. Unless approved in advance by the
non-disclosing party, except for the existence of this Agreement, the terms and
provisions of this Agreement shall remain strictly confidential and shall not be
disclosed to any third party other than a party's attorneys, accountants, other
professional advisers, potential purchasers of the Property, and unless
otherwise required by law.
ARTICLE 12
DEFAULT; TERMINATION
12.1 DEFAULT. Upon the occurrence of any of the following events, a
party shall be deemed to be in default under this Agreement:
(a) Material breach of any warranty or representation by the defaulting
party;
(b) Material failure to perform the defaulting party's obligations
hereunder and a failure to cure substantially such breach if monetary within
fifteen (15) days and if monetary within thirty (30) days of written notice
describing the breach, including with respect to I(3)S its failure to (i)
maintain the service standards set forth in Sections 7.1 and 7.2 and Exhibits D
and E hereof, and (ii) make the payments to Forest City set forth in Section
8.1 hereof.
(c) The defaulting party's ceasing to conduct business in the normal
course, insolvency, the making of a general assignment for the benefit of its
creditors, suffering or permitting the
<PAGE> 12
appointment of a receiver or similar officer for its business or assets or
availing itself of, or becoming subject to, any proceeding under the United
States Federal Bankruptcy Laws or any federal or state statute relating
to solvency or the protection of the rights of creditors; or
(d) Making of any warranty, representation, statement or response in
connection with this Agreement which was untrue and known to be untrue in any
material respect on the date it was made by the defaulting party.
12.2 REMEDIES. In the event the defaulting party fails to cure any
default set forth hereunder within the applicable time period, except for
defaults pursuant to Section 12.1(c) which shall have a cure period of ninety
(90) days, after written notice of such default by the non-defaulting party
specifying the acts or omissions constituting the default with reference to the
sections of this Agreement which have allegedly been breached, the
non-defaulting party may terminate this Agreement without further obligation on
the part of the non-defaulting party, and pursue any claims at law or in equity
against the defaulting party.
12.3 FAILURE TO EXERCISE REMEDY. The remedies set forth above are
cumulative, but the non-defaulting party is under no obligation to exercise any
such remedy. The exercise of, or failure to exercise, any such remedies shall
not prevent any future exercise of the same or any other remedies or release the
defaulting party from its obligations under this Agreement.
12.4 EFFECT OF TERMINATION. Termination of this Agreement shall not
impair either party's then accrued rights, obligations, liabilities or remedies
hereunder.
12.5 SMOOTH TRANSITION. Upon the expiration or earlier termination of
this Agreement, I(3)S agrees fully to assist Forest City in accomplishing a
smooth transition to any new provider of Internet access service, including but
not limited to providing a continuation of the Service with Forest City's
consent past the expiration or earlier termination of this Agreement on a
month-to-month terminable at will basis for a time period not to exceed three
(3) months. Any holding over by I(3)S without the consent of Forest City shall
be construed to be a tenancy from month-to-month and 1(3)S agrees it shall pay
two (2) times the Section 8.1 Revenue allocation obligations due thereunder and
continue to comply and remain in accordance with all of the other terms,
provisions, covenants and conditions contained in this Agreement, and Forest
City shall continue to possess all the remedies it may have at law or in equity.
ARTICLE 13
NOTICE; PUBLIC DISCLOSURES
13.1 NOTICE. All notices pursuant to this Agreement shall be in writing
and may be personally delivered or sent by overnight courier or by Certified
or Registered mail. All notices personally delivered shall be deemed delivered
at the time of such delivery. All notices sent by Certified or Registered mail
shall be deemed delivered five (5) days after deposited in the US mail. All
notices sent by overnight courier shall be deemed made one (1) business day
after delivery to such courier service. Any party may designate a change of
address upon ten (10) days written notice.
<PAGE> 13
If to I(3)S, to:
I(3)S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Mr. Jim Price, CEO
with a copy to:
I(3)S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Mr. Matt Hutchins, President
If to Forest City, to:
Forest City Residential Management, Inc.
1200 Terminal Tower
Cleveland, Ohio 44133-2203
Attn:
13.2 PUBLIC DISCLOSURES. All media releases, public announcements, and
public disclosures by either party or its employees, agents or representatives
relating to this Agreement or the subject matter hereof, excluding any
announcement beyond the control of the disclosing party, will be approved by the
non-disclosing party in writing prior to release.
ARTICLE 14
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement, together with the Exhibits
attached hereto or referred to herein, constitutes the entire Agreement and
understanding among the parties hereto with respect to the provision of the
Service at the Property and is the final expression of their Agreement on that
subject and no evidence of oral or other written promises shall be binding. All
other prior agreements or understandings related to the subject hereof among the
parties, whether written or oral, shall be null and void and of no further force
and effect upon the execution of this Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
14.2 INCORPORATION BY REFERENCE. The Exhibits referred to herein or
attached hereto are hereby incorporated in and to this Agreement and made a part
hereof by this reference.
14.3 AMENDMENT; MODIFICATION. This Agreement may not be supplemented,
amended, modified or otherwise altered except by written instrument executed by
all the parties hereto and
<PAGE> 14
no course of dealing or trade usage among or between the parties shall be
effective to supplement, amend, modify or alter this Agreement.
14.4 WAIVER. The failure to enforce or to require the performance at
any time of any of the provisions of this Agreement herein shall in no way be
construed to be a waiver of such provisions, and shall not affect either the
validity of this Agreement, any part hereof or the right of any party thereafter
to enforce each and every provision in accordance with the terms of this
Agreement.
14.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED,
WITHOUT REGARD TO ITS CONFLICTS OR CHOICE OF LAWS.
14.6 CONTINUITY OF CONTRACT. If any severable provision of this
Agreement is deemed invalid or unenforceable by any judgment of a court of
competent jurisdiction, the remainder of this Agreement shall not be affected by
such judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent, unless to do so would substantially
impair the underlying purposes of this Agreement. Notwithstanding the foregoing,
should the revenue allocation set forth in Section 8.1 be deemed invalid or
unenforceable for any reason by any applicable governing authority, Forest City
may, at its sole election, terminate this Agreement and exercise its option in
Section 6.4 to acquire the I(3)S Equipment at that time if not already acquired.
14.7 CAPTIONS. The captions appearing in this Agreement are included
solely for convenience of reference and shall not be construed or interpreted to
affect the meaning or interpretation of this Agreement.
14.8 FORCE MAJEURE. Neither party shall be responsible for any failure
to comply with or for any delay in performance of the terms of this Agreement,
including, but not limited to, delays in delivery, where such failure or delay
is directly or indirectly caused by or results from events of force majeure
beyond the control of either party. These events shall include, but not be
limited to, fire, flood, earthquake, accident, civil disturbance, war, acts of
God, or acts or government.
14.9 HIRING PROHIBITED. During the term of this Agreement and for a
period of one (1) year thereafter, neither party shall solicit for hire or hire
any employee of the other party who has performed services under this Agreement.
This prohibition may be enforced by either party in equity and irreparable
injury shall be deemed automatically established in any such proceeding.
14.10 PERFORMANCE REVIEW. In the event of any dispute or controversy
between the parties of any kind or nature, except in circumstances where
equitable relief is deemed necessary by either party in its sole discretion,
upon the written request of either party, each of the parties will appoint a
designated officer whose task it will be to meet for the purpose of resolving
such
<PAGE> 15
dispute or controversy or to negotiate for an adjustment to any provision of
this Agreement needed to resolve such dispute or controversy. Such officers will
discuss the dispute or controversy and negotiate in good faith in an effort to
resolve the dispute or controversy or renegotiate the applicable section or
provision of this Agreement without the necessity of any formal proceeding
relating thereto. No formal proceedings for the judicial or arbitrational
resolution of such dispute or controversy may he commenced until either or both
of the designated officers conclude in good faith that an amicable resolution
through continued negotiation of the matter at issue is not likely to occur.
14.11 RELATIONSHIP OF THE PARTIES. Notwithstanding anything to the
contrary in this Agreement, under no circumstances will either party be deemed
to be in any relationship with the other party carrying with it fiduciary or
trust responsibilities. The parties do not intend for this Agreement or the
relationship established thereby to be considered the formation of a joint
venture or partnership between the parties for any purpose. I(3)S has the sole
right to supervise, manage, contract, direct, procure, perform or cause to be
performed the day-to-day work to be performed by I(3)S under this Agreement
unless otherwise expressly provided herein or agreed to by the parties in
writing. I(3)S shall be responsible for insuring that any independent
contractors or subcontractors fully comply with all of the applicable terms of
this Agreement to the same extent that I(3)S must fully comply if it were
performing the acts performed by such contractors or subcontractors and I(3)S
shall be liable to Forest City if such contractors or subcontractors fail fully
to comply. I(3)S shall insure that no contractors or subcontractors file a
mechanic's or similar lien against the Property, the Licensed Premises and the
Forest City Equipment and I(3)S shall promptly remove all such liens that may be
filed against same. I(3)S shall insure that such contractors and subcontractors
carry insurance similar to that required of I(3)S under this Agreement prior to
the performance of any work at the Property. I(3)S shall indemnify Forest City
for actions or omissions of such contractors and subcontractors to the same
extent that I(3)S would indemnify Forest City if I(3)S engaged in the same
actions or made the same omissions.
14.12 COUNTERPARTS. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
14.13 MEMORANDUM OF AGREEMENT. I(3)S may record a memorandum of this
Agreement in the form set forth in Exhibit C-1 attached hereto, provided however
that this Agreement is subordinate to any and all leases, mortgages, deeds or
trusts that encumber the Property now or at any time and provided further that
I(3)S shall provide such certificates or other statements as Forest City may
request in writing to acknowledge the subordination of this Agreement.
Simultaneous with the execution of this Agreement, I(3)S agrees to execute and
deliver to Forest City a Memorandum of Termination of Agreement in the form set
forth in Exhibit C-2 attached hereto which Owner shall have the right to record
in the local property records in which the Memorandum of Agreement was recorded
upon the expiration or earlier termination of this Agreement. I(3)S shall be
deemed in default of this Agreement if I(3)S records the Memorandum of Agreement
without first executing and delivering the Memorandum of Termination of
Agreement.
<PAGE> 16
14.14 SUBORDINATION. This Agreement is subject and subordinate to all
leases, mortgages, and/or deeds of trust which may now or hereafter affect the
Property, and to all renewals, modifications, consolidations, replacements and
extensions thereof. This clause shall be self operative and no further
instrument or subordination shall be required by any mortgage, trustee, lessor
or lessee. In confirmation of such subordination, I(3)S shall execute promptly
any certificate that Forest City may request. Notwithstanding the foregoing, the
party secured by any deed of trust shall have the right to recognize this
Agreement. In the event of any foreclosure sale under such deed of trust, this
Agreement shall continue in full force and effect at the option of the party
secured by such deed of trust or the purchaser under any such foreclosure sale.
I(3)S covenants that it will, at the written request of the party secured by any
such deed of trust, execute, acknowledge and deliver any instrument that has for
its purpose and effect the subordination to said deed of trust of the lien of
this Agreement.
14.15 ASSIGNMENT. This Agreement shall benefit and be binding on the
respective permitted assigns, transferees and successors of the parties. Upon
thirty (30) days prior written notice to Forest City, I(3)S may assign its
rights and delegate its duties under this Agreement to any affiliate or to any
party controlled by, controlling or under common control with I(3)S or to a
party acquiring all or substantially all of I(3)S's assets; provided however,
that the assignee party must unconditionally assume in writing, and agree to be
bound by, the right, duties and obligations of I(3)S under this Agreement. Any
other assignment of this Agreement by I(3)S requires the prior written approval
of Forest City which consent will not be unreasonably withheld, conditioned or
delayed provided the assignee party must be financially qualified, be an
experienced high speed Internet access provider, and unconditionally assume in
writing, and agree to be bound by, the right, duties and obligations of I(3)S
under this Agreement. Forest City will notify any new owners of the Property
about this Agreement and has the right but not the obligation to assign this
Agreement to such new owners. Should such new owners refuse an assignment of
this Agreement, Forest City shall notify I3S that it will be terminating this
Agreement ("Termination Notice"). This Agreement shall terminate upon payment by
Forest City of a lump sum termination fee ("Termination Fee") determined
according to the following formula:
The Net Present Value (NPV) using a Discount Rate of Eight Percent (8%) of
(1) The monthly average Commissionable Revenues for the three months prior
to the Termination Notice, net of Revenue Share Fees Due to Forest City
X The number of months remaining in the Term
= TERMINATION FEE
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
I(3)S, INC. FOREST CITY RESIDENTIAL MANAGEMENT, INC.
Agent for Wisconsin Park Associates
Limited Partnership
By: /s/ MATTHEW HUTCHINS By: ANGELO N. PIMPAS
------------------------- -------------------------
Matthew Hutchins Angelo N. Pimpas
President Co-President
Date: November 4, 1999 Date: December 13, 1999
----------------------- -----------------------
<PAGE> 18
LIST OF EXHIBITS
EXHIBIT A Licensed Premises
EXHIBIT B: Equipment List
EXHIBIT C-1: Memorandum of Agreement
EXHIBIT C-2: Memorandum of Termination of Agreement
EXHIBIT D: Description of High Speed Data Services Provided by I(3)S
EXHIBIT E: Service Level Standards
<PAGE> 19
EXHIBIT A - LICENSED PREMISES
All that land located in the 4th Election District, Montgomery County,
Maryland, described as follows:
Condominium Units LU-2 and LU-3, in THE WISCONSIN LAND
CONDOMINIUM, Montgomery County, Maryland, and the Common Elements apurtenant
thereto, pursuant to the Declaration for the Wisconsin Land Condominium, dated
Nov. 4, 1991, recorded in Liber 10012 at folio 631, as supplemented by
Supplementary Declaration, dated June 23, 1997, recorded June 24, 1997 at 4:12
p.m.; and the condominium plats recorded in Condominium Plat Book 57 at Plat No.
5839, et seq,; as supplemented by condominium plats recorded in Condominium
Plat Book 73 at Plat Nos. 7326 through 7331.
<PAGE> 20
EXHIBIT B - EQUIPMENT LIST
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C> <C>
3 AL2012H17 Nortel Bay Stack 350 Ether Switches - 24 port
34 AL2012E16 Nortel Bay Stack 410 Ether Switches - 24 port
30 AL2033004 BayStack 400-4TX 4-port 10BASE-T/100BASE-TX MDA
6 AL2033010 BS410-Cascade module
3 AL2033002 2 port 100base-FX MDA
1 Xedia AP Router
</TABLE>
<PAGE> 21
EXHIBIT C-1 - MEMORANDUM OF AGREEMENT
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Matthew Hutchins
President
I(3)S, Inc.
1440 Corporate Drive
Irving, Texas 75038
MEMORANDUM OF AGREEMENT
A license has been granted by Wisconsin Park Associates Limited
Partnership, ("Grantor") the owner of record of the Premises to I(3)S
("Grantee") under a certain High Speed Data Services Right of Entry Agreement
dated _________________ by and between Grantor and Grantee (the "Agreement").
The license permits Grantee, among other things, to provide high-speed data
Service, as described in the Agreement, and to engage in any other act or
activity contemplated by the Agreement at the Property described herein. The
Agreement terminates on the earlier of three (3) years after the above date
(with renewals of one year terms in the absence of written termination) or (ii)
any termination of the Agreement due to breach by any party. As used in the
Agreement, the term "Property" means that real property consisting of
approximately 546 units located in the city of North Bethesda, County of
Montgomery, State of Maryland, at the address commonly known as 5801 Nicholson
Lane
and more particularly described on Exhibit A attached hereto and made a part
hereof.
In the event of any conflict between the terms and conditions of this Memorandum
and the terms and conditions of the Agreement, the Agreement shall control. The
parties agree that the sole purpose of this Memorandum is to provide notice of
the Agreement.
The undersigned personally warrants and represents that he/she has the authority
to execute this Memorandum on behalf of the Grantor and the information stated
in this Memorandum is true and accurate to the best of Grantor's knowledge.
Executed this 13th day of Dec, 1999
GRANTOR: Wisconsin Park Associates Limited Partnership
A Maryland Limited Partnership
BY: Forest City Residential Management, Inc.
Agent For Grantor
By: /s/ ANGELO PIMPAS
----------------------------------
Angelo Pimpas
Its: Co-President
<PAGE> 22
STATE OF OHIO
-------------------
COUNTY OF CUYAHAGA
------------------
On Dec 13, 1999, before me, Hilda Koenig personally appeared
Angelo Pimpas, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by his/her/their signature(s)
on the instrument and the person(s) or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: /s/ HILDA KOENIG
--------------------------------(seal)
Hilda Koenig
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires June 20, 2004
GRANTEE: I(3)S, Inc.
A Texas corporation
BY:
-------------------------------
NAME:
-------------------------------
TITLE:
-------------------------------
STATE OF
------------------
COUNTY OF
------------------
On , 199, before me, , personally
appeared , personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument and the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
---------------------------------- (seal)
<PAGE> 23
EXHIBIT A - LICENSED PREMISES
All that land located in the 4th Election District Montgomery County,
Maryland, described as follows:
Condominium Units LU-2 and LU-3, in THE WISCONSIN LAND CONDOMINIUM, Montgomery
County, Maryland, and the Common Elements apurtenant thereto, pursuant to the
Declaration for the Wisconsin Land Condominium, dated Nov 4, 1991, recorded in
Liber 10012 at folio 631, as supplemented by Supplementary Declaration, dated
June 23, 1997, recorded June 24, 1997 at 4:12 p.m.; and the condominium plats
recorded in Condominium Plat Book 57 at Plat No. 5839, et seq,: as supplemented
by condominium plats recorded in Condominium Plat Book 73 at Plat Nos. 7326
through 7331.
<PAGE> 24
EXHIBIT C-2 - MEMORANDUM OF TERMINATION OF AGREEMENT
This Memorandum of Termination of Agreement is executed this day of ,
20 , by and between Forest City Residential Management, Inc. ("Forest City") as
Agent for Wisconsin Park Associates Limited Partnership and I(3)S, Inc.
("I(3)S").
Forest City and I(3)S entered into that certain Memorandum of Agreement recorded
on , ,1999 as document number in the Official Records of
Montgomery County, Maryland with respect to that High Speed Data Services
Right-of-Entry Agreement (the "Agreement") entered into between Forest City and
I(3)S for the property commonly known as The Grand and located at 5801 Nicholson
Lane in the City of North Bethesda, County of Montgomery and State of Maryland
(the "Property").
This Memorandum of Termination of Agreement is being recorded pursuant to
Section 14.13 of the Agreement. This document provides record notice that the
Agreement between Forest City and I(3)S has expired or has otherwise terminated
and is no longer in effect at the Property. The intended effect of recording
this document in the Official Records of Montgomery County, Maryland shall be to
remove the previously recorded Memorandum of Agreement as an encumbrance to
title.
This Memorandum of Termination of Agreement may be executed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and is intended to be binding when all parties have
delivered their signatures to the other parties.
Wherefore the parties have executed this Memorandum of Termination of Agreement
as of the date first above written.
GRANTOR: Wisconsin Park Associates Limited Partnership
A Maryland Limited Partnership
BY: Forest City Residential Management, Inc.
Agent For Grantor
By:
---------------------------------
Angelo Pimpas
Its: Vice President
<PAGE> 25
STATE OF
-------------------------
COUNTY OF
-------------------------
On , 20 , before me, , personally appeared
, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies) and that by his/her/their signature(s)
on the instrument and the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
----------------------------- (seal)
GRANTEE: I(3)S, Inc.
A Texas corporation
BY:
--------------------------------
NAME:
--------------------------------
TITLE:
--------------------------------
STATE OF
--------------
COUNTY OF
--------------
On , 20 , before me, , personally
appeared , personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument and the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:
-------------------------- (seal)
<PAGE> 26
EXHIBIT D
DESCRIPTION OF HIGH SPEED DATA SERVICES PROVIDED BY I(3)S
The I(3)S High Speed Data Services ("HSDS") is a data network service that
provide transport and peering functions of Internet Protocol (IP) data traffic,
including, without limitation:
o Broadband access networks on MDU properties composed of one or more
broadband access technologies including but not limited to coaxial or
hybrid fiber coaxial (HFC) cable television distribution systems,
twisted-pair copper-wire-based telephone distribution systems, twisted-pair
copper-wire-based local area network distribution systems and
Fiber-optic-based local area network distribution systems;
o Local loop networks that connects the broadband access networks on each
MDU property to the I(3)S regional points-of-presence (POPs) in each
metropolitan area served by I(3)S;
o Regional point-of-presence networks that connects the POPs to the I(3)S.net
national IP backbone;
o A national IP backbone consisting of broadband communication facilities for
the transport of data among I(3)S POPs and public and private Exchange
Points where data and Internet routing information will be exchanged with
other networks peered with I(3)S.net as part of the global Internet;
o A national Network Operations Center (NOC).
o Certain computer services that include:
o Membership system for user authentication and authorities;
o Personalization services for customizing content to user preferences;
o Internet mail (SMTP and POP3);
o Internet newsgroups (NNTP) composed of approximately 25,000 or more
newsgroups;
o Internet World Wide Web (HTTP) services;
o Internet chat (IRC and MIRC);
o Conferencing and collaboration bridges;
o Streaming multimedia services such as Microsoft's NetShow and
Progressive Network's RealMedia;
o A branded suite or client software that include:
o Web browse;
o Mail reader;
o News reader;
<PAGE> 27
o Chat client;
o Conferencing and collaboration client;
o Appropriate plug-ins and ActiveX controls.
o Certain customer service functions that include:
o A National Customer Care Center;
o A telephone and network-based customer help desk;
o A Trouble Reporting facility;
o A customer billing system.
o Certain multimedia-rich content that showcases the capabilities of HSDS
that includes:
o Original content created by I(3)S;
o Aggregated content created by others but licensed by I(3)S and
improved for uses in a HSDS systems;
o Aggregated content created by others but licensed by I(3)S and used
unimproved.
<PAGE> 28
REQUIREMENTS
RELATED TO BROADBAND ACCESS NETWORKS
UTILIZING MULTIPLE BROADBAND ACCESS TECHNOLOGIES (mBAT)
I(3)S's RESPONSIBILITIES:
Install, maintain and operate data delivery equipment for each property
offering HSDS. Installation and maintenance will meet or exceed
manufacturer's specifications and the requirements set forth in the
Agreement. Through itself or its agents, Forest City will assist I(3)S with
pre-installation engineer planning and site survey questionnaires;
Integrate all data delivery equipment for each property into the I(3)S
Element Management System portion of its Network Management Platform
using SNMP and/or RMON. I(3)S will monitor all data delivery equipment
twenty-four hours per day, seven day per week (24x7);
Assume the cost of the acquisition of all data communication equipment
necessary to provide HSDS and to provide termination and delivery of HSDS
between the Subscriber and the I(3)S POP in each Market;
Without limitation on the foregoing or the attached service level
standards, both parties acknowledge that the end to end performance of HSDS
is probabilistic and subject to anomalous short lived usage patterns by
Subscribers which will affect both the utilization of the local loop
circuits and the I(3)S.net national backbone from time to time;
Configure and operate all data delivery equipment to efficiently integrate
with the rest of the I(3)S.net network;
Subscribers will not be required by I(3)S to install or operate a custom
web browser; and
Subject to all applicable laws and regulations, Subscribers will have
voluntary access to all public Internet sites and services.
<PAGE> 29
LOCAL LOOP CHARACTERISTICS
FOREST CITY'S RESPONSIBILITIES
Provide, or cause to be provided, proper space, security and
power for Local Loop termination and transmission equipment
necessary to provide Internet delivery and other data services on
the property.
I(3)S'S RESPONSIBILITIES:
Install, maintain and operate local loop termination and
transmission equipment necessary for each property offering
HSDS. Installation and maintenance will meet or exceed
manufacturer's specifications and the requirements set forth in
the Agreement. Through itself or its agents, Forest City will
assist I(3)S with pre-installation engineering planning and site
survey questionnaires;
Integrate all local loop termination and transmission equipment
for each property into the I(3)S Element Management System
portion of its Network Management Platform using SNMP and/or
RMON. I(3)S will monitor all local loop termination and
transmission equipment twenty-four hours per day, seven day per
week (24x7);
Assume the cost of the acquisition of all local loop termination
and transmission equipment necessary to provide HSDS and to
provide termination and delivery of HSDS between the Property and
the I(3)S POP in each Market;
Order, provision, install and maintain local loop communications
links between each property and I(3)S POP in each Market with a
bandwidth of not less than 1.544 mb/s (TI). In addition, as the
number of Subscribers on each property increases, scale the local
loop bandwidth so that each simultaneously active user averages
approximately 1 mb/s ninety eight percent (98%) of the time;
Without limitation on the foregoing or the attached service
level standards, both parties acknowledge that the end to end
performance of HSDS is probabilistic and subject to anomalous
short lived usage patterns by Subscribers which will affect both
the utilization of the local loop circuits and the i3s.net
national backbone from time to time; and
Configure and operate all local loop termination and transmission
equipment to efficiently integrate with the rest of the i3s.net
network.
<PAGE> 30
POINT OF PRESENCE
FEATURES AND ESTABLISHMENT REQUIREMENTS
I(3)'S RESPONSIBILITIES:
Acquire, install and maintain data communication equipment at
each POP for the termination and transmission of HSDS from
properties to the i3s.net national network backbone:
I(3)S will determine the location of its main presence in each
Market to be consistent with its own operational practices (which
currently include co-locating within its carrier's central
offices in each Market);
Acquire, install, maintain and operate Internet peering
relationships at public and private Internet Exchange Points (EP)
with other Tier 1 Internet backbone networks throughout the
United States;
Acquire, install, maintain and operate computers and software to
provide Network Management and provide Internet services for
Subscribers. To provide these functions, I(3)S will employ a
combination of locally-distributed-to-the-POP servers as well as
globally centralized servers consistent with its overall network
design and operational practices; and
Order, provide, install, maintain and operate data transport/
carriage pathways from each POP, EP and/or NOC with a bandwidth
not less than 45 mb/s (DS-3) interconnection. In addition, as the
number of Subscribers on Market increases, scale the bandwidth so
that each simultaneously active user averages approximately 1
mb/s ninety eight percent (98%) of the time.
<PAGE> 31
I(3)S INFORMATION OPERATIONS
CONTENT PRODUCTION; FOREST CITY/BROADBAND NOW!(TM) LAUNCH PAGE
I(3)S operates, and shall operate for the term of this Agreement, an information
content operation for creating original content or aggregating content created
by others and licensed to I(3)S for inclusion in the I(3)S body of content. This
material will consist of but will not be limited to informational, educational,
recreational, entertainment and business content. This body of content will be
offered to Subscribers of the HSDS product.
Without limitation on paragraph 1 above, I(3)S will create content as creative
and/or business opportunities present themselves. The I(3)S content will be
updated as I(3)S, using its editorial judgment, sees fit, but in no event less
frequently than good industry practice.
Certain portions of this content will be offered to all HSDS Subscribers free
of charge (Basic Content). Other portions of the content may be offered to HSDS
Subscribers on an optional fee basis for unlimited access to a fixed package of
content (Premium Content). Another certain portion of the content may be offered
to HSDS Subscribers on an optional fee basis for access to a specific
time-limited event (Pay-Per-View Content).
In addition to the fees charged customers for content, I(3)S may solicit and
sell advertising and other revenue-producing transaction opportunities that will
appear on certain portions of the content.
All fees for premium content, pay-per-view content, advertising and
revenue-producing transactions shall be determined solely by I(3)S.
or its content partners, will design, produce and update, as necessary, all
content and be responsible for all such costs.
I(3)S shall initially design, produce and update, as necessary, a customized
launch page (the "Launch Page") for HSDS Subscribers, which can be used to
market and promote the HSDS, and, on I(3)S's standard time and materials rates
(or as otherwise agreed by the parties), Forest City's other services. In
addition, the Launch Page will include hyperlinks to Forest City's Corporate web
sites as directed by Forest City. The Launch Page shall meet the technical,
functional and appearance requirements specified by I(3)S. I(3)S shall from time
to time update the Launch Page throughout the Term in accordance with the terms
of this Agreement. I(3)S may offer HSDS Subscribers Launch Pages that are
personalized (by property) and that, in addition to the features described
above, may promote the I(3)S content offerings and provide (direct hyperlinks to
the I(3)S content.
In no event, at any time during the term of this Agreement, shall I(3)S
knowingly permit or use any (i) content in the Forest City/Broadband Now! web
site or within its information content operations which contains obscene
material, sexually explicit adult programming, or indecent material as defined
in Section 47 C. F. R. 76.701(g); (ii) material in the Forest City Broadband
Now! web site soliciting or promoting unlawful conduct; or (iii) programming in
the Forest
<PAGE> 32
City/Broadband Now! web site that may or could have been subject to the
Telecommunications Act of 1996, Section 641, relating to the scrambling of
sexually-explicit adult video service programming.
<PAGE> 33
CUSTOMER CARE CENTER FEATURES
I(3)S'S RESPONSIBILITIES
Provide a toll free number for:
Inquiries about the HSDS supplied by I(3)S
Ordering and scheduling installation of HSDS products
Billing inquiries
Initial technical support inquires
Technical support for all HSDS issues
Technical support for Subscriber CPE issues related to HSDS
Answer toll free line consistent with the Forest City/I(3)S service
co-brand.
Operate 24x7 customer care call center operation.
Maintain sufficient customer service staff and call center capacity to
connect to Subscribers within 1 minutes of call entering processing
operation.
Develop and publish escalation procedure for Customer Service
Representatives related to network issues.
Resolve billing issues within 24 hours 95% of time, on a monthly basis.
Resolve property network issues within 24 hours 95% of time, on a
monthly basis.
Resolve technical issues within 24 hours if a phone call is required 95% of
time, on a monthly basis.
Resolve technical issues within 48 hours if a truck roll is required 95% of
time, on a monthly basis.
Develop and publish escalation procedures for Forest City to contact
regarding technical issues related to the network.
<PAGE> 34
SUBSCRIBERS' HARDWARE AND SOFTWARE INSTALLATION
SPECIFICATIONS AND INSTALLATION REQUIREMENTS
I(3)S SHALL:
Verify that potential Subscribers' personal computers meet the
I(3)S-established minimum requirements for the supplied software and
the HSDS service;
Make an appointment with each new Subscriber to meet the installation
personnel for the installation of the HSDS in the Subscriber's unit,
Collect the Subscriber information required to install, provision and
complete the set up of Subscribers' HSDS service. I(3)S will develop
an appropriate paper-form-based system or automated system to
facilitate this process;
Provide, or cause to he provided, coaxial connection to the
Subscriber's specified location;
Verify, or cause to be verified, that the coaxial connection completed
to the Subscriber's specified location exceeds the minimum operational
requirements for the I(3)S-supplied customer premises equipment
("CPE") and the I(3)S HSDS service;
Verify, or cause to be verified, and if necessary, promptly (but not
more than a reasonable time frame set by Forest City) perform repairs
such that all access network services function properly (and to not
less than the standards pre/existing I(3)S HSDS operations) after
I(3)S completes installation and throughout the provision of HSDS;
Maintain a sufficient inventory of CPE for each Market and develop
procedures to restock CPE as used in Subscriber installations;
Issue and install the required CPE for the service requested by the
Subscriber;
Meet the Subscriber at the Subscribers location at the scheduled time
within the tolerances and limits as defined in the I(3)S Service Level
Agreement;
Install the required customer premises equipment and have the Service
operational in the Subscriber's unit within two business days of a
Subscriber's request;
Install any required network interface cards (NICs), TCP/IP protocols
and Internet software suite in the Subscriber's personal computer;
Offer the Subscriber a brief introduction to the HSDS to be performed
at the time of installation. This introduction will include how to
launch the service, how to find the training material on the i3s.net
Web site, how to find the Subscriber Support Section on the i3s.net
Web site and how to call for technical assistance or support;
<PAGE> 35
Obtain signatures required to verify that each Subscriber
installation was executed properly and to the satisfaction of the
Subscriber; and
Provide Forest City with a copy of the installation transaction
documentation verifying that the completed installation is ready for
billing. This documentation will include the CPE delivery receipt, the
ISP contract and the completed work order.
<PAGE> 36
HSDS INITIAL SUBSCRIBER RATES, SERVICE LEVELS
AND INSTALLATION AND EQUIPMENT CHARGES
The following table outlines the various levels of service available to Personal
Service subscribers:
<TABLE>
<CAPTION>
UPSTREAM
PRICE PER DOWNSTREAM TRANSMISSION
PERSONAL SERVICE LEVEL MONTH TRANSMISSION SPEED SPEED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BBN (TM) Lite $ 29.95 64 Kbps 64 Kbps
BBN (TM) Standard $ 49.95 1.0 Mbp 1.0 Mbps
BBN (TM) Max $ 79.95 1.5 Mbps 1.5 Mbps
- --------------------------------------------------------------------------------
</TABLE>
The following table outlines the various levels of service available to Home
Office Service Subscribers:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
DOWNSTREAM UPSTREAM
PRICE PER TRANSMISSION TRANSMISSION
HOME OFFICE SERVICE LEVEL MONTH SPEED SPEED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Home Office-Level 1 $ 125 1.5 Mbps 64 Kbps
Home Office-Level 2 $ 199 1.5 Mbps 128 Kbps
Home Office-Level 3 $ 299 1.5 Mbps 512 Kbps
Home Office-Level 4 $ 499 1.5 Mbps 1.0 Mbps
Home Office-Level 5 $ 699 1.5 Mbps 1.5 Mbps
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Vanity DNS hosting $100.00 per month
Installation fee $49.95 non-recurring
Network interface card (NIC) market price (not to exceed $60)
CPE (cable modem, xDSL modem or other
broadband access device) purchase market price
Monthly rental of CPE market price*
</TABLE>
* The decision to purchase or rent the CPE necessary for the provision
of HSDS shall be at the sole discretion of each resident subscribing
to HSDS.
<PAGE> 37
EXHIBIT E
SERVICE LEVEL STANDARDS
INTRODUCTION
This Exhibit entitled "Service Level Standards" ("SLS") sets out
operation specifications and requirements for HSDS provided by I(3)S
for the residents or customers of applicable Forest City Residential
Management, Inc. The SLS shall encompass data services originating and
terminating within the I(3)S internetwork ("i3s.net").
The HSDS provided by I(3)S shall meet the operations specification and
requirements stated herein, which are generally stated in terms of
events or outcomes, rather than terms of specific hardware, software or
procedural requirements. For the purposes of the SLS, i3s.net shall
relate to that portion of the global Internet operated by I(3)S,
originating within end users' customer premises and terminating within
I(3)S computers or transported and peered at a public or private
Internet Exchange Point.
For the purposes of the SLS, a "Trouble" or "Trouble Report" shall
relate to i3s.net or I(3)S provided services (or resold services) and
the Equipment and I(3)S maintained facilities, but shall exclude
customer error, defects in Customer Premises Equipment ("CPE"), defects
in customers, computers, defects in property cable or wiring plants,
defects in fiber optic distribution systems, defects in cable
television distribution systems and network problems experienced by
destination networks at or beyond Internet Exchange Points.
The terms and conditions of this SLS do not limit I(3)S's obligations
set forth elsewhere in the Agreement, but if there is a conflict with
respect to service obligations between this SLS and the Agreement, this
SLS shall control.
PERFORMANCE REQUIREMENTS
PERCENT CUSTOMER SERVICE ORDER BEGINNING COMMITMENT DATES TIMELY MET
This parameter is generally indicative of the timely beginning
of work on orders from customers for new service or orders to
make changes in their existing service.
The timely beginning parameter is calculated by dividing the
total Customer Service Orders begun on or before the date and
clock hour promised to the customer that the service order
would be stated by the total number of service orders initiated
in each calendar month and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service Order
Beginning Commitment Dates Timely Met per month.
PERCENT CUSTOMER SERVICE ORDER COMPLETION COMMITMENT DATES TIMELY MET
<PAGE> 38
This parameter is generally indicative of the timely
completion of work on orders from customers for new service or
orders to make changes in their existing service and the timely
completion of those service orders.
The timely completion parameter is calculated by dividing the
total Customer Service Orders completed on or before the date
and clock hour promised to the customer that the service order
would be completed by the total number of service orders
initiated in each calendar month and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Service Order
Completion Commitment Dates Timely Met per month.
PERCENT OF NETWORK AVAILABILITY
This parameter is generally indicative of the availability of
the network to transport and peer customer data at an Internet
Exchange Point, or, in the event that the customer data is to
be fulfilled by computers within i3s.net, generally indicative
of the availability of to transport data to the I(3)S servers
and the availability of the servers.
This parameter is calculated by dividing the number of seconds
that the network is available for each customer by the total
number of customer-seconds in each calendar month and
multiplying by 100.
Specifically excluded from the Network Availability
calculation shall be regularly scheduled maintenance windows or
ad hoc maintenance windows scheduled and announced 24 hours in
advance in the i3s.net Customer Support Web Site.
Specifically excluded from the Network Availability
calculation shall be periods of time where the access
distribution plant (operated by Forest City or its designated
third party operator) exceed the operational standards set by
I(3)S for each type of broadband access technology.
I(3)S shall exhibit greater than 98% Network Availability per
month.
<PAGE> 39
PERCENT CUSTOMER CALLS ANSWERED WITHIN 45 SECONDS BY I(3)S PERSONNEL
This parameter is based upon the number of customers calls
answered within 15 seconds by a human operator or by an ACD queue
greeting during the hours of operation of the I(3)S National
Customer Care Center and thereafter to be answered by a human
customer representative within 30 seconds. At a minimum, the
I(3)S National Customer Care Center shall operate from 8:00 a.m.
to 5:00 p.m. Central Time, Monday through Friday exclusive of
holidays.
This parameter is calculated by dividing the number of calls
answered with 45 seconds by the total number of Customer Care
Center calls answered in each calendar month and multiplying by
100.
I(3)S shall exhibit greater than 90% of Customer Calls Answered
within 45 Seconds per month.
PERCENT OF TROUBLE REPORTS RESOLVED TIMELY
This parameter is related to the number of Trouble Reports
resolved within the following windows:
o For Trouble Reports received by I(3)S at the I(3)S
National Customer Care Center prior to 2:00 p.m. Central
Time, Monday through Friday, excepting holidays, will be
cleared by the end of the next business day.
o For Trouble Reports received by I(3)S at the I(3)S
National Customer Care Center after 2:00 p.m. Central
Time, Monday through Friday, excepting holidays, will be
cleared by noon of the second business day thereafter.
This parameter is calculated by dividing the total trouble
reports cleared on or before the date and clock hour promised to
the customer the total number of Trouble Tickets cleared in each
calendar month and multiplying by 100. For purposes of this
provision "Trouble Tickets" shall mean ________________________.
I(3)S shall exhibit greater than 90% Trouble Reports Cleared
Timely per month, according to the terms of this section for
trouble that can he resolved by I(3)S alone.
PERCENT CUSTOMER REPAIR VISIT APPOINTMENTS MET
This parameter is related to the customer commitments made by the
I(3)S National Customer Care Center for repairs that require a
repair visit to customers' sites or premises.
This parameter is calculated by dividing the total Customer
Repair Visits Appointments met on or before the date and clock
hour promised to the customer by the total number of
<PAGE> 40
Customer Repair Visit Appointments initiated in each calendar
month and multiplying by 100.
I(3)S shall exhibit greater than 90% Customer Repair
Commitment Met per month.
PERCENT OF CUSTOMER BILLS PREPARED TIMELY
This parameter is related to the generation of Customer Bills
for delivery to customers by mail, electronic mail or credit
card billing.
This parameter is calculated by dividing the number of Customer
Bills generated and sent to customers within twenty (20)
business days or the end of the billing cycle by the total
number Customer Bills generated in each calendar month and
multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills Prepared
Timely per month.
PERCENT OF CUSTOMER BILLS PREPARED ACCURATELY
This parameter is related to the accuracy of Customer Bills
for delivery to customers by mail, electronic mail or credit
card billing.
This parameter is calculated by dividing the number of Customer
Bills generated that do not require an adjustment due to a
billing error caused I(3)S by the total number Customer Bills
generated in each calendar month and multiplying by 100.
I(3)S shall exhibit greater than 95% Customer Bills Prepared
Accurately per month.
REPORTS
I(3)S shall provide to Forest City reports within twenty (20)
business days of the end of each calendar month, the reports
listed below in this section, each of which may be provided
separately or provided on a consolidated basis:
A report depicting total subscribers, gross new customers and
gross customers terminated separated by product tier and
property.
New service orders, Trouble Reports opened and closed or
cleared as appropriate separated by date and property.
Aggregate I(3)S National Customer Care data depicting the
distribution of call waiting time in general and the percent
calls answered and calls abandoned respectively.
Billing summaries describing the date(s) bills were sent to
customers, and the billed revenue disaggregating major
categories of service.
<PAGE> 41
HOLIDAYS
New Years Day
Memorial Day
Independence Day
Labor Day
Thanksgiving
Day after Thanksgiving
Christmas
Any other national or state holiday recognized by I(3)S
<PAGE> 1
EXHIBIT 10.23
ADVISORY AGREEMENT
ADVISORY AGREEMENT (this "AGREEMENT"), dated as of December 21, 1999
(the "EFFECTIVE DATE") by and between the I3S Inc., a Texas corporation (the
"COMPANY"), and MARCUS & PARTNERS, L.P., a Delaware limited partnership ("MARCUS
& PARTNERS").
The Company and Marcus & Partners hereby agree as follows:
1. ENGAGEMENT.
The Company engages and retains Marcus & Partners to provide the
advisory services described below, for the period and on the terms and
conditions set forth herein. Marcus & Partners hereby accepts such engagement
and agrees, for the period and on the terms and conditions set forth herein, to
provide, or to make satisfactory arrangements for the provision of, such
services and to assume the obligations herein set forth for the compensation
provided herein.
2. TERM.
The term of this Agreement shall commence on the Effective Date and
shall continue until December 31, 2000 (the "TERM").
3. PROVISION OF SERVICES.
The Company hereby engages Marcus & Partners to (i) commencing on
January 1, 2000, provide advice and services regarding business strategy,
business development, personnel, acquisitions and investments, capital markets
activities, public relations and other matters related to the foregoing of the
Company (the "CONSULTING SERVICES") and (ii) during the Term, introduce to the
Company and/or its existing stockholders, or contact on behalf of the Company or
its existing stockholders, Liberty Media Corporation and its affiliates
(collectively, the "LIBERTY MEDIA INVESTORS") in connection with a possible
investment in the Company (the "FINDER SERVICES").
4. INDEPENDENT CONTRACTOR.
Marcus & Partners is an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Company in any way, execute any transaction on behalf of the
Company or otherwise be deemed an agent of the Company. Neither Marcus &
Partners, the Company nor any of their affiliates or any person acting at their
direction or on their behalf shall represent to any person that Marcus &
Partners is or is deemed to be a partner of the Company.
5. COSTS, EXPENSES AND FEES.
(a) Costs and Expenses. The Company shall pay or shall
reimburse Marcus & Partners for all reasonable, necessary and documented
out-of-pocket expenses incurred by Marcus & Partners on behalf of the Company;
provided, that, reimbursement for the expenses in connection with the Finding
Services and in connection with the purchase of the Warrant
<PAGE> 2
pursuant to that certain letter agreement of even date herewith between the
parties hereto shall not be in excess of $30,000 in the aggregate without the
prior written approval of the Company.
(b) Fees for Consulting Services. In consideration of the
Consulting Services provided herein, the Company shall pay Marcus & Partners
four (4) equal installments of $45,000 on January 1, 2000, April 1, 2000, July
1, 2000 and October 1, 2000.
(c) Fees for Finding Services. In consideration of the Finder
Services, the Company shall pay Marcus & Partners a fee equal to the sum of: (i)
1% of the total value of aggregate investments made by the Liberty Media
Investors of up to an aggregate amount of $20 million, and (ii) 1/2% of the
total value of aggregate investments made by Liberty Media Investors in excess
of the $20 million amount referred to in clause (i), through the purchase,
directly or indirectly, of newly issued or outstanding equity of the Company.
The foregoing fee shall be paid in cash at any time and from time to time that
an investment is made in the Company by a Liberty Media Investor.
6. INDEMNITY AND EXCULPATION.
(a) Indemnitees and Indemnifiable Claims. The Company shall
indemnify and hold harmless Marcus & Partners, each officer, director,
stockholder, partner, member, employee and agent of Marcus & Partners and any of
its affiliates from and against any claim, loss, damage, liability, or expenses
(including reasonable attorneys' fees and expenses, court costs, and costs of
investigation and appeal) suffered or incurred by any such indemnitee by reason
of, or arising from, the operations, business, or affairs of, or any action
taken or failure to act on behalf of, the Company, unless such claim, loss,
damage, liability, or expense has been caused by the gross negligence or willful
misconduct of such indemnitee.
(b) Advance of Expenses. The Company shall, upon the request of
any indemnitee, advance or promptly reimburse such indemnitee's reasonable costs
of investigation, litigation, or appeal, including reasonable attorneys' fees;
provided, however, that the affected indemnitee shall, as a condition of such
indemnitee's right to receive such advances and reimbursements, undertake in
writing to promptly repay the Company for all such advances or reimbursements if
it is subsequently determined by a final non-appealable judgment of a court of
competent jurisdiction that such indemnitee is not then entitled to
indemnification under this Section 6.
(c) Exculpation. Neither (i) Marcus & Partners, (ii) any
affiliate of Marcus & Partners, nor (iii) any officer, director, employee,
stockholder, member, partner or agent of Marcus & Partners or any of its
affiliates, shall be liable, responsible, or accountable in damages or otherwise
to the Company by reason of, or arising from, the operations, business, or
affairs of, or any action taken or failure to act on behalf of, the Company,
except to the extent that any of the foregoing has been caused by the gross
negligence or willful misconduct of such person asserting exculpation.
(d) Third Party Beneficiaries. Notwithstanding anything in this
Agreement to the contrary, each officer, director, stockholder, partner, member,
employee and agent of Marcus & Partners and any of its affiliates and their
respective assignees, successors and substitutes shall
2
<PAGE> 3
be a third party beneficiary of all provisions of this Section 6 and all other
exculpation and indemnification provisions of this Agreement.
(e) The provisions of this Section 6 shall continue to afford
protection to each indemnitee regardless of whether such indemnitee remains in
the position or capacity pursuant to which such indemnitee became entitled to
indemnification under this Section 6.
(f) The rights of Marcus & Partners and/or any other indemnitee
under this Section 6 shall be in addition to any rights that Marcus & Partners
and/or any other indemnitee may have at common law or otherwise and shall remain
in full force and effect following the completion or any termination of Marcus &
Partners' engagement hereunder.
7. TERMINATION.
This Agreement may be terminated at any time, without the payment of
any penalty, upon mutual agreement of the parties hereto; provided, however,
such termination shall not effect the obligation of the Company (a) to pay any
fees for Finder Services pursuant to Section 5(c) whether payable before or
after such Termination or (b) to pay all four (4) installments of the fee for
the Consulting Services pursuant to Section 5(b). The provisions of this
Agreement shall survive any termination of this Agreement to the extent such
provisions relate to obligations incurred before such termination.
8. NOTICES.
All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been delivered on the
date personally delivered, telexed or telecopied, or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or by overnight delivery
service, if addressed to the respective parties as follows:
If to the Company: I3S Inc.
1440 Corporate Drive
Dallas, Texas 75038
Attn: Mr. Matthew Hutchins, Sr.
Facsimile: (972) 650-7972
If to Marcus & Partners: Marcus & Partners, L.P.
300 Crescent Court, Suite 800
Dallas, Texas 75201
Attn: Jeffrey A. Marcus
Facsimile: (214) 777-4104
With copies to: Weil, Gotshal & Manges LLP
100 Crescent Court
Dallas, Texas 75201
Attn: Michael A. Saslaw
Facsimile: (214) 746-7777
3
<PAGE> 4
9. ASSIGNMENT.
This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
10. AMENDMENT.
This Agreement may only be amended in writing by both parties hereto.
11. GOVERNING LAW.
This Agreement and the rights and obligations of the parties under this
Agreement shall be governed by, and construed and interpreted in accordance
with, the law of the State of Texas.
12. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument, and the signature of any party to any counterpart
shall be deemed a signature to, and may be appended to, any other counterpart.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
MARCUS & PARTNERS, L.P.
By: Marcus & Partners Holdings, L.L.C.,
its General Partner
By:
---------------------------------
Thomas P. McMillin
Vice President
I3S Inc.
By:
---------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.24
LIBERTY MEDIA CORPORATION
9197 SOUTH PEORIA STREET
ENGLEWOOD, CO 80112
January 25, 2000
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Gentlemen:
BroadbandNOW, Inc. and its wholly owned subsidiary, BroadbandNOW Texas,
Inc. (collectively, the "Company") are engaged in the business of providing
high-speed Internet access and customized broadband content and applications to
subscribers via a private IP network that can connect such subscribers via
multiple broadband technologies, including DSL, cable modem, wireless and
Ethernet (the "BroadbandNOW Service"). Certain affiliates of Liberty Media
Corporation ("Liberty") are in the business of developing content that can be
transmitted via the BroadbandNOW Service ("Liberty Content Affiliates").
The Company desires to obtain content for distribution on the BroadbandNOW
Service from Liberty Content Affiliates, and Liberty desires to designate
Liberty Content Affiliates to provide content for distribution on the
BroadbandNOW Service. To carry out the purpose and intent of this Letter
Agreement, the Company agrees to offer to Liberty Content Affiliates (designated
by Liberty) a right of first refusal to provide content that such Liberty
Content Affiliates either own or control and have the right to distribute over
the Internet or any other interactive medium for distribution on the
BroadbandNOW Service on terms no less favorable to Liberty Content Affiliates
than those offered by the Company to any other person or entity providing
content for distribution on the BroadbandNOW Service ("ROFR"). For purposes of
this Letter Agreement, the ROFR provided to Liberty Content Affiliates does not
require that the Company have an offer to provide content for distribution on
the BroadbandNOW Service from another content provider that such Liberty Content
Affiliates have a right to match, but rather that the Company will offer such
Liberty Content Affiliates the right to provide content for distribution on the
BroadbandNOW Service on a most favored nations basis with other similarly
situated content providers. The Company and each designated Liberty Content
Affiliate will enter into a definitive agreement, on terms and conditions
mutually acceptable to the parties and consistent with the terms of this Letter
Agreement, pursuant to which such Liberty Content Affiliate will provide content
for distribution on the BroadbandNOW Service. The Company agrees to negotiate in
good faith with the designated Liberty Content Affiliates to enter into such
definitive agreements on terms consistent with this Letter Agreement.
Each of the parties hereto represents and warrants that it is authorized
and has all rights necessary to enter into this Letter Agreement and to perform
its obligations hereunder. This Letter Agreement constitutes a binding
obligation of each of the parties hereto, enforceable against each of the
parties hereto in accordance with its terms. This Letter Agreement will be
<PAGE> 2
governed by and construed in accordance with the laws of the State of Texas,
without reference to its conflicts of law rules.
Please confirm your agreement to the provisions of this Letter Agreement by
signing below where indicated.
Very truly yours,
LIBERTY MEDIA CORPORATION
By:
------------------------------
Name:
Title:
ACCEPTED AND AGREED:
BROADBANDNOW, INC.
By:
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.34
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
I 3S, INC.
JUNE 25, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. Purchase and Sale........................................................................................6
2. Closing of Purchase and Sale.............................................................................6
2.1 Closing; Closing Date...........................................................................6
2.2 Transactions at Closing.........................................................................6
3. Representations and Warranties of Company................................................................6
3.1 Organization, Standing and Qualification........................................................6
3.2 Capitalization..................................................................................7
3.3 Validity of Stock...............................................................................8
3.4 Subsidiaries....................................................................................8
3.5 Financial Statements............................................................................8
3.6 Absence of Undisclosed Liabilities..............................................................8
3.7 Absence of Certain Changes......................................................................9
3.8 Authorization; Approvals.......................................................................10
3.9 No Conflict with Other Instruments.............................................................10
3.10 Labor Agreements and Actions...................................................................10
3.11 Employee Matters...............................................................................10
3.12 Title to Properties; Liens and Encumbrances....................................................11
3.13 Compliance with Corporate Instruments..........................................................11
3.14 Patents, Trademarks and Other Intangible Assets................................................11
3.15 Trade Secrets and Customer Lists...............................................................12
3.16 Tax Matters....................................................................................12
3.17 Litigation.....................................................................................13
3.18 Minute Books...................................................................................14
3.19 Insurance......................................................................................14
3.20 Fees and Commissions...........................................................................14
3.21 Employee Benefit Plans.........................................................................14
3.22 Material Contracts and Commitments.............................................................16
3.23 Conflict of Interest Transactions..............................................................17
3.24 Environmental Matters..........................................................................18
3.25 Other Transactions.............................................................................18
3.26 No Bankruptcies................................................................................18
3.27 Year 2000 Compliance...........................................................................18
3.28 Disclosure.....................................................................................18
3.29 Legal Compliance...............................................................................19
3.30 Small Business Concern.........................................................................19
3.31 Small Business Administration Documentation....................................................19
4. Representations, Warranties and Covenants of Purchasers.................................................19
4.1 Organization and Good Standing.................................................................20
4.2 Authorization; Approvals.......................................................................20
4.3 No Conflict with Other Instruments.............................................................20
4.4 Investment Representations.....................................................................20
4.5 Investment Experience; Access to Information...................................................20
4.6 Absence of Registration........................................................................21
4.7 Restrictions on Transfer.......................................................................21
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.8 Transfer Instructions..........................................................................23
4.9 Economic Risk..................................................................................23
4.10 Fees and Commissions...........................................................................23
5. Conditions to Closing of the Purchasers.................................................................23
5.1 Representations and Warranties.................................................................23
5.2 Performance....................................................................................23
5.3 Company Consents, etc..........................................................................24
5.4 Compliance Certificates........................................................................24
5.5 Government Actions.............................................................................24
5.6 The Statement of Designation...................................................................24
5.7 The Articles of Incorporation..................................................................24
5.8 Legal Opinion..................................................................................24
5.9 Company Deliveries.............................................................................24
5.10 Total Subscription.............................................................................25
5.11 Employment Agreements..........................................................................25
6. Conditions to Closing of Company........................................................................25
6.1 Representations and Warranties.................................................................25
6.2 Performance....................................................................................25
6.3 Purchaser Consents, etc........................................................................25
6.4 Compliance Certificates........................................................................25
7. Affirmative Covenants...................................................................................26
7.1 Financial Information..........................................................................26
7.2 Use of Proceeds................................................................................26
7.3 Confidentiality................................................................................26
7.4 Right of First Refusal.........................................................................27
7.5 Sale of the Company............................................................................31
7.6 Right of Co-Sale...............................................................................32
7.7 Observers......................................................................................32
7.8 Key Man Insurance..............................................................................32
7.9 Access to Information..........................................................................32
7.10 Restricted Corporate Actions...................................................................33
7.11 Shareholder and Director Information...........................................................34
7.12 Reserve for Conversion Shares..................................................................34
7.13 Rule 144A Information..........................................................................34
7.14 Sale of Series A Convertible Preferred Stock...................................................34
7.15 Termination of Covenants.......................................................................35
8. Expenses................................................................................................35
9. Survival of Agreements..................................................................................35
10. Notices.................................................................................................36
11. Modifications; Waiver...................................................................................36
12. Entire Agreement........................................................................................36
13. Successors and Assigns..................................................................................37
14. Enforcement.............................................................................................37
14.1 Remedies at Law or in Equity...................................................................37
14.2 Remedies Cumulative; Waiver....................................................................37
15. Execution and Counterparts..............................................................................37
16. Governing Law and Severability..........................................................................38
17. Headings................................................................................................38
</TABLE>
iii
<PAGE> 4
EXHIBITS
Exhibit A - Amended and Restated Articles of Incorporation
Exhibit B - Amended and Restated Bylaws
Exhibit C - Form of Statement of Designation for the Series A Convertible
Preferred Stock
Exhibit D - Placement Memorandum
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Winstead Sechrest &
Minick, P.C.
SCHEDULES
<TABLE>
<S> <C>
Schedule 1 Purchasers
Schedule 3.1 Jurisdictions
Schedule 3.2 Capitalization
Schedule 3.4 Subsidiaries
Schedule 3.5 Financial Statements
Schedule 3.7 Absence of Certain Changes
Schedule 3.9 No Conflict with Other Instruments
Schedule 3.11 Employee Matters
Schedule 3.12 Title to Properties; Liens and Encumbrances
Schedule 3.14 Patents, Trademarks and Other Intangible Assets
Schedule 3.15 Trade Secrets and Customer Lists
Schedule 3.16 Tax Matters
Schedule 3.19 Insurance
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Material Contracts and Commitments
Schedule 3.23 Conflict of Interest Transactions
Schedule 3.29 Legal Compliance
Schedule 4.6 Registration Rights
Schedule 7.5 Prior Stock Purchase Agreements
</TABLE>
iv
<PAGE> 5
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (this
"AGREEMENT"), dated as of June 25, 1999, is by and among I 3S, Inc., a Texas
corporation (the "COMPANY"), and the purchasers identified in SCHEDULE 1 hereto
(hereinafter referred to individually as a "PURCHASER" and collectively as the
"PURCHASERS").
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Purchase and Sale. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined), the Company will sell to each of the
Purchasers, severally and not jointly, and each of the Purchasers, severally and
not jointly, will purchase from the Company, the number of shares of Series A
Convertible Preferred Stock, no par value per share (the "SERIES A CONVERTIBLE
PREFERRED STOCK"), set forth opposite each such Purchaser's name in SCHEDULE 1
annexed hereto at a price per share of Eighteen and 80/100 Dollars ($18.80).
2. Closing of Purchase and Sale.
2.1 Closing; Closing Date. The purchase and sale of the Series
A Convertible Preferred Stock (the "CLOSING") shall take place at the
offices of the Company at 1440 Corporate Drive, Irving, Texas 75038, at
10:00 a.m., local time, on June 24, 1999 (the "CLOSING DATE") or at
such other place or time as may be agreed upon by the Company and the
Purchasers.
2.2 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates for the shares
of Series A Convertible Preferred Stock to be issued and sold to such
Purchaser at the Closing, duly registered in such Purchaser's name,
against payment in full by such Purchaser of the aggregate purchase
price set forth opposite such Purchaser's name in SCHEDULE 1 hereto by
a wire transfer of funds made to the order of "I 3S, Inc." in the
amount of such aggregate purchase price. The Company shall also deliver
to the Purchasers those items required to be delivered to them by the
Company as described in ARTICLE 5 of this Agreement. The Purchasers
shall also deliver to the Company those items required to be delivered
to the Company by the Purchasers as described in ARTICLE 6 of this
Agreement.
3. Representations and Warranties of Company. The Company represents
and warrants to the Purchasers that:
3.1 Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas, has all requisite corporate power and
authority to own its property and assets and to carry on its business
as it is presently being conducted and as it proposes to carry on its
business. The Company has all requisite corporate power and authority
to execute and deliver this Agreement and the other agreements
contemplated herein, to issue and sell the Series A Convertible
Preferred Stock hereunder, to issue shares of Class A Common Stock (as
hereinafter defined) upon conversion of the Series A Convertible
6
<PAGE> 6
Preferred Stock, and to carry out the transactions contemplated by this
Agreement and the other agreements contemplated herein. The Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws,
copies of which are attached hereto as EXHIBITS A and B, respectively,
are true, correct and complete. The Company is duly qualified and in
good standing as a foreign corporation authorized to do business in
each of the jurisdictions in which the failure to be so qualified would
have a material adverse effect on the Company. SCHEDULE 3.1 sets forth
the jurisdictions in which the Company is qualified.
3.2 Capitalization. The authorized capital stock of the
Company, as of the Closing Date, will consist of: (a) 100,000,000
shares of Class A Common Stock, no par value per share (the "CLASS A
COMMON STOCK"), of which 4,655,700 shares are issued and outstanding,
(b) 25,000,000 shares of Class B Common Stock, no par value per share
(the "CLASS B COMMON STOCK"), of which 4,979,777 shares are issued and
outstanding, (c) 25,000,000 shares of Class C Common Stock, no par
value per share (the "CLASS C COMMON STOCK"), of which 2,074,464 shares
are issued and outstanding, and (d) 4,200,000 shares of Preferred
Stock, all of which have been designated as Series A Convertible
Preferred Stock, of which no shares are issued and outstanding. The
relative rights, preferences, restrictions and other provisions
relating to the Series A Convertible Preferred Stock are as set forth
in the Statement of Designation, attached hereto as EXHIBIT C. The
Class A Common Stock, Class B Common Stock and Class C Common Stock are
hereinafter collectively referred to as the "COMMON STOCK". SCHEDULE
3.2 sets forth the name and, to the Company's knowledge, the current
address of each holder of Common Stock and number and class of shares
so held by each holder. Of the Class A Common Stock, (i) 4,979,777
shares are reserved for issuance on the conversion of the Class B
Common Stock, (ii) 2,074,464 shares are reserved for issuance on the
conversion of the Class C Common Stock, (iii) 2,925,532 shares are
reserved for issuance on the conversion of the Series A Convertible
Preferred Stock, and (iv) 5,989,920 shares are reserved for issuance
pursuant to employee stock purchase or stock option plans adopted or to
be adopted by the Company for key employees and prior stock option
grants. All of the outstanding shares of the Common Stock are duly
authorized and validly issued in accordance with applicable law, fully
paid and non-assessable.
Except as set forth on SCHEDULE 3.2 hereto, or as otherwise
contemplated by this Agreement, as of the date hereof there are, and
immediately following the Closing, there will be (i) no outstanding
options, warrants, agreements, conversion rights, preemptive rights or
other rights to subscribe for, purchase or acquire any issued or
unissued shares of capital stock of the Company, or any securities
convertible or exchangeable for such stock, and (ii) no restrictions
upon the voting or transfer of any shares of capital stock of the
Company pursuant to its Amended and Restated Articles of Incorporation,
Amended and Restated Bylaws or other governing documents or any
agreement or other instruments to which it is a party or by which it is
bound, and (iii) there are no agreements to which the Company is a
party or of which the Company has knowledge regarding the issuance,
registration, voting or transfer of or obligation (contingent or
otherwise) of the Company to repurchase or otherwise acquire or retire
or redeem any of its outstanding shares of capital stock. No dividends
are accrued but unpaid on any capital stock of the Company.
7
<PAGE> 7
3.3 Validity of Stock. The Series A Convertible Preferred
Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will be duly and validly authorized and issued, fully
paid, non-assessable and free and clear of all encumbrances or
restrictions on transfer except those imposed by applicable securities
laws, the Amended and Restated Articles of Incorporation, the Statement
of Designation and this Agreement. The Class A Common Stock issuable
upon conversion of the Series A Convertible Preferred Stock, when
issued, sold and delivered in accordance with the terms of this
Agreement, will be duly and validly authorized and issued, fully paid,
non-assessable and free and clear of all encumbrances or restrictions
on transfer except those imposed by applicable securities laws, the
Amended and Restated Articles of Incorporation, the Statement of
Designation and this Agreement. All existing Common Stock preemptive
rights have been waived for purposes of the issuance of the Series A
Convertible Preferred Stock.
3.4 Subsidiaries. Except as set forth on SCHEDULE 3.4 hereto,
the Company does not control, directly or indirectly, or own any equity
interest in, any other corporation, partnership, joint venture,
association or business entity.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are
the unaudited balance sheets as at December 31, 1997, March 31, 1999
and May 31, 1999 and unaudited statements of income, changes in
stockholders equity, and cash flow of the Company for the year ended
December 31, 1997 and the quarter ended March 31, 1999, and the audited
balance sheet as at December 31, 1998, and audited statements of
income, changes in stockholders equity, and cash flow of the Company
for the year ended December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance
with the books and records of the Company and generally accepted
accounting principles ("GAAP") (except the March 31, 1999 financial
statements and the May 31, 1999 balance sheet are subject to normal and
recurring year-end audit adjustments which are not expected to be
material in amount) and fairly and accurately reflect the financial
condition and the results of operations (except for the year ended
December 31, 1997) of the Company as of the respective dates thereof or
for the periods covered in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as provided in
the Financial Statements, the Company has no material debt, liability
or obligation, absolute or contingent (including without limitation
obligations in any capacity as guarantor or surety), other than
obligations incurred in the ordinary course of business since May 31,
1999 (the "BALANCE SHEET DATE"). Without limiting the generality of the
foregoing, the Company knows of no basis for the assertion against the
Company as of the date hereof of any material liabilities (not
reflected in the Financial Statements) of the Company.
3.7 Absence of Certain Changes. Except as set forth in
SCHEDULE 3.7, since the Balance Sheet Date, the Company has not:
(a) suffered any material adverse change, whether or
not caused by any deliberate act or omission of the Company or
any shareholder of the
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Company, in its condition (financial or otherwise),
operations, assets, liabilities, business or prospects, taken
as a whole;
(b) contracted for the purchase of any capital assets
having a cost in excess of $500,000 or paid any capital
expenditures in excess of $500,000;
(c) incurred any indebtedness for borrowed money or
issued or sold any debt securities in excess of $150,000;
(d) incurred or discharged any liabilities or
obligations, except in the ordinary course of business;
(e) mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of
its properties or assets other than equipment financing liens
incurred in the ordinary course of business;
(f) suffered any damage or destruction to or loss of
any assets (whether or not covered by insurance) that has
materially and adversely affected, or could reasonably be
expected to, materially and adversely affect, its business;
(g) acquired or disposed of any assets except in the
ordinary course of business;
(h) waived any material rights or forgiven any
material claims;
(i) lost, terminated or, to the Company's knowledge,
experienced any change in the relationship with any employee,
customer or supplier, which termination or change has
materially and adversely affected, or could reasonably be
expected to materially and adversely affect, its business or
assets;
(j) loaned any money to any person or entity in
excess of $100,000;
(k) redeemed, purchased or otherwise acquired, or
sold, granted or otherwise disposed of, directly or
indirectly, any of its capital stock or securities or any
rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid
any dividends or made any distribution to the holders of the
Company's capital stock other than stock options granted to
employees under the Company's Incentive Stock Option Plan; or
(l) committed to do any of the foregoing.
3.8 Authorization; Approvals. All corporate action on the part
of the Company and its shareholders necessary for the authorization,
execution, delivery, and performance of all its obligations under this
Agreement, and for the authorization, issuance, and delivery of the
Series A Convertible Preferred Stock being sold under this Agreement
and of the Class A Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock has been taken. This Agreement
constitutes a valid and legally binding obligation of the Company
legally enforceable against it in accordance
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with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity. The
Company has obtained or will obtain prior to the Closing Date all
necessary consents, authorizations, approvals and orders from any
federal, state or other relevant governmental authority and from any
individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company or other
entity, and has made all registrations, qualifications, designations,
declarations or filings with all federal, state, or other relevant
governmental authorities, all as may be required on the part of the
Company in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to
applicable securities laws which will be made after the Closing Date.
3.9 No Conflict with Other Instruments. Except as set forth on
SCHEDULE 3.9, the execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute
a default under any terms or provision of (a) the Company's Amended and
Restated Articles of Incorporation or Amended and Restated Bylaws; (b)
any Commitments (as hereinafter defined); or (c) any judgment, decree
or order or any statute, rule or governmental regulation applicable to
the Company. Subject to the truth and accuracy of each Purchaser's
representations and warranties herein and the Company making any
required filings which the Company agrees to do, the offer and sale of
the Series A Convertible Preferred Stock to each Purchaser will be in
compliance with all federal and state securities laws.
3.10 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has
requested or, to the Company's knowledge, sought to represent any of
the employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending, or, to the
Company's knowledge, threatened, which could have a material adverse
effect on the financial condition, operating results, or business of
the Company, nor is the Company aware of any labor organization
activity involving its employees.
3.11 Employee Matters. SCHEDULE 3.11 contains a complete and
accurate list of the names, titles and Cash Compensation (as
hereinafter defined) of all members of executive management of the
Company, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year or who
earned in excess of $100,000 during the Company's preceding fiscal
year. For purposes of this SECTION 3.11, "CASH COMPENSATION" shall mean
wages, salaries, bonuses (discretionary or otherwise) and other
compensation paid or payable in cash. Except as disclosed in SCHEDULE
3.11, the Company has no employment agreements, employee leasing
agreements, employee service agreements, or noncompetition agreements
other than those contemplated by SECTION 5.11 hereof.
3.12 Title to Properties; Liens and Encumbrances.
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(a) Except as disclosed on SCHEDULE 3.12(a), the
Company has good and marketable title to its assets,
including, without limitation, those reflected on the Balance
Sheet (other than those since disposed of in the ordinary
course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (i) liens
for taxes not yet due and payable or being contested in good
faith in appropriate proceedings, and (ii) encumbrances that
are incidental to the conduct of their respective businesses
or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do
not in the aggregate materially detract from the value of the
assets affected or materially impair their use by the Company.
With respect to the assets of the Company that are leased, the
Company is in compliance with all material provisions of such
leases. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair, normal
wear and tear excepted, and are adequate and sufficient for
the Company's business.
(b) The Company enjoys peaceful and undisturbed
possession under all real property leases under which the
Company is operating, and all such leases are valid and
subsisting and none of them is in default. A listing of said
real property leases, their terms and total lease payments is
attached hereto as SCHEDULE 3.12(b).
(c) Except as disclosed in SCHEDULE 3.12(c) the
Company does not own any real property.
3.13 Compliance with Corporate Instruments. The Company is not
in violation of any provision of its Amended and Restated Articles of
Incorporation, Amended and Restated Bylaws of the Company or Statement
of Designation, and the Company is not in default or violation of any
Commitment to which the Company is a party or by which any of its
property is bound, the default or violation of which would materially
and adversely affect the Company's business, prospects, condition,
affairs or operations.
3.14 Patents, Trademarks and Other Intangible Assets.
(a) SCHEDULE 3.14(a) hereto sets forth the true and
correct list of all registered patents, trademarks and
copyrights (or applications therefor) held by the Company.
Except as set forth on SCHEDULE 3.14(a), the Company possesses
ownership or has the right to use all patents, copyrights,
trademarks, service marks, trade secrets and other proprietary
intellectual property rights necessary for the operation of
its business except where the failure of the Company to own or
have such right to use such intellectual property would not
have a material adverse effect on the Company (the
"INTELLECTUAL PROPERTY"). To the Company's knowledge, the
Company (a) is not infringing upon the intellectual property
rights of others in connection with its business; (b) does not
require the consent of any person which has not been obtained
(all of such consents being set forth in SCHEDULE 3.14(a)) to
use the Intellectual Property; (c) may freely transfer the
Intellectual Property (other than as set forth in SCHEDULE
3.14(a)); or (d) has not
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received any written notice of conflict with respect to the
intellectual property rights of any other person or entity.
All of the Intellectual Property is valid and subsisting, has
not been canceled, abandoned or otherwise terminated and, if
applicable, has been duly issued or filed. The employees and
consultants of the Company, who, either alone or in concert
with others, developed, invested, discovered, derived,
programmed or designed any of the Company's owned Intellectual
Property have entered into written agreements to protect the
confidentiality of the Company's owned Intellectual Property
and to assign to the Company all rights therein.
(b) The Company has no knowledge of any claim that,
or inquiry as to whether, any product, activity or operation
of the Company infringes upon or involves, or has resulted in
the infringement of, any proprietary right of any other
person, corporation or other entity; and no proceedings have
been instituted, are pending or are threatened that challenge
the rights of the Company with respect thereto. Any agreement
of indemnification by the Company for any Intellectual
Property as to any license granted by it or any property
manufactured, used or sold by it is set forth in SCHEDULE
3.14(b).
3.15 Trade Secrets and Customer Lists. The Company has the
right to use, free and clear of any claims or rights of others, except
claims or rights specifically set forth in SCHEDULE 3.15, all trade
secrets, customer lists and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or
marketed by the Company. To the Company's knowledge, it is not using,
or in any way making use of, any confidential information or trade
secrets of any third party, including, without limitation, any past or
present employee of the Company, except under valid and existing
license agreements (all such license agreements being set forth in
SCHEDULE 3.15).
3.16 Tax Matters.
(a) All required foreign, federal, state, local and
other tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns) of the Company
have been accurately prepared in all material respects and
duly and timely filed, and all foreign, federal, state, local
and other taxes required to be paid with respect to the
periods covered by such returns have been paid. The Company is
not and has not been delinquent in the payment of any tax,
assessment or governmental charge. The Company is not a party
to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. The Company does not have
and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
(b) Except as set forth in SCHEDULE 3.16, the Company
has not had any tax deficiency proposed or assessed against it
and has not executed any waiver of
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any statute of limitations on the assessment or collection of
any tax or governmental charge. Except as set forth in
SCHEDULE 3.16, and except for sales tax audits, none of the
Company's franchise tax returns has ever been audited by
governmental authorities. No tax audit, action, suit,
proceeding, investigation or claim is now pending nor, to the
best knowledge of the Company, threatened against the Company,
and no issue or question has been raised (and is currently
pending) by any taxing authority in connection with any of the
Company's tax returns or reports.
(c) To the Company's knowledge, the reserves for
taxes, assessments and governmental charges reflected on the
Balance Sheet are and will be sufficient for the payment of
all unpaid taxes and governmental charges payable by the
Company with respect to the period ended on the Balance Sheet
Date. Since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to business,
properties and operations for such period. The Company
withheld or collected from each payment made to its employees,
the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
3.17 Litigation. No action, proceeding or investigation is
pending or threatened against the Company, or any of its properties
before any court, arbitration board or tribunal or administrative or
other governmental agency (including, without limitation, unfair labor
practices or discrimination charges or complaints), that might result,
either individually or in the aggregate, in any material adverse change
in the business, prospects, condition, affairs, operations, or assets
of the Company or in any material liability on the part of the Company.
The foregoing includes, without limiting its generality, actions
pending or threatened involving the prior employment of any of the
Company's employees or use by any of them in connection with the
Company's business of any information, property or techniques allegedly
proprietary to any of their former employers.
3.18 Minute Books. The minute books of the Company have been
made available to the counsel for the Purchasers and contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.19 Insurance. The Company carries property, liability,
workers' compensation and such other types of insurance as is customary
in the Company's industry. A list and brief description of all
insurance policies of the Company are set forth in SCHEDULE 3.19. All
of such policies are valid and enforceable policies, issued by insurers
of recognized responsibility in amounts and against such risks and
losses as are customary in the Company's industry. All casualty
insurance is sufficient in amount to allow the Company to replace any
of its properties that might be damaged or destroyed.
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3.20 Fees and Commissions. The Company has retained Donaldson,
Lufkin & Jenrette ("DLJ") as financial advisor and placement agent in
connection with the transactions contemplated by this Agreement and
Geneva Associates, L.L.C. and its affiliates ("GENEVA") as a financial
advisor. The Company shall pay all fees owed DLJ and Geneva in
connection with the transactions contemplated by this Agreement from
the proceeds of the sale of the Preferred Stock (the "OFFERING")
pursuant to the Placement Memorandum (as hereinafter defined). The
Company represents and warrants that other than as stated in this
SECTION 3.20, it has retained no finder, broker, agent, financial
adviser or other intermediary in connection with the transactions
contemplated by this Agreement. The Company agrees to indemnify and
hold harmless the Purchasers for any brokerage commissions, finder's
fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement
made by the Company.
3.21 Employee Benefit Plans.
(a) SCHEDULE 3.21 contains true, complete and correct
information as to any bonus, incentive, insurance (including
any self-insured arrangements), compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing,
salary reduction, deferred compensation, stock purchase, stock
option, workers' compensation, disability benefits,
supplemental unemployment benefits (including without
limitation any "voluntary employees' beneficiary association"
as defined in Section 501(C)(9) of the Code) (as hereinafter
defined), vacation, holiday and sick pay or other similar
benefit plans, programs or arrangements (whether written or
oral) (said plans, programs or arrangements being referred to
as the "PLANS") in which any employees of the Company
participate. All Plans are listed on the attached SCHEDULE
3.21. All obligations of the Company, whether arising by
operation of law, by contract or by past custom, for payment
by it to trusts, retirement plans or other funds or any
governmental agency with respect to unemployment compensation
benefits, social security benefits or any other benefits for
employees of the Company have been paid or shall be paid by
the Company at the time the Company is obligated to make such
payments. All benefits payable directly to the Company's
employees have been paid or shall be paid by the Company at
the time the Company is obligated to make such payments. All
reasonably anticipated obligations of the Company, whether
arising by operation of law, by contract or by past custom,
for vacation and holiday pay, bonuses and other forms of
compensation or benefits which are or may become payable to
employees or any of them have been paid, or shall be paid, in
accordance with the provisions of applicable laws,
regulations, benefit plans or policies.
(b) True, complete and correct copies of all relevant
documents with respect to the Plans, including, but not
limited to, each of the following documents: (i) a copy of the
Plan and each related trust or other funding agreement,
including insurance contracts (and all amendments thereto);
(ii) the last filed Form 5500, where applicable; (iii) the
most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is
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intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "CODE"); and (iv) the
summary plan descriptions and all material modifications
thereto, have been delivered to Purchasers.
(c) All Plans, related trust agreements, annuity
contracts or other funding arrangements comply in all
substantial respects and the Company has administered and
operated each such Plan, related trust agreements, annuity
contracts or other funding arrangements in substantial
compliance with the requirements of applicable law, including,
without limitation, the Employee Retirement Income Security
Act of 1974 as amended ("ERISA"), and the Code, and no such
Plan that is subject to Part 3 of Subtitle B of Title I of
ERISA has incurred any "accumulated funding deficiency" within
the meaning of Section 302 of ERISA or Section 412 of the
Code, whether or not waived.
(d) The Company does not maintain and is not required
to contribute to any multi-employer plan (as defined in
Section 3(37) of ERISA) for the benefit of employees or former
employees of the Company. The Company does not maintain a
self-insured "multiple employer welfare arrangement" as
defined in Section 3(40) of ERISA.
(e) The Pension Benefit Guaranty Corporation ("PBGC")
has not instituted proceedings to terminate any of the
Company's defined benefit plans and no condition exists that
presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of
Section 4043(b) of ERISA with respect to any defined benefit
plan and no defined benefit plan has been terminated within
the preceding six years or is expected to be terminated. No
liability (other than for the payment of premiums) to the PBGC
has been or is expected to be incurred by the Company or any
officer, director, shareholder or employee of the Company with
respect to any defined benefit plan.
(f) The Company has no liability with respect to any
transaction which relates to any Plan and which is in
violation of Sections 404 or 406 of ERISA or constitutes a
"prohibited transaction," as defined in Section 4975(c)(1) of
the Code, and for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Code. To the
Company's knowledge, the Company has not participated in a
violation of Part 4 of Title I, Subtitle B of ERISA by any
plan fiduciary of any Plan and has no unpaid civil penalty
under Section 502(1) of ERISA.
(g) There is no material action, order, writ,
injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, arbitral action, governmental audit or
investigation (including, without limitation, any such audit
or investigation by the Internal Revenue Service, Department
of Labor, or PBGC) relating to or seeking benefits under any
Plan that is pending or, to the Company's knowledge,
threatened or anticipated against the Company other than
routine claims for benefits.
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3.22 Material Contracts and Commitments.
(a) Material Contracts and Commitments. Except as set
forth in SCHEDULE 3.22, the Company has not entered into, nor
is the capital stock, the assets or the business of the
Company bound by, whether or not in writing, any
(i) deed of trust securing a lien in any
real property owned by the Company;
(ii) security agreement granting a security
interest in connection with the Company's incurrence
of indebtedness for borrowed money;
(iii) guaranty or suretyship agreement or
performance bond, in each case involving a contingent
obligation of the Company in excess of $100,000;
(iv) consulting or compensation agreement or
similar arrangement that is not an Employment
Agreement and that involves compensation payable by
the Company in excess of $100,000 annually or an
agreement relating to the election or retention in
office of any director or officer;
(v) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed
money;
(vi) money lent or to be lent by the Company
to another in an amount in excess of $10,000;
(vii) lease of real property, whether as
lessor, lessee, sublessor or sublessee (excluding the
real estate leases set forth on SCHEDULE 3.12);
(viii) lease of personal property, whether
as lessor, lessee, sublessor or sublessee involving
lease payments in an annual amount in excess of
$50,000;
(ix) any agreement for the acquisition of
services, supplies, equipment or other personal
property (excluding leases of real or personal
property) and involving more than $100,000 in the
aggregate;
(x) contracts containing noncompetition
covenants restricting the Company's ability to
compete in the Telecommunications Business (as
hereinafter defined);
(xi) agreement providing for the purchase
from a supplier of all or substantially all of the
requirements of the Company of a particular product
or service; or
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(xii) agreement or commitment a copy of
which would be required to be filed with the
Securities and Exchange Commission (the "Commission")
as an exhibit to a registration statement on Form
S-1, or a successor form, pursuant to Paragraph 10 of
Item 601 of Regulation S-K, if the Company were
registering securities under the Securities Act of
1933, as amended (the "Securities Act") .
All of the documents listed on SCHEDULE 3.22 hereof are
hereinafter collectively referred to as the "COMMITMENTS."
True, correct and complete copies of the written Commitments
have heretofore been made available to Purchasers. To the
knowledge of the Company, the Commitments are in full force
and effect and are valid and enforceable obligations of the
parties thereto in accordance with their respective terms
(except as may be limited by the laws of bankruptcy,
insolvency or creditors rights generally and subject to the
enforceability and availability of equitable remedies), and to
the knowledge of the Company, no defenses, off-sets or
counterclaims have been asserted by any party thereto, nor has
the Company waived in writing any rights thereunder, except as
described in SCHEDULE 3.22. The Company has not received
written notice of any default with respect to any Commitment.
(b) No Cancellation or Termination of Commitments.
Except as contemplated hereby, the Company has not received
written notice of any plan or intention of any other party to
any Commitment to exercise any right to cancel or terminate
any Commitment.
3.23 Conflict of Interest Transactions. Except as set forth on
SCHEDULE 3.23, no director, Common Stock holder, member of management
of the Company, or their spouses or children, owns directly or
indirectly, on an individual or joint basis, any interests, has any
investment in or serves as an officer, partner or director in any
corporation, business or other person that is a customer, supplier or
competitor of the Company, or that has a material contract or
arrangement with the Company or its competitor, other than the
ownership of less than one percent (1%) of the securities of any
company that are publicly traded on any national exchange or over the
counter market.
3.24 Environmental Matters. To the Company's knowledge,
neither the Company nor any of its assets is currently in material
violation of, or subject to any material existing, pending or
threatened investigation or inquiry by any governmental authority or to
any remedial obligations under any environmental laws, and this
representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all
relevant facts, conditions and circumstances, if any, pertaining to the
assets and operations of the Company. To the Company's knowledge, the
assets of the Company have never been used in a manner that would be in
material violation of any of the environmental laws. To the Company's
knowledge, the Company is not required to obtain any permits, licenses
or similar authorizations to construct, occupy, operate or use any
buildings, improvements, fixtures and equipment owned or leased by the
Company by reason of any environmental laws.
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None of the assets owned or leased by the Company are on any federal or
state "Superfund" list or subject to any environmentally related liens.
3.25 Other Transactions. Other than the offering and sale of
the Series A Convertible Preferred Stock hereunder, the Company has not
entered into any agreements or arrangements and has no knowledge of any
pending or possible offers or discussions concerning or providing for
the merger or consolidation of the Company or the sale of all or any
substantial portion of its assets, the sale by the Company or any
material shareholder of the Company of any Securities of the Company or
any similar transaction affecting the Company or its security holders.
3.26 No Bankruptcies. For the past five years, neither the
Company nor any of its officers, directors or affiliates, have
voluntarily sought, consented to or acquiesced in the benefits of, or
become the subject of a proceeding under the Bankruptcy Code of the
United States or any other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally.
3.27 Year 2000 Compliance. To the Company's knowledge, the
computer systems used by the Company are Year 2000 compliant, meaning
that such systems will continue to function, and functionality and
accuracy will not be affected as a result of the run date or the dates
being processed in the twentieth or twenty-first century, including the
advent of the Year 2000, or from the extra day occurring in any leap
year.
3.28 Disclosure. To the Company's knowledge, this Agreement
and the exhibits and schedules hereto, when taken as a whole with other
documents and certificates furnished by the Company to the Purchasers
or their counsel, do not contain any untrue statement of material fact
or omit any material fact necessary in order to make the statements
therein not misleading; provided, however, certain materials provided
to the Purchasers contain projections and estimates of future events,
and such projections and estimates are subject to the statements in the
Placement Memorandum (as hereinafter defined), including, without
limitation, the statements set forth on page 42 thereof. There is no
fact known to the Company that has not been disclosed to the Purchasers
prior to the date of this Agreement that materially and adversely
affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company, taken as a whole, or the
ability of the Company to perform under this Agreement or the other
agreements contemplated hereby or to consummate the transactions
contemplated hereby or thereby. For purposes of this SECTION 3.28 only,
"to the Company's knowledge" shall include any information the Company
would have known except for its reckless disregard for the accuracy of
any material fact.
3.29 Legal Compliance. Except as set forth on SCHEDULE 3.29,
(a) the Company has all material franchises, permits, licenses and
other rights and privileges necessary to permit them to own their
respective properties and to conduct their respective businesses as
presently conducted (all of which such items are set forth on SCHEDULE
3.29) and (b) the Company, and the business and operations of the
Company, have been and are being conducted in all material respects in
accordance with all
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applicable laws, rules and regulations (including, without limitation,
all employment, labor practices, safety and health laws and
regulations), and the Company is not in violation of any judgment,
order or decree. There is no existing law, rule, regulation or order
which would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in, conducting its business in
any jurisdiction in which it is now conducting business or, to the
Company's knowledge, in which it proposes to conduct business.
3.30 Small Business Concern. The Company, taken together with
its "affiliates" (as that term is defined in Section 121.401 of Title
13 of the Code of Federal Regulations) is a "Small Business Concern"
within the meaning of Section 103(5) of the Small Business Investment
Act of 1958, as amended (the "SBIC Act"), and the regulations
thereunder, including Title 13, Code of Federal Regulations, ss.121.3,
and meets the applicable size and eligibility criteria set forth in
Title 13, Code of Federal Regulations, ss.121.802(a)(2). Neither the
Company nor any of its subsidiaries, if any, presently engages in any
activity for which a small business investment company is prohibited
from providing funds by the SBIC Act and the regulations thereunder,
including Title 13, Code of Federal Regulations, ss.107.
3.31 Small Business Administration Documentation. The Company
has provided Purchasers, who have requested, a Small Business
Administration "SBA" Form 480 (Size Status Declaration) and SBA Form
652 (Assurance of Compliance), of such Forms, which have been completed
and executed by the Company, and SBA Form 1031 (Portfolio Finance
Report), Part A of which has been completed by the Company.
4. Representations, Warranties and Covenants of Purchasers.
4.1 Organization and Good Standing. Each Purchaser severally
represents and warrants that, if a corporation, partnership, trust or
other form of business entity, it is duly organized, validly existing
and in good standing under the laws of the state of its organization,
has all requisite power and authority to own its property and assets
and to carry on its business as it is presently being conducted and as
it proposes to carry on its business, is duly qualified and in good
standing and authorized to do business in each of the jurisdictions in
which the failure to be so qualified would have a material adverse
effect on the Purchaser.
4.2 Authorization; Approvals. Each Purchaser severally
represents and warrants that the execution and delivery of this
Agreement has been duly authorized by such Purchaser and this Agreement
is a valid and legally binding obligation of such Purchaser legally
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and
general principles of equity. Each Purchaser, if a corporation,
partnership, trust or other form of business entity, is duly qualified
to purchase and hold the Series A Convertible Preferred Stock sold
hereunder. Each Purchaser represents and warrants that the information
set forth on SCHEDULE 1 hereto regarding such Purchaser's business and
residence addresses, telephone numbers, citizenship and taxpayer
identification number is true, accurate and
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complete. Each Purchaser severally represents and warrants that it has
obtained, or will obtain prior to the Closing Date, all necessary
consents, authorizations, approvals and orders required on the part of
such Purchaser in connection with the consummation of the transactions
contemplated by this Agreement.
4.3 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute a default under any
terms or provisions of (a) if a corporation, partnership, trust or
other form of business entity, the applicable charter documents of such
Purchaser; (b) any material contract, indenture or other agreement to
which the Purchaser is a party; or (c) any judgment, decree or order or
any material statute, rule or governmental regulation applicable to the
Purchaser.
4.4 Investment Representations. Each Purchaser severally
represents and warrants that it is acquiring the Series A Convertible
Preferred Stock to be purchased by it (and any Class A Common Stock
into which it may be converted) for its own account, for investment and
not with a view to, or for sale in connection with, any distribution of
such stock or any part thereof.
4.5 Investment Experience; Access to Information. Each
Purchaser severally represents and warrants that it (a) is an
"accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act (or any successor provision), (b)
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of this investment,
(c) has the ability to bear the economic risks of this investment for
an indefinite period of time, and (d) has received a copy of the
Private Placement Memorandum and any supplements thereto (collectively,
the "PLACEMENT Memorandum") attached hereto as EXHIBIT D.
4.6 Absence of Registration. Each Purchaser understands that:
(a) The Series A Convertible Preferred Stock to be
sold and issued hereunder and the Class A Common Stock into
which it may be converted have not been registered under the
Securities Act or any other securities laws on the basis that
the sale of such stock to the Purchaser is exempt from
registration under the Securities Act and such other
securities laws, and the Purchaser may be required to hold
such stock indefinitely unless it is subsequently registered
under the Securities Act and any other applicable securities
laws, or exemptions from such registration are available.
(b) The Company's reliance on the exemptions referred
to in SECTION 4.6(a) above is predicated in part upon the
Purchaser's representations and warranties contained in this
ARTICLE 4.
(c) Except as provided in that certain Registration
Rights Agreement, to be executed at the Closing, by and among
the Company and the Purchasers (the "Registration Rights
Agreement"), attached hereto as EXHIBIT E and as noted in
SCHEDULE 4.6 hereto, the Company is under no obligation to
file a registration
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statement with the Commission or any other securities
regulatory agency with respect to the Series A Convertible
Preferred Stock or the Class A Common Stock into which it may
be converted.
(d) Rule 144 promulgated under the Securities Act or
any successor provision ("RULE 144"), which provides for
certain limited sales of unregistered securities, is not
presently available with respect to the Series A Convertible
Preferred Stock or the Class A Common Stock into which it may
be converted, and the Company is under no obligation to make
Rule 144 available.
4.7 Restrictions on Transfer. Each Purchaser agrees that: (a)
it will not offer, sell, pledge, hypothecate, or otherwise dispose of
the Series A Convertible Preferred Stock or the Class A Common Stock
into which it may be converted unless such offer, sale, pledge,
hypothecation or other disposition is in accordance with the Statement
of Designation and this Agreement and is (i) registered under the
Securities Act and any other applicable securities laws, or (ii) in
compliance with an opinion of counsel to such Purchaser, delivered to
the Company and reasonably acceptable to it, to the effect that such
offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act or such other securities laws; and (b)
the certificate(s) representing the Series A Convertible Preferred
Stock (and any Class A Common Stock into which it may be converted)
shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS
THEREOF.
In addition, the certificates evidencing the Series A Convertible
Preferred Stock shall bear legends stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE
HEREOF, AS SET FORTH IN THE STOCK PURCHASE AGREEMENT BETWEEN
THE ISSUER AND INITIAL PURCHASER, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE
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TO BE BOUND BY THE RESTRICTIONS SET FORTH IN SAID STOCK
PURCHASE AGREEMENT.
THE ISSUER IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR
SERIES OF CAPITAL STOCK. A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF CAPITAL
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS (TO THE EXTENT ESTABLISHED) IS
ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS. THE
ISSUER WILL FURNISH A COPY OF SUCH STATEMENT TO ANY
SHAREHOLDER OF RECORD, WITHOUT CHARGE, UPON THE WRITTEN
REQUEST TO THE ISSUER AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
Upon request of a holder of Series A Convertible Preferred
Stock or the Class A Common Stock into which it has been converted, the
Company shall remove the legend set forth above from the certificates
evidencing such Series A Convertible Preferred Stock or Class A Common
Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the
Company, in form and substance reasonably satisfactory to the Company,
to the effect that a transfer by said holder of such Series A
Convertible Preferred Stock or Class A Common Stock will not violate
the Securities Act or any other applicable securities laws.
Notwithstanding the provisions above, no such registration or
opinion of counsel shall be necessary for a pro rata transfer by a
Purchaser which is a partnership to a partner of such partnership or a
retired partner of such partnership who retires after the date hereof
without the payment of compensation by such partner, or to the estate
of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his spouse or lineal descendants
or ancestors, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if such transferee were an original
Purchaser hereunder, including without limitation, the representations,
warranties, covenants and agreements contained in SECTIONS 4.1 to 4.7
hereto, inclusive.
4.8 Transfer Instructions. Each Purchaser agrees that the
Company may place and make appropriate notations in its record books
against the transfer of the shares of Series A Convertible Preferred
Stock to be purchased by it and any Class A Common Stock into which
such shares may be converted, and may take any other actions which it
deems necessary to prevent any violations of the Securities Act or any
other securities laws by reason of the delivery of such stock or any
subsequent transaction with respect to such stock.
4.9 Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by the purchase of
Series A Convertible
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Preferred Stock and any Class A Common Stock into which it may be
converted for an indefinite period.
4.10 Fees and Commissions. Each Purchaser represents and
warrants that it has retained no finder, broker, agent, financial
advisor or other intermediary (hereinafter collectively referred to as
"INTERMEDIARY") in connection with the transactions contemplated by
this Agreement and agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against such
liability or alleged liability.
5. Conditions to Closing of the Purchasers. The obligation of each
Purchaser on the Closing Date to consummate the transactions contemplated by
this Agreement shall be subject to each of the following conditions precedent,
any one or more of which may be waived by such Purchaser:
5.1 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and
as of the Closing Date.
5.2 Performance. The Company shall have performed and complied
with all agreements, conditions and covenants contained herein or in
any other ancillary documents incident to the transactions contemplated
by this Agreement required to be performed or complied with by it prior
to or at the Closing.
5.3 Company Consents, etc. The Company shall have secured all
permits, consents and authorizations that shall be necessary or
required lawfully to consummate this Agreement, to issue the Series A
Convertible Preferred Stock to be purchased by the Purchasers and to
issue the Class A Common Stock into which it may be converted.
5.4 Compliance Certificates. The Company shall have delivered
to each Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate in all material respects
on the Closing Date, and that all conditions specified in SECTIONS 5.1
to 5.3 hereof, inclusive, have been fulfilled and that there has been
no materially adverse change in the business, affairs, prospects,
operations or condition of the Company since the Balance Sheet Date.
5.5 Government Actions. No action, suit or proceeding shall
have been instituted before any court, governmental or regulatory body
or arbitral tribunal, or instituted or threatened by any governmental
or regulatory body to restrain, modify or prevent the carrying out of
the transactions contemplated hereby or to seek damages or a discovery
order in connection with such transactions.
5.6 The Statement of Designation. Each Purchaser shall have
received evidence that the Company shall have duly authorized and filed
the Statement of Designation with the Secretary of State of the State
of Texas, substantially in the form attached hereto as EXHIBIT C;
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5.7 The Articles of Incorporation. Each Purchaser shall have
received a copy of the Articles of Incorporation of the Company and all
amendments thereto, certified by the Secretary of State of Texas, which
shall include evidence that the Company shall have duly authorized and
filed the Amended and Restated Articles of Incorporation with the
Secretary of State of the State of Texas, substantially in the form
attached hereto as EXHIBIT A;
5.8 Legal Opinion. Counsel for the Company, Winstead, Sechrest
& Minick, P.C., shall have delivered to the Purchasers a legal opinion,
dated as of the Closing Date and substantially in the form attached
hereto as EXHIBIT F;
5.9 Company Deliveries. The Company shall have delivered to
the Purchasers:
(a) (i) copies of the resolutions of the Company's
Board of Directors authorizing and approving this Agreement
and all of the transactions and agreements contemplated hereby
and thereby, (ii) the Bylaws of the Company and (iii) the
names of the officer or officers of the Company authorized to
execute this Agreement and any and all documents, agreements
and instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in
full force and effect and unmodified as of the Closing Date;
(b) a certificate of existence for the Company from
the Secretary of State of the State of Texas;
(c) a certificate of account status for the Company
from the Comptroller of the State of Texas; and
(d) certificates from each state where the Company is
required to be qualified as a foreign corporation showing such
qualification, dated as of a date within ten (10) days of the
Closing Date; and
(e) a Registration Rights Agreement in substantially
the form attached hereto as EXHIBIT E.
5.10 Total Subscription. The Company shall have secured
subscriptions from the Purchasers to purchase an aggregate of at least
1,861,703 shares of Series A Convertible Preferred Stock for an
aggregate amount of $35,000,000, pursuant to this Agreement. These
Purchasers shall purchase their shares contemporaneously at the
Closing.
5.11 Employment Agreements. As of the Closing Date, as a
condition to the Purchaser's obligation to consummate the transactions
contemplated herein, James R. Price, Charles W. Price, Matthew
Hutchins, William H. Anderton and Daniel A. Gillett shall have entered
into employment agreements with the Company, containing
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<PAGE> 24
nondisclosure and noncompete covenants, such agreements to be in form
and substance reasonably satisfactory to the Purchasers.
6. Conditions to Closing of Company. The obligation of the Company on
the Closing Date to consummate the transactions contemplated by this Agreement
shall be subject to the following conditions precedent, any one or more of which
may be waived by the Company:
6.1 Representations and Warranties. The representations and
warranties made by the Purchasers herein shall be true and accurate on
and as of the Closing Date.
6.2 Performance. Purchasers shall have performed and complied
with all agreements and conditions contained herein or in any other
ancillary documents incident to the transactions contemplated by this
Agreement required to be performed or complied with by such Purchasers
prior to or at the Closing.
6.3 Purchaser Consents, etc. Purchasers shall have secured all
permits, consents, waivers and authorizations that shall be necessary
or required lawfully to consummate this Agreement.
6.4 Compliance Certificates. Each Purchaser shall have
delivered to the Company at the Closing an Officer's Certificate to the
effect that the representations and warranties of the Purchaser
continue to be true and accurate in all material respects on the
Closing Date, and that all conditions specified in SECTIONS 6.1 to 6.3
hereof, inclusive, have been fulfilled.
7. Affirmative Covenants.
7.1 Financial Information. The Company will deliver to each
Purchaser:
(a) within forty five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash
flow prepared in accordance with GAAP and certified by the
Company's Chief Financial Officer, except such financial
statements shall not contain normal and recurring year-end
audit adjustments.
(b) within one hundred twenty (120) days after the
fiscal year end, an annual independent certified audit from an
outside accounting firm reasonably designated by the Company;
(c) As soon as practicable, but no later than thirty
(30) days after the beginning of each fiscal year, beginning
January 1, 2000, the Company shall provide to the Purchasers a
copy of the annual budget and plan for such year which shall
include, without limitation, plans for incurrences of
indebtedness for borrowed money and projections regarding
types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections.
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7.2 Use of Proceeds. The Company shall use the proceeds from
the sale of Series A Convertible Preferred Stock for the purposes of
capital expenditures and general corporate purposes, including working
capital.
7.3 Confidentiality. Any information provided pursuant to this
Agreement shall be used by a Purchaser solely in furtherance of its
interests as an investor in the Company, and each Purchaser shall
(except as otherwise required by law) maintain the confidentiality of
all non-public information of the Company obtained under said section.
Each Purchaser will have no obligation to maintain confidentiality of
any information which (i) at the time of disclosure or thereafter is
generally available to and known by the public (other than as a result
of a disclosure directly or indirectly by a Purchaser or the
Purchaser's representatives), (ii) was available to a Purchaser on a
nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting the information to such
Purchaser or the Purchaser's representatives by a contractual, legal or
fiduciary obligation, or (iii) has been independently acquired or
developed by a Purchaser without violating any of such Purchaser's
obligations under this Agreement or any other agreement such Purchaser
has with the Company or its agents.
7.4 Right of First Refusal. Except in the event of and after
the consummation of an Approved Offering (as hereinafter defined) and
with respect to dispositions to any direct or indirect parent or
subsidiary of a Purchaser who agrees to be bound by the terms of this
Agreement, no Purchaser shall be permitted to dispose of any shares of
the Series A Convertible Preferred Stock unless such shares shall have
been offered for sale in writing first to the Company and then to the
other shareholders of the Company (including the other Purchasers) pro
rata as set forth in this SECTION 7.4. In the event a shareholder
desires to transfer any Series A Convertible Preferred Stock, the
shareholder desiring to make such transfer (the "TRANSFERRING
SHAREHOLDER") shall deliver written notice (the "OFFER NOTICE") to the
Company and to all other shareholders (including the other Purchasers)
at least ninety (90) days prior to the proposed transfer. The Offer
Notice will disclose in reasonable detail the proposed number of shares
to be transferred, the proposed transferee and the proposed price,
terms and conditions of the transfer.
(a) Upon receipt of the Offer Notice, the Company
shall have the option (the "COMPANY'S OPTION") for a period of
thirty (30) days to purchase or otherwise acquire all or part
of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as
the "OPTION PRICE") equal to the bona fide purchase price to
be paid by the proposed purchaser as described in the Offer
Notice (which amount shall be zero if the proposed transfer
would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current holders
of Series A Convertible Preferred Stock as to whether it will
exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
(b) In the event that the Company does not elect to
fully exercise the Company's Option within thirty (30) days
after receipt of the Offer Notice, the
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remaining holders of Series A Convertible Preferred Stock
shall have the option (each a "SERIES A SHAREHOLDER'S OPTION")
for a period of ten (10) days from the earlier of (i) their
receipt of written notice from the Company of its decision not
to exercise or to only partially exercise the Company's
Option, or (ii) the expiration of the Company's Option (the
"SERIES A SHAREHOLDER ELECTION PERIOD"), to purchase or
otherwise acquire all or part of the remaining shares which
the Company does not choose to purchase pursuant to the
Company's Option, in proportion to their respective ownership
of shares of Series A Convertible Preferred Stock which, for
purposes of such determination, shall include without
duplication all outstanding options, warrants or other rights
owned by such shareholders that are convertible into shares of
Series A Convertible Preferred Stock as of the date of such
notice from the Company (or the expiration of the Company's
Option), for an amount equal to the applicable portion of the
Option Price. Each holder of Series A Convertible Preferred
Stock shall notify in writing all then current holders of
Series A Convertible Preferred Stock as to whether such
shareholder will exercise, partially exercise or not exercise
the Series A Shareholder's Option before the expiration of the
Series A Shareholder Election Period.
(c) For a period of ten (10) days from the earlier of
(i) the receipt by the other holders of Series A Convertible
Preferred Stock of a written notice from a holder of Series A
Convertible Preferred Stock that it does not want to exercise
its option or will only partially exercise its option, or (ii)
the expiration of the Series A Shareholder Election Period,
the other holders of Series A Convertible Preferred Stock
shall have the right (the "SERIES A SHAREHOLDER'S SECOND
OPTION") to purchase or otherwise acquire such shareholder's
portion of the shares described in the Offer Notice in
proportion to their respective ownership of shares of Series A
Convertible Preferred Stock (determined as described in
SECTION 7.4(b) above).
(d) In the event that the holders of Series A
Convertible Preferred Stock do not elect to fully exercise the
Series A Shareholder's Second Option before the expiration of
the Series A Shareholder's Second Option, the remaining
shareholders shall have the option (each a "SHAREHOLDER'S
OPTION") for a period of ten (10) days from the earlier of (i)
their receipt of written notice from the holders of the Series
A Convertible Preferred Stock of their decision not to
exercise or to only partially exercise the Series A
Shareholder's Second Option, or (ii) the expiration of the
Series A Shareholder's Second Option (the "OTHER SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the holders of Series A
Convertible Preferred Stock do not choose to purchase pursuant
to the Series A Shareholder's Second Option, in proportion to
their respective ownership of shares which, for purposes of
such determination, shall include without, duplication all
outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date
of such notice from the holders of the Series A Convertible
Preferred Stock (or the expiration of the Series A
Shareholder's Second Option), for an amount equal to the
applicable portion of the Option Price. Each shareholder
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shall notify in writing all then current shareholders as to
whether such shareholder will exercise, partially exercise or
not exercise the Shareholder's Option before the expiration of
the Other Shareholder Election Period.
(e) For a period of ten (10) days from the earlier of
(i) the receipt by the other shareholders of a written notice
from a shareholder that it does not want to exercise its
option or will only partially exercise its option, or (ii) the
expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise
acquire such shareholder's portion of the shares described in
the Offer Notice in proportion to their respective ownership
of shares (determined as described in SECTION 7.4(d) above).
(f) If shares of a Transferring Shareholder remain
unsold after compliance with the procedures set forth in this
SECTION 7.4, the Company shall have the final option for ten
(10) days to purchase or otherwise acquire all of the
remaining shares proposed to be transferred for an amount
equal to the applicable portion of the Option Price. If,
however, the Company and the other shareholders do not
individually or collectively elect to purchase all of the
shares being offered, the Transferring Shareholder may, within
thirty (30) days after the expiration of the Other Shareholder
Election Period (subject to the provisions of SECTION 7.4(h)
below), transfer all of the shares specified in the Offer
Notice to the transferee identified in the Offer Notice at the
price and terms stated in the Offer Notice. Any shares so
transferred thereupon shall continue to be subject to this
Agreement, and the transferee shall have the rights and
obligations set forth in this Agreement hereunder with respect
to such shares. If the Transferring Shareholder fails to
consummate such transfer within the thirty day period after
the expiration of the Other Shareholder Election Period, any
transfer of the shares thereafter shall again be subject to
the provisions of this SECTION 7.4.
(g) Unless otherwise agreed in writing, signed by the
person against whom such writing is sought to be enforced, the
closing of any acquisition of Series A Convertible Preferred
Stock hereunder pursuant to the Company's Option, a Series A
Shareholder's Option, or a Shareholder's Option shall take
place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such
forty-five day period, then the shares that were to be
acquired shall be offered in accordance with this SECTION 7.4
as though the applicable option had not been exercised.
(h) Notwithstanding the foregoing provisions of this
SECTION 7.4, the following shall apply in the event of any
Involuntary Transfer of Series A Convertible Preferred Stock.
An "INVOLUNTARY TRANSFER" shall mean any transfer caused by
the death of a shareholder, as well as any transfer,
proceeding or action by, through, as a consequence of, or in
which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the Series A
Convertible Preferred Stock of the Company, including, without
limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant
to a filing of a voluntary or an involuntary petition under
the
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United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Company
shall give written notice to each shareholder upon the
occurrence, or prospective occurrence, of such Involuntary
Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective
occurrence of such Involuntary Transfer. The foregoing
provisions of this SECTION 7.4 then shall apply, except (i)
the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually
agreeable to the Company and the shareholder who made, or may
make, the Involuntary Transfer, multiplied by the percentage
of all equity interests in the Company that is then
represented by the shares that are the subject of the
Involuntary Transfer, such independent appraised value to take
into account the earnings and book value of the Company, and
(ii) the appraiser shall deliver written notice of such
valuation to the Company and to all other shareholders
promptly following his completion of such valuation, and such
written notice shall be considered the Option Notice for
purposes of this SECTION 7.4. The cost of the appraisal shall
be shared equally by the Company and the shareholder who made,
or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this SECTION 7.4(h), the involuntary
transferee shall deliver certificates representing the Series
A Convertible Preferred Stock being purchased, duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes, and such shares shall be conveyed free and clear of any
liens, claims, options, charges, encumbrances or rights of
others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall
so represent and warrant. The involuntary transferee shall
further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this SECTION 7.4(h)
shall be held to be unenforceable with respect to any
particular Involuntary Transfer of common stock, or if all of
the shares subject to the Involuntary Transfer are not
purchased by the Company and/or one or more shareholders, and
if the involuntary transferee subsequently desires to transfer
such common stock, the involuntary transferee shall be deemed
to be a "Transferring Shareholder" under this SECTION 7.4 and
shall be bound by the other provisions of this Agreement.
(i) Notwithstanding anything to the contrary
contained in this SECTION 7.4, no shareholder shall transfer
any Series A Convertible Preferred
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Stock at any time if such action would constitute a violation
of any federal or state securities laws or a breach of the
conditions to any exemption from registration of the shares
under any such laws or a breach of any undertaking or
agreement of such shareholder entered into pursuant to such
laws or in connection with obtaining an exemption thereunder.
Each shareholder agrees that any shares purchased or acquired
by such shareholder shall bear appropriate legends restricting
the sale or other transfer of such shares in accordance with
applicable federal and state securities laws, in addition to a
legend referring, to the restrictions set forth in this
Agreement.
(j) The Amended and Restated Articles of
Incorporation shall contain provisions similar to the
foregoing provisions of SECTION 7.4 by which all of the
holders of the Common Stock grant a similar right of first
refusal to purchase the shares of such holders to the Company
and the holders of the Series A Convertible Preferred Stock,
and such provisions may not be amended without the consent or
approval of the holders of a majority of the outstanding
shares of the Series A Convertible Preferred Stock.
30
<PAGE> 30
7.5 Sale of the Company. At any time after April 4, 2001, and
before the consummation of an Approved Offering, if a bona fide offer
is made by any person (other than I 3S Funding I, L.L.C. ("FUNDING"),
Blue Ridge Investors Limited Partnership ("BLUE RIDGE") and Spotswood
Capital, LLC ("SPOTSWOOD"), or any person or entity related to or
affiliated with Funding, Blue Ridge and Spotswood), to purchase all or
substantially all of the assets or shares of stock of the Company, and
Funding gives the Company written notice that it desires such offer to
be accepted, the Company shall either accept the offer and consummate
the sale on the terms and conditions of the offer (in which case, if
the transaction is a stock sale or merger, Spotswood and Blue Ridge
also shall sell all of their equity interests in the Company on those
terms and conditions), or, subject to the last paragraph of this
SECTION 7.5, the Company shall acquire all the equity interests owned
by Funding, Spotswood and Blue Ridge in the Company on the same terms
and conditions as the offer; provided, however, that if such offer is
made prior to April 4, 2003, the Company shall have no such obligation
unless the total consideration of such offer is at least $350,000,000.
If at any time Funding approves the sale of substantially all of the
assets or shares of stock of the Company or if the transaction is a
stock sale or merger, Blue Ridge and Spotswood shall sell all of their
equity interests in the Company on the terms and conditions so
approved. If the Company accepts an offer to sell the Company made
after April 4, 2001, the Purchasers and any person that acquires the
Series A Convertible Preferred Stock shall sell their shares of Series
A Convertible Preferred Stock (and Class A Common Stock, if the shares
of Preferred Stock have been converted) and/or vote in favor of the
proposed transaction (as the case may be) so long as the holders of the
Series A Convertible Preferred Stock shall receive for their shares of
Preferred Stock an amount in cash equal to the aggregate Liquidation
Preference (as defined in the Statement of Designation of the Series A
Convertible Preferred Stock) plus accrued and unpaid dividends for such
shares of Series A Convertible Preferred Stock, in preference to any
other holders of capital stock of the Company. At least 20 days prior
to the consummation of any such sale, the Company shall give the
holders of the Series A Convertible Preferred Stock written notice of
the material terms of the proposed sale. The holders of the outstanding
shares of Series A Convertible Preferred Stock shall have the right to
convert their shares into shares of Class A Common Stock prior to or
concurrently with the consummation of any such sale and thereby be
entitled to receive their pro rata share of the proceeds of the sale
that would otherwise be payable to the holders of the Class A Common
Stock (assuming for such calculation the conversion of such shares of
Series A Convertible Preferred Stock as have exercised such right to
convert). The exercise of such right to convert by a holder of Series A
Convertible Preferred Stock shall be in lieu of any right to receive
such Liquidation Preference plus accrued and unpaid dividends as a
holder of such Series A Convertible Preferred Stock or otherwise. In
determining the total consideration for purposes of the foregoing, any
deferred payment shall be discounted to present value at a discount
rate of eight percent (8%) per annum.
Under its agreements with Funding, the Company has the right to avoid
the required sale of the Company, as described in this SECTION 7.5, by redeeming
the outstanding shares of Class B Common Stock and Class C Common Stock held by
Funding, Blue Ridge and Spotswood. The Company acknowledges and agrees that it
may not redeem such shares without first obtaining
31
<PAGE> 31
the consent or approval of the holders of a majority of the outstanding shares
of Series A Convertible Preferred Stock, as required by the Statement of
Designation.
7.6 Right of Co-Sale. At any time prior to the consummation of
an Approved Offering, the Purchasers and the holders of Class B Common
Stock and Class C Common Stock shall have the right to participate pro
rata to the fullest extent of their equity interest in the Company in
any sale or transfer of stock (with each share of Series A Convertible
Preferred Stock being treated for such purposes as the number of shares
of Class A Common Stock into which it could then be converted), by any
holder of shares of Class A Common Stock to any third party.
7.7 Observers. Each Purchaser who purchases at least 531,915
shares of Series A Convertible Preferred Stock, and so long as such
Purchaser continues to beneficially own at least 531,915 shares of
Series A Convertible Preferred Stock or Common Stock (as adjusted for
a Recapitalization Event), may designate one person to serve as an
observer (an "OBSERVER"). An observer shall be entitled (i) to receive
the same notice in respect of all meetings (both regular and special)
of the Board of Directors and each committee thereof (other than the
Audit Committee and Compensation Committee) as required to be furnished
to members of the Board of Directors of such committee by law or by the
Amended and Restated Articles of Incorporation or the Amended and
Restated Bylaws of the Company, (ii) to attend all meetings of the
Board of Directors and each committee thereof (other than the Audit
Committee and Compensation Committee), (iii) to receive all information
and reports which are furnished to members of the Board of Directors
and each committee thereof (including the Audit Committee and
Compensation Committee) at the time so furnished, and (iv) to
participate in all discussions conducted at meetings of the Board of
Directors and each committee thereof (other than the Audit Committee
and Compensation Committee). In the event that the directors are
discussing or voting on matters that directly relate to any business
dealings between the Company and (i) any Purchaser beneficially owning
at least 531,915 shares of Series A Convertible Preferred Stock or (ii)
any other vendor that competes with a Purchaser that has observer
rights hereunder, the Board may recuse all (but not less than all) of
the Observers until such matters have been concluded. An Observer may
share any information gained from presence at such meetings with the
Purchaser that designated such Observer and such Purchaser's employees,
officers, directors, attorneys and advisors (collectively, the
"PURCHASER'S REPRESENTATIVES"), but such information shall otherwise be
kept confidential by the Observer, Purchaser and Purchaser's
Representatives to the same extent that financial information or other
confidential information with regard to the Company is required to be
kept confidential in accordance with SECTION 7.3.
7.8 Key Man Insurance. Within 60 days of the Closing, the
Company will obtain and maintain (so long as they are officers of the
Company) a "key man life insurance policy" in the amount of $1,000,000
each on the lives of James R. Price, Charles W. Price, Matthew
Hutchins, William H. Anderton and Daniel A. Gillett.
7.9 Access to Information. The Company will permit the
Purchasers to inspect at the Purchasers' expense any of the properties
or books and records of the Company, and to discuss the affairs and
condition of the Company with representatives
32
<PAGE> 32
of the Company, except for information that (i) relates to any of the
business dealings between the Company and any of the Purchasers, (ii)
relates to any other vendor that competes with any of the Purchasers,
or (iii) is subject to any obligation of the Company to maintain the
confidentiality of such information, during normal business hours and
upon at least 24 hours prior notice to the Company, but no more
frequent than once each calendar quarter.
7.10 Restricted Corporate Actions. The Company will not,
without the vote or written approval of the holders of a majority of
the outstanding Series A Convertible Preferred Stock, take any of the
following actions:
(a) engage in any business outside the
Telecommunications Business . For purposes of this SECTION
7.10(a) and as otherwise used in this Agreement,
"TELECOMMUNICATIONS BUSINESS" shall mean the business of (i)
transmitting, or providing services relating to the
transmission of , voice, data or video through owned or leased
transmission facilities, (ii) constructing, creating,
developing or marketing communications-related network
equipment, software and other devices for use in a
telecommunications business or (iii) evaluating, participating
or pursuing any other activity or opportunity that is
primarily related to those identified in clauses (i) or (ii)
above;
(b) make any loans to any officers, directors or
affiliates of the Company in an aggregate amount exceeding
$100,000, other than commission advances and travel or
miscellaneous cash advances in the ordinary course of business
and loans to employees seeking to exercise stock options
issued pursuant to any of the Plans, the proceeds of which are
used to exercise such options;
(c) enter into any business arrangement or agreement
(other than a stock option agreement in accordance with the
Plans) with any officer, director or affiliate of the Company
on terms less favorable to the Company than an arms-length
transaction;
(d) acquire substantially all of the assets,
properties or capital stock of other persons or entities in
one or more transactions for an aggregate total consideration
consisting of an amount of cash exceeding ten percent (10%) of
the total purchase price paid to the Company for the original
issuance of the Series A Convertible Preferred Stock; or
(e) issue any stock, options, warrants, or securities
convertible into the capital stock of the Company with
exercise prices, in the case of options or warrants, or issue
prices, in the case of stock or convertible securities, at
less than fair market value, as determined in good faith by
the Company's Board of Directors, as of the date of grant in
the case of options or warrants or the date of issuance in the
case of stock or securities convertible into the capital stock
of the Company. No such restriction shall apply upon the
issuance of capital stock pursuant to the exercise of options
or warrants or the conversion of convertible securities of the
Company.
33
<PAGE> 33
7.11 Shareholder and Director Information. At the request of
the Purchasers, the Company shall promptly deliver to the Purchasers
information regarding the security holders, officers and directors of
the Company, including, without limitation, names, addresses, types of
securities held and terms of securities held.
7.12 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the
Series A Convertible Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the Series A Convertible
Preferred Stock or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in
connection with the issuance of shares of Common Stock upon conversion
of the Series A Convertible Preferred Stock.
7.13 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, provide in writing, upon the written
request of the Purchasers or a prospective buyer of the Series A
Convertible Preferred Stock or shares of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock from the
Purchasers, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities
Act ("RULE 144A INFORMATION"). The Company's obligations under this
SECTION 7.13 shall at all times be contingent upon the Purchasers
obtaining from the prospective buyer of Series A Convertible Preferred
Stock or shares of Common Stock issued upon conversion of the Series A
Convertible Preferred Stock a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the
purchase of any Series A Convertible Preferred Stock or of Common Stock
issued upon conversion of the Series A Convertible Preferred Stock.
7.14 Sale of Series A Convertible Preferred Stock. The Company
agrees that any additional shares of Series A Convertible Preferred
Stock sold by the Company after the Closing will be sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
7.15 Termination of Covenants. The covenants set forth in
SECTIONS 7.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 AND
7.14 hereof shall terminate and be of no further force or effect on the
earlier of the consummation of the first underwritten public
34
<PAGE> 34
offering of common stock of the Company pursuant to a registration
statement filed with the Commission under the Securities Act with a
concurrent listing on the New York Stock Exchange, the American Stock
Exchange, or the Nasdaq Stock Market, Inc. at an initial offering price
of at least $20.00 per share (as adjusted for a Recapitalization Event)
that results in gross proceeds to the Company (before deduction of
underwriting discounts and expenses of sale) of not less than
$30,000,000 (an "APPROVED OFFERING"). For purposes of this Agreement, a
"RECAPITALIZATION EVENT" means an event described under Section 2.5 of
the Statement of Designation of the Series A Convertible Preferred
Stock.
8. Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay: (a) all the costs and expenses of the
reproduction of the Placement Memorandum, this Agreement, of all agreements and
documents referred to herein and of the certificates for the Series A
Convertible Preferred Stock and the Class A Common Stock into which it may be
converted; (b) all taxes (if any) payable with respect to this Agreement and the
issuance of the Series A Convertible Preferred Stock and the Class A Common
Stock into which it may be converted; (c) all costs of complying with the
securities or Blue Sky laws of any jurisdiction with respect to the offering or
sale of the Series A Convertible Preferred Stock and the Class A Common Stock
into which it may be converted; (d) the cost of delivering to such address as
each Purchaser shall specify the certificates for the Series A Convertible
Preferred Stock purchased by each such Purchaser and the certificates for the
Class A Common Stock into which the Series A Convertible Preferred Stock may be
converted; (e) the fees, expenses and disbursements of the Company's counsel in
connection with the Closing; and (f) the fees and expenses incurred with respect
to any amendments to this Agreement or the Amended and Restated Articles of
Incorporation of the Company proposed by the Company (whether or not the same
become effective). If the transactions contemplated hereby are consummated, the
Company will reimburse each of Nortel Networks Inc. and Ascend Communications,
Inc. for up to $10,000 of the actual legal counsel fees, expenses and
disbursements incurred by Nortel Networks Inc. in connection with the
negotiation and execution of this Agreement and the related documents.
9. Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the parties hereto
or on their behalf) and any disposition of the Series A Convertible Preferred
Stock or of the Class A Common Stock issued upon conversion thereof and shall
continue to survive for a period of time expiring on the earlier of (a) the
consummation of an Approved Offering, or (b) June 30, 2001. All statements
contained in any certificate or other instrument executed and delivered by the
parties hereto or their duly authorized officers or representatives pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations hereunder, and no officer or representative of such parties
shall have personal liability for such statements unless such officer or
representative shall make such statement in a grossly negligent manner, in bad
faith, fraudulently or pursuant to willful misconduct.
10. Notices. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this SECTION 10) shall be in
writing and shall be mailed by first
35
<PAGE> 35
class or certified mail, postage prepaid, sent by a nationally recognized
overnight delivery service, or personally delivered, as follows:
(a) If to the Company:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, President
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
(b) If to the Purchasers at the address set forth on
SCHEDULE 1 hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth in ARTICLE 7 hereof, the date of mailing shall be deemed to be the
delivery date. The financial statements required by ARTICLE 7 hereof may be
mailed by first-class regular mail.
11. Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company, and (b) holders of at least 66 2/3 % of the
outstanding shares of the Series A Convertible Preferred Stock acting together
as a single class. Additionally, SECTION 9 of this Agreement may not be amended,
in any manner, without the unanimous consent of the holders of the outstanding
shares of the Series A Convertible Preferred Stock.
12. Entire Agreement. This Agreement and the Registration Rights
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties and commitments relating to the transactions
contemplated hereby, whether in writing or oral, prior to the date hereof,
except for those certain Confidentiality Agreements entered into by the
Purchasers with Donaldson, Lufkin & Jenrette on behalf of the Company.
13. Successors and Assigns. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in the Registration Rights
36
<PAGE> 36
Agreement may only be transferred in accordance with Section 12 of the
Registration Rights Agreement.
14. Enforcement.
14.1 Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or
as of the date it was made, furnished or delivered, any party damaged
may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term
contained in this Agreement or the Amended and Restated Articles of
Incorporation of the Company (including the Statement of Designation)
or for an injunction against the breach of any such term or in
furtherance of the exercise of any power granted in this Agreement or
such Amended and Restated Articles (including the Statement of
Designation), or to enforce any other legal or equitable right of such
party or to take any one or more of such actions. The prevailing party
in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement or the Amended and
Restated Articles of Incorporation (including the Statement of
Designation) of the Company, including without limitation reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
14.2 Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any default shall
be a waiver of any future or subsequent default. The failure or delay
in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right shall not exhaust the same or constitute a waiver of
any other right provided herein.
15. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
16. Governing Law and Severability. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas County, Texas. In the
event any provision of this Agreement or the application of any such provision
to any party shall be held by a court of competent jurisdiction to be contrary
to law, the remaining provisions of this Agreement shall remain in full force
and effect.
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<PAGE> 37
17. Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
This Agreement is hereby executed as of the date first above written.
THE COMPANY
I 3S, INC.
By:
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
THE PURCHASERS:
NORTEL NETWORKS INC.
By:
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
ASCEND COMMUNICATIONS INC.
By:
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BLUE RIDGE INVESTORS II LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group II, L.L.C.,
General Partner
By:
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
38
<PAGE> 38
I(3)S FUNDING I, LLC
By: Geneva Associates, L.L.C., Manager
By:
--------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.,
General Partner
By:
--------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
39
<PAGE> 39
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 40
EXHIBIT B
AMENDED AND RESTATED BYLAWS
<PAGE> 41
EXHIBIT C
FORM OF STATEMENT OF DESIGNATION FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
<PAGE> 42
EXHIBIT D
PLACEMENT MEMORANDUM
<PAGE> 43
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 44
EXHIBIT F
FORM OF OPINION OF WINSTEAD SECHREST & MINICK, P.C.
<PAGE> 45
<TABLE>
<CAPTION>
SCHEDULE I
THE PURCHASERS
No. of
Shares of Aggregate
Series A Purchase Copy of Notices
Name of Purchasers Notice Address Convertible Price Must be sent to
- ------------------------ ----------------------------------- Preferred ----------- -----------------------------------
Stock
----------
<S> <C> <C> <C> <C>
Nortel Networks Inc. Nortel Networks Inc. 1,063,829 $20,000,000 Jenkens & Gilchrist, a Professional
8 Federal Street Corporation
Billerica, Massachusetts 01821 1445 Ross Avenue, Suite 3200
Attention: Vice President, Finance, Dallas, TX 75202
Carrier Packet Solutions Attention: Daryl Robertson
Telephone: (978) 916-1751 Telephone: (214) 855-4500
Telecopy: (978) 916-4755 Telecopy: (214) 855-4300
and E-Mail: [email protected]
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, TX 75082-4399
Attention: Vice President, Customer
Finance North America
Telephone: (972) 684-2271
Telecopy: (972) 684-3679
Ascend Ascend Communications, Inc. 531,915 $10,000,000 Gary Cary Ware & Freidenrich LLP
Communications Inc. 1701 Harbor Bay Parkway 400 Hamilton Avenue
Alameda, CA 94502 Palo Alto, California 94301-1825
Attn: Maribeth Harper, General Attention: Thomas W. Furlong
Counsel Telephone: (650) 328-6561
Telephone: (510) 747-6687 Telecopy: (650) 327-3699
Telecopy: (510) 747-6621 E-Mail: [email protected]
Federal Tax ID 94-3092033
Blue Ridge Investors II Blue Ridge Investors II 127,128 $2,390,000 Brooks, Pierce, McLendon, Humphrey
Limited Partnership Limited Partnership & Leonard, L.L.P.
P.O. Box 21962 2000 Renaissance Tower
Greensboro, N.C. 27420 230 North Elm Street
Telephone: (336) 275-7002 Greensboro, NC 27401
Telecopy: (336) 275-9155 Attention: Marc Bishop
Telephone: (336) 373-8850
Telecopy: (336) 378-1001
E-Mail: [email protected]
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
No. of
Shares of Aggregate
Series A Purchase Copy of Notices
Name of Purchasers Notice Address Convertible Price Must be sent to
- ------------------------ ----------------------------------- Preferred ----------- --------------------------
Stock
----------
<S> <C> <C> <C> <C>
I(3)S Funding I, LLC I(3)S Funding I, LLC 127,128 $2,390,000 Brooks, Pierce, McLendon, Humphrey
P.O. Box 21962 & Leonard, L.L.P.
Greensboro, N.C. 27420 2000 Renaissance Tower
Telephone: (336) 275-7002 230 North Elm Street
Telecopy: (336) 275-9155 Greensboro, NC 27401
Attention: Marc Bishop
Telephone: (336) 373-8850
Telecopy: (336) 378-1001
E-Mail: [email protected]
Blue Ridge Investors Blue Ridge Investors 11,702 $220,000 Brooks, Pierce, McLendon, Humphrey
Limited Partnership Limited Partnership & Leonard, L.L.P.
P.O. Box 21962 2000 Renaissance Tower
Greensboro, N.C. 27420 230 North Elm Street
Telephone: (336) 275-7002 Greensboro, NC 27401
Telecopy: (336) 275-9155 Attention: Marc Bishop
Telephone: (336) 373-8850
Telecopy: (336) 378-1001
E-Mail: [email protected]
</TABLE>
<PAGE> 47
SCHEDULE 3.1
JURISDICTIONS
Arizona
California
Colorado
Georgia
Minnesota
Texas
Virginia
<PAGE> 1
EXHIBIT 10.35
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
I 3S, INC.
NOVEMBER 2, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purchase and Sale........................................................................................1
2. Closing of Purchase and Sale.............................................................................1
2.1 Closing; Closing Date...........................................................................1
2.2 Transactions at Closing.........................................................................1
3. Representations and Warranties of Company................................................................1
3.1 Organization, Standing and Qualification........................................................1
3.2 Capitalization..................................................................................2
3.3 Validity of Stock...............................................................................3
3.4 Subsidiaries....................................................................................3
3.5 Financial Statements............................................................................3
3.6 Absence of Undisclosed Liabilities..............................................................3
3.7 Absence of Certain Changes......................................................................4
3.8 Authorization; Approvals........................................................................5
3.9 No Conflict with Other Instruments..............................................................5
3.10 Labor Agreements and Actions....................................................................5
3.11 Employee Matters................................................................................6
3.12 Title to Properties; Liens and Encumbrances.....................................................6
3.13 Compliance with Corporate Instruments...........................................................6
3.14 Patents, Trademarks and Other Intangible Assets.................................................7
3.15 Trade Secrets and Customer Lists................................................................7
3.16 Tax Matters.....................................................................................8
3.17 Litigation......................................................................................8
3.18 Minute Books....................................................................................9
3.19 Insurance.......................................................................................9
3.20 Fees and Commissions............................................................................9
3.21 Employee Benefit Plans..........................................................................9
3.22 Material Contracts and Commitments.............................................................11
3.23 Conflict of Interest Transactions..............................................................13
3.24 Environmental Matters..........................................................................13
3.25 Other Transactions.............................................................................13
3.26 No Bankruptcies................................................................................13
3.27 Year 2000 Compliance...........................................................................14
3.28 Disclosure.....................................................................................14
3.29 Legal Compliance...............................................................................14
3.30 Small Business Concern.........................................................................14
3.31 Small Business Administration Documentation....................................................15
3.32 Prior Sales of Series A Convertible Preferred Stock............................................15
4. Representations, Warranties and Covenants of Purchasers.................................................15
4.1 Organization and Good Standing.................................................................15
4.2 Authorization; Approvals.......................................................................15
4.3 No Conflict with Other Instruments.............................................................16
4.4 Investment Representations.....................................................................16
4.5 Investment Experience; Access to Information...................................................16
4.6 Absence of Registration........................................................................16
</TABLE>
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<TABLE>
<S> <C> <C>
4.7 Restrictions on Transfer.......................................................................17
4.8 Transfer Instructions..........................................................................18
4.9 Economic Risk..................................................................................19
4.10 Fees and Commissions...........................................................................19
50 Conditions to Closing of the Purchasers.................................................................19
5.1 Representations and Warranties.................................................................19
5.2 Performance....................................................................................19
5.3 Company Consents, etc..........................................................................19
5.4 Compliance Certificates........................................................................19
5.5 Government Actions.............................................................................19
5.6 The Statement of Designation...................................................................20
5.7 The Articles of Incorporation..................................................................20
5.8 Legal Opinion..................................................................................20
5.9 Company Deliveries.............................................................................20
60 Conditions to Closing of Company........................................................................21
6.1 Representations and Warranties.................................................................21
6.2 Performance....................................................................................21
6.3 Purchaser Consents, etc........................................................................21
6.4 Compliance Certificates........................................................................21
7.0 Affirmative Covenants...................................................................................21
7.1 Financial Information..........................................................................21
7.2 Use of Proceeds................................................................................22
7.3 Confidentiality................................................................................22
7.4 Right of First Refusal.........................................................................22
7.5 Sale of the Company............................................................................26
7.6 Right of Co-Sale...............................................................................27
7.7 Observers......................................................................................27
7.8 Key Man Insurance..............................................................................28
7.9 Access to Information..........................................................................28
7.10 Restricted Corporate Actions...................................................................28
7.11 Shareholder and Director Information...........................................................29
7.12 Reserve for Conversion Shares..................................................................29
7.13 Rule 144A Information..........................................................................30
7.14 Sale of Series A Convertible Preferred Stock...................................................30
7.15 Termination of Covenants.......................................................................30
8. Expenses................................................................................................31
9. Survival of Agreements..................................................................................31
10. Notices.................................................................................................31
11. Modifications; Waiver...................................................................................32
12. Entire Agreement........................................................................................32
13. Successors and Assigns..................................................................................32
14. Enforcement.............................................................................................32
14.1 Remedies at Law or in Equity...................................................................32
14.2 Remedies Cumulative; Waiver....................................................................33
15. Execution and Counterparts..............................................................................33
16. Governing Law and Severability..........................................................................33
17. Headings................................................................................................33
</TABLE>
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<PAGE> 4
EXHIBITS
Exhibit A - Amended and Restated Articles of Incorporation
Exhibit B - Amended and Restated Bylaws
Exhibit C - Form of Statement of Designation for the Series A Convertible
Preferred Stock
Exhibit D - Placement Memorandum
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Winstead Sechrest & Minick, P.C.
SCHEDULES
Schedule 1 Purchasers
Schedule 3.1 Jurisdictions
Schedule 3.2 Capitalization
Schedule 3.4 Subsidiaries
Schedule 3.5 Financial Statements
Schedule 3.7 Absence of Certain Changes
Schedule 3.9 No Conflict with Other Instruments
Schedule 3.11 Employee Matters
Schedule 3.12 Title to Properties; Liens and Encumbrances
Schedule 3.14 Patents, Trademarks and Other Intangible Assets
Schedule 3.15 Trade Secrets and Customer Lists
Schedule 3.16 Tax Matters
Schedule 3.19 Insurance
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Material Contracts and Commitments
Schedule 3.23 Conflict of Interest Transactions
Schedule 3.29 Legal Compliance
Schedule 4.6 Registration Rights
Schedule 7.5 Prior Stock Purchase Agreement
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (this
"AGREEMENT"), dated as of November 2, 1999, is by and among I 3S, Inc., a Texas
corporation (the "COMPANY"), and the purchasers identified in Schedule 1 hereto
(hereinafter referred to individually as a "PURCHASER" and collectively as the
"PURCHASERS").
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Purchase and Sale. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined), the Company will sell to each of the
Purchasers, severally and not jointly, and each of the Purchasers, severally and
not jointly, will purchase from the Company, the number of shares of Series A
Convertible Preferred Stock, no par value per share (the "SERIES A CONVERTIBLE
PREFERRED STOCK"), set forth opposite each such Purchaser's name in SCHEDULE 1
annexed hereto at a price per share of Eighteen and 80/100 Dollars ($18.80).
2. Closing of Purchase and Sale.
2.1 Closing; Closing Date. The purchase and sale of the Series
A Convertible Preferred Stock (the "CLOSING") shall take place at the
offices of the Company at 1440 Corporate Drive, Irving, Texas 75038, at
10:00 a.m., local time, on November 2, 1999 (the "CLOSING DATE") or at
such other place or time as may be agreed upon by the Company and the
Purchasers.
2.2 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates for the shares
of Series A Convertible Preferred Stock to be issued and sold to such
Purchaser at the Closing, duly registered in such Purchaser's name,
against payment in full by such Purchaser of the aggregate purchase
price set forth opposite such Purchaser's name in SCHEDULE 1 hereto by
a wire transfer of funds made to the order of "I 3S, Inc." in the
amount of such aggregate purchase price. The Company shall also deliver
to the Purchasers those items required to be delivered to them by the
Company as described in ARTICLE 5 of this Agreement. The Purchasers
shall also deliver to the Company those items required to be delivered
to the Company by the Purchasers as described in ARTICLE 6 of this
Agreement.
3. Representations and Warranties of Company. The Company represents
and warrants to the Purchasers that:
3.1 Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas, has all requisite corporate power and
authority to own its property and assets and to carry on its business
as it is presently being conducted and as it proposes to carry on its
business. The Company has all requisite corporate power and authority
to execute and deliver this Agreement and the other agreements
contemplated herein, to issue and sell the Series A Convertible
Preferred Stock hereunder, to issue shares of Class
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<PAGE> 6
A Common Stock (as hereinafter defined) upon conversion of the Series A
Convertible Preferred Stock, and to carry out the transactions
contemplated by this Agreement and the other agreements contemplated
herein. The Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws, copies of which are attached hereto as EXHIBITS A
and B, respectively, are true, correct and complete. The Company is
duly qualified and in good standing as a foreign corporation authorized
to do business in each of the jurisdictions in which the failure to be
so qualified would have a material adverse effect on the Company.
SCHEDULE 3.1 sets forth the jurisdictions in which the Company is
qualified.
3.2 Capitalization. The authorized capital stock of the
Company, as of the Closing Date, will consist of: (a) 100,000,000
shares of Class A Common Stock, no par value per share (the "CLASS A
COMMON STOCK"), of which 4,684,400 shares are issued and outstanding,
(b) 25,000,000 shares of Class B Common Stock, no par value per share
(the "CLASS B COMMON STOCK"), of which 4,979,777 shares are issued and
outstanding, (c) 25,000,000 shares of Class C Common Stock, no par
value per share (the "CLASS C COMMON STOCK"), of which 2,074,464 shares
are issued and outstanding, and (d) 4,200,000 shares of Preferred
Stock, all of which have been designated as Series A Convertible
Preferred Stock, of which 2,127,659 shares are issued and outstanding.
The relative rights, preferences, restrictions and other provisions
relating to the Series A Convertible Preferred Stock are as set forth
in the Statement of Designation, attached hereto as EXHIBIT C. The
Class A Common Stock, Class B Common Stock and Class C Common Stock are
hereinafter collectively referred to as the "COMMON STOCK". SCHEDULE
3.2 sets forth the name and, to the Company's knowledge, the current
address of each holder of Common Stock and Series A Convertible
Preferred Stock and number and class of shares so held by each holder.
Of the Class A Common Stock, (i) 4,979,777 shares are reserved for
issuance on the conversion of the Class B Common Stock, (ii) 2,074,464
shares are reserved for issuance on the conversion of the Class C
Common Stock, (iii) 2,925,532 shares are reserved for issuance on the
conversion of the Series A Convertible Preferred Stock, and (iv)
5,961,220 shares are reserved for issuance pursuant to employee stock
purchase or stock option plans adopted or to be adopted by the Company
for key employees and prior stock option grants. All of the outstanding
shares of the Common Stock are duly authorized and validly issued in
accordance with applicable law, fully paid and non-assessable.
Except as set forth on SCHEDULE 3.2 hereto, or as otherwise
contemplated by this Agreement, as of the date hereof there are, and
immediately following the Closing, there will be (i) no outstanding
options, warrants, agreements, conversion rights, preemptive rights or
other rights to subscribe for, purchase or acquire any issued or
unissued shares of capital stock of the Company, or any securities
convertible or exchangeable for such stock, and (ii) no restrictions
upon the voting or transfer of any shares of capital stock of the
Company pursuant to its Amended and Restated Articles of Incorporation,
Amended and Restated Bylaws or other governing documents or any
agreement or other instruments to which it is a party or by which it is
bound, and (iii) there are no agreements to which the Company is a
party or of which the Company has knowledge regarding the issuance,
registration, voting or transfer of or obligation (contingent or
2
<PAGE> 7
otherwise) of the Company to repurchase or otherwise acquire or retire
or redeem any of its outstanding shares of capital stock. No dividends
are accrued but unpaid on any capital stock of the Company.
3.3 Validity of Stock. The Series A Convertible Preferred
Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will be duly and validly authorized and issued, fully
paid, non-assessable and free and clear of all encumbrances or
restrictions on transfer except those imposed by applicable securities
laws, the Amended and Restated Articles of Incorporation, the Statement
of Designation and this Agreement. The Class A Common Stock issuable
upon conversion of the Series A Convertible Preferred Stock, when
issued, sold and delivered in accordance with the terms of this
Agreement, will be duly and validly authorized and issued, fully paid,
non-assessable and free and clear of all encumbrances or restrictions
on transfer except those imposed by applicable securities laws, the
Amended and Restated Articles of Incorporation, the Statement of
Designation and this Agreement. All existing Common Stock preemptive
rights have been waived for purposes of the issuance of the Series A
Convertible Preferred Stock.
3.4 Subsidiaries. Except as set forth on SCHEDULE 3.4 hereto,
the Company does not control, directly or indirectly, or own any equity
interest in, any other corporation, partnership, joint venture,
association or business entity.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are
the unaudited balance sheets as at December 31, 1997, June 30, 1999 and
unaudited statements of income, changes in stockholders equity, and
cash flow of the Company for the year ended December 31, 1997 and the
quarter ended June 30, 1999, and the audited balance sheet as at
December 31, 1998, and audited statements of income, changes in
stockholders equity, and cash flow of the Company for the year ended
December 31, 1998 (collectively, the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared in accordance with the books
and records of the Company and generally accepted accounting principles
("GAAP") (except the June 30, 1999 financial statements and the June
30, 1999 balance sheet are subject to normal and recurring year-end
audit adjustments which are not expected to be material in amount) and
fairly and accurately reflect the financial condition and the results
of operations (except for the year ended December 31, 1997) of the
Company as of the respective dates thereof or for the periods covered
in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as provided in
the Financial Statements, the Company has no material debt, liability
or obligation, absolute or contingent (including without limitation
obligations in any capacity as guarantor or surety), other than
obligations incurred in the ordinary course of business since June 30,
1999 (the "BALANCE SHEET DATE"). Without limiting the generality of the
foregoing, the Company knows of no basis for the assertion against the
Company as of the date hereof of any material liabilities (not
reflected in the Financial Statements) of the Company.
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<PAGE> 8
3.7 Absence of Certain Changes. Except as set forth in
SCHEDULE 3.7, since the Balance Sheet Date, the Company has not:
(a) suffered any material adverse change, whether or
not caused by any deliberate act or omission of the Company or
any shareholder of the Company, in its condition (financial or
otherwise), operations, assets, liabilities, business or
prospects, taken as a whole;
(b) contracted for the purchase of any capital assets
having a cost in excess of $500,000 or paid any capital
expenditures in excess of $500,000;
(c) incurred any indebtedness for borrowed money or
issued or sold any debt securities in excess of $150,000;
(d) incurred or discharged any liabilities or
obligations, except in the ordinary course of business;
(e) mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of
its properties or assets other than equipment financing liens
incurred in the ordinary course of business;
(f) suffered any damage or destruction to or loss of
any assets (whether or not covered by insurance) that has
materially and adversely affected, or could reasonably be
expected to, materially and adversely affect, its business;
(g) acquired or disposed of any assets except in the
ordinary course of business;
(h) waived any material rights or forgiven any
material claims;
(i) lost, terminated or, to the Company's knowledge,
experienced any change in the relationship with any employee,
customer or supplier, which termination or change has
materially and adversely affected, or could reasonably be
expected to materially and adversely affect, its business or
assets;
(j) loaned any money to any person or entity in
excess of $100,000;
(k) redeemed, purchased or otherwise acquired, or
sold, granted or otherwise disposed of, directly or
indirectly, any of its capital stock or securities or any
rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid
any dividends or made any distribution to the holders of the
Company's capital stock other than stock options granted to
employees under the Company's Incentive Stock Option Plan; or
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<PAGE> 9
(l) committed to do any of the foregoing.
3.8 Authorization; Approvals. All corporate action on the
part of the Company and its shareholders necessary for the
authorization, execution, delivery, and performance of all its
obligations under this Agreement, and for the authorization, issuance,
and delivery of the Series A Convertible Preferred Stock being sold
under this Agreement and of the Class A Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock has been taken.
This Agreement constitutes a valid and legally binding obligation of
the Company legally enforceable against it in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity. The
Company has obtained or will obtain prior to the Closing Date all
necessary consents, authorizations, approvals and orders from any
federal, state or other relevant governmental authority and from any
individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company or other
entity, and has made all registrations, qualifications, designations,
declarations or filings with all federal, state, or other relevant
governmental authorities, all as may be required on the part of the
Company in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to
applicable securities laws which will be made after the Closing Date.
3.9 No Conflict with Other Instruments. Except as set forth on
SCHEDULE 3.9, the execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute
a default under any terms or provision of (a) the Company's Amended and
Restated Articles of Incorporation or Amended and Restated Bylaws; (b)
any Commitments (as hereinafter defined); or (c) any judgment, decree
or order or any statute, rule or governmental regulation applicable to
the Company. Subject to the truth and accuracy of each Purchaser's
representations and warranties herein and the Company making any
required filings which the Company agrees to do, the offer and sale of
the Series A Convertible Preferred Stock to each Purchaser will be in
compliance with all federal and state securities laws.
3.10 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has
requested or, to the Company's knowledge, sought to represent any of
the employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending, or, to the
Company's knowledge, threatened, which could have a material adverse
effect on the financial condition, operating results, or business of
the Company, nor is the Company aware of any labor organization
activity involving its employees.
3.11 Employee Matters. SCHEDULE 3.11 contains a complete and
accurate list of the names, titles and Cash Compensation (as
hereinafter defined) of all members of executive management of the
Company, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year or who
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<PAGE> 10
earned in excess of $100,000 during the Company's preceding fiscal
year. For purposes of this SECTION 3.11, "CASH COMPENSATION" shall mean
wages, salaries, bonuses (discretionary or otherwise) and other
compensation paid or payable in cash. Except as disclosed in SCHEDULE
3.11, the Company has no employment agreements, employee leasing
agreements, employee service agreements, or noncompetition agreements.
3.12 Title to Properties; Liens and Encumbrances.
(a) Except as disclosed on SCHEDULE 3.12(a), the
Company has good and marketable title to its assets,
including, without limitation, those reflected on the Balance
Sheet (other than those since disposed of in the ordinary
course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (i) liens
for taxes not yet due and payable or being contested in good
faith in appropriate proceedings, and (ii) encumbrances that
are incidental to the conduct of their respective businesses
or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do
not in the aggregate materially detract from the value of the
assets affected or materially impair their use by the Company.
With respect to the assets of the Company that are leased, the
Company is in compliance with all material provisions of such
leases. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair, normal
wear and tear excepted, and are adequate and sufficient for
the Company's business.
(b) The Company enjoys peaceful and undisturbed
possession under all real property leases under which the
Company is operating, and all such leases are valid and
subsisting and none of them is in default. A listing of said
real property leases, their terms and total lease payments is
attached hereto as SCHEDULE 3.12(b).
(c) Except as disclosed in SCHEDULE 3.12(c) the
Company does not own any real property.
3.13 Compliance with Corporate Instruments. The Company is not
in violation of any provision of its Amended and Restated Articles of
Incorporation, Amended and Restated Bylaws of the Company or Statement
of Designation, and the Company is not in default or violation of any
Commitment to which the Company is a party or by which any of its
property is bound, the default or violation of which would materially
and adversely affect the Company's business, prospects, condition,
affairs or operations.
3.14 Patents, Trademarks and Other Intangible Assets.
(a) SCHEDULE 3.14(a) hereto sets forth the true and
correct list of all registered patents, trademarks and
copyrights (or applications therefor) held by the Company.
Except as set forth on SCHEDULE 3.14(a), the Company possesses
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<PAGE> 11
ownership or has the right to use all patents, copyrights,
trademarks, service marks, trade secrets and other proprietary
intellectual property rights necessary for the operation of
its business except where the failure of the Company to own or
have such right to use such intellectual property would not
have a material adverse effect on the Company (the
"INTELLECTUAL PROPERTY"). To the Company's knowledge, the
Company (a) is not infringing upon the intellectual property
rights of others in connection with its business; (b) does not
require the consent of any person which has not been obtained
(all of such consents being set forth in SCHEDULE 3.14(a)) to
use the Intellectual Property; (c) may freely transfer the
Intellectual Property (other than as set forth in SCHEDULE
3.14(a)); or (d) has not received any written notice of
conflict with respect to the intellectual property rights of
any other person or entity. All of the Intellectual Property
is valid and subsisting, has not been canceled, abandoned or
otherwise terminated and, if applicable, has been duly issued
or filed. The employees and consultants of the Company, who,
either alone or in concert with others, developed, invested,
discovered, derived, programmed or designed any of the
Company's owned Intellectual Property have entered into
written agreements to protect the confidentiality of the
Company's owned Intellectual Property and to assign to the
Company all rights therein.
(b) The Company has no knowledge of any claim that,
or inquiry as to whether, any product, activity or operation
of the Company infringes upon or involves, or has resulted in
the infringement of, any proprietary right of any other
person, corporation or other entity; and no proceedings have
been instituted, are pending or are threatened that challenge
the rights of the Company with respect thereto. Any agreement
of indemnification by the Company for any Intellectual
Property as to any license granted by it or any property
manufactured, used or sold by it is set forth in SCHEDULE
3.14(b).
3.15 Trade Secrets and Customer Lists. The Company has the
right to use, free and clear of any claims or rights of others, except
claims or rights specifically set forth in SCHEDULE 3.15, all trade
secrets, customer lists and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or
marketed by the Company. To the Company's knowledge, it is not using,
or in any way making use of, any confidential information or trade
secrets of any third party, including, without limitation, any past or
present employee of the Company, except under valid and existing
license agreements (all such license agreements being set forth in
SCHEDULE 3.15).
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<PAGE> 12
3.16 Tax Matters.
(a) All required foreign, federal, state, local and
other tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns) of the Company
have been accurately prepared in all material respects and
duly and timely filed, and all foreign, federal, state, local
and other taxes required to be paid with respect to the
periods covered by such returns have been paid. The Company is
not and has not been delinquent in the payment of any tax,
assessment or governmental charge. The Company is not a party
to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. The Company does not have
and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
(b) Except as set forth in SCHEDULE 3.16, the Company
has not had any tax deficiency proposed or assessed against it
and has not executed any waiver of any statute of limitations
on the assessment or collection of any tax or governmental
charge. Except as set forth in SCHEDULE 3.16, and except for
sales tax audits, none of the Company's franchise tax returns
has ever been audited by governmental authorities. No tax
audit, action, suit, proceeding, investigation or claim is now
pending nor, to the best knowledge of the Company, threatened
against the Company, and no issue or question has been raised
(and is currently pending) by any taxing authority in
connection with any of the Company's tax returns or reports.
(c) To the Company's knowledge, the reserves for
taxes, assessments and governmental charges reflected on the
Balance Sheet are and will be sufficient for the payment of
all unpaid taxes and governmental charges payable by the
Company with respect to the period ended on the Balance Sheet
Date. Since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to business,
properties and operations for such period. The Company
withheld or collected from each payment made to its employees,
the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
3.17 Litigation. No action, proceeding or investigation is
pending or threatened against the Company, or any of its properties
before any court, arbitration board or tribunal or administrative or
other governmental agency (including, without limitation, unfair labor
practices or discrimination charges or complaints), that might result,
either individually or in the aggregate, in any material adverse change
in the
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<PAGE> 13
business, prospects, condition, affairs, operations, or assets of the
Company or in any material liability on the part of the Company. The
foregoing includes, without limiting its generality, actions pending or
threatened involving the prior employment of any of the Company's
employees or use by any of them in connection with the Company's
business of any information, property or techniques allegedly
proprietary to any of their former employers.
3.18 Minute Books. The minute books of the Company have been
made available to the counsel for the Purchasers and contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.19 Insurance. The Company carries property, liability,
workers' compensation and such other types of insurance as is customary
in the Company's industry. A list and brief description of all
insurance policies of the Company are set forth in SCHEDULE 3.19. All
of such policies are valid and enforceable policies, issued by insurers
of recognized responsibility in amounts and against such risks and
losses as are customary in the Company's industry. All casualty
insurance is sufficient in amount to allow the Company to replace any
of its properties that might be damaged or destroyed.
3.20 Fees and Commissions. The Company has retained Donaldson,
Lufkin & Jenrette ("DLJ") as financial advisor and placement agent in
connection with the transactions contemplated by this Agreement. The
Company shall pay all fees owed DLJ in connection with the transactions
contemplated by this Agreement from the proceeds of the sale of the
Preferred Stock (the "OFFERING") pursuant to the Placement Memorandum
(as hereinafter defined). The Company represents and warrants that
other than as stated in this SECTION 3.20, it has retained no finder,
broker, agent, financial adviser or other intermediary in connection
with the transactions contemplated by this Agreement. The Company
agrees to indemnify and hold harmless the Purchasers for any brokerage
commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any
arrangement or agreement made by the Company.
3.21 Employee Benefit Plans.
(a) SCHEDULE 3.21 contains true, complete and correct
information as to any bonus, incentive, insurance (including
any self-insured arrangements), compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing,
salary reduction, deferred compensation, stock purchase, stock
option, workers' compensation, disability benefits,
supplemental unemployment benefits (including without
limitation any "voluntary employees' beneficiary association"
as defined in Section 501(C)(9) of the Code) (as hereinafter
defined), vacation, holiday and sick pay or other similar
benefit plans, programs or arrangements (whether written or
oral) (said plans, programs or arrangements being referred to
as the "PLANS") in which any employees of the Company
participate. All Plans are listed on the attached SCHEDULE
3.21. All obligations of the Company,
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<PAGE> 14
whether arising by operation of law, by contract or by past
custom, for payment by it to trusts, retirement plans or other
funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other
benefits for employees of the Company have been paid or shall
be paid by the Company at the time the Company is obligated to
make such payments. All benefits payable directly to the
Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such
payments. All reasonably anticipated obligations of the
Company, whether arising by operation of law, by contract or
by past custom, for vacation and holiday pay, bonuses and
other forms of compensation or benefits which are or may
become payable to employees or any of them have been paid, or
shall be paid, in accordance with the provisions of applicable
laws, regulations, benefit plans or policies.
(b) True, complete and correct copies of all relevant
documents with respect to the Plans, including, but not
limited to, each of the following documents: (i) a copy of the
Plan and each related trust or other funding agreement,
including insurance contracts (and all amendments thereto);
(ii) the last filed Form 5500, where applicable; (iii) the
most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to
be qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "CODE"); and (iv) the summary plan
descriptions and all material modifications thereto, have been
delivered to Purchasers.
(c) All Plans, related trust agreements, annuity
contracts or other funding arrangements comply in all
substantial respects and the Company has administered and
operated each such Plan, related trust agreements, annuity
contracts or other funding arrangements in substantial
compliance with the requirements of applicable law, including,
without limitation, the Employee Retirement Income Security
Act of 1974 as amended ("ERISA"), and the Code, and no such
Plan that is subject to Part 3 of Subtitle B of Title I of
ERISA has incurred any "accumulated funding deficiency" within
the meaning of Section 302 of ERISA or Section 412 of the
Code, whether or not waived.
(d) The Company does not maintain and is not required
to contribute to any multi-employer plan (as defined in
Section 3(37) of ERISA) for the benefit of employees or former
employees of the Company. The Company does not maintain a
self-insured "multiple employer welfare arrangement" as
defined in Section 3(40) of ERISA.
(e) The Pension Benefit Guaranty Corporation ("PBGC")
has not instituted proceedings to terminate any of the
Company's defined benefit plans and no condition exists that
presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of
Section 4043(b) of ERISA with respect to any defined benefit
plan and no defined benefit plan has been terminated within
the preceding six years or is expected to be
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terminated. No liability (other than for the payment of
premiums) to the PBGC has been or is expected to be incurred
by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit
plan.
(f) The Company has no liability with respect to any
transaction which relates to any Plan and which is in
violation of Sections 404 or 406 of ERISA or constitutes a
"prohibited transaction," as defined in Section 4975(c)(1) of
the Code, and for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Code. To the
Company's knowledge, the Company has not participated in a
violation of Part 4 of Title I, Subtitle B of ERISA by any
plan fiduciary of any Plan and has no unpaid civil penalty
under Section 502(1) of ERISA.
(g) There is no material action, order, writ,
injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, arbitral action, governmental audit or
investigation (including, without limitation, any such audit
or investigation by the Internal Revenue Service, Department
of Labor, or PBGC) relating to or seeking benefits under any
Plan that is pending or, to the Company's knowledge,
threatened or anticipated against the Company other than
routine claims for benefits.
3.22 Material Contracts and Commitments.
(a) Material Contracts and Commitments. Except as set
forth in SCHEDULE 3.22, the Company has not entered into, nor
is the capital stock, the assets or the business of the
Company bound by, whether or not in writing, any
(i) deed of trust securing a lien in any
real property owned by the Company;
(ii) security agreement granting a security
interest in connection with the Company's incurrence
of indebtedness for borrowed money;
(iii) guaranty or suretyship agreement or
performance bond, in each case involving a contingent
obligation of the Company in excess of $100,000;
(iv) consulting or compensation agreement or
similar arrangement that is not an Employment
Agreement and that involves compensation payable by
the Company in excess of $100,000 annually or an
agreement relating to the election or retention in
office of any director or officer;
(v) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed
money;
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(vi) money lent or to be lent by the Company
to another in an amount in excess of $10,000;
(vii) lease of real property, whether as
lessor, lessee, sublessor or sublessee (excluding the
real estate leases set forth on SCHEDULE 3.12);
(viii) lease of personal property, whether
as lessor, lessee, sublessor or sublessee involving
lease payments in an annual amount in excess of
$50,000;
(ix) any agreement for the acquisition of
services, supplies, equipment or other personal
property (excluding leases of real or personal
property) and involving more than $100,000 in the
aggregate;
(x) contracts containing noncompetition
covenants restricting the Company's ability to
compete in the Telecommunications Business (as
hereinafter defined);
(xi) agreement providing for the purchase
from a supplier of all or substantially all of the
requirements of the Company of a particular product
or service; or
(xii) agreement or commitment a copy of
which would be required to be filed with the
Securities and Exchange Commission (the "Commission")
as an exhibit to a registration statement on Form
S-1, or a successor form, pursuant to Paragraph 10 of
Item 601 of Regulation S-K, if the Company were
registering securities under the Securities Act of
1933, as amended (the "Securities Act").
All of the documents listed on SCHEDULE 3.22 hereof are
hereinafter collectively referred to as the "COMMITMENTS."
True, correct and complete copies of the written Commitments
have heretofore been made available to Purchasers. To the
knowledge of the Company, the Commitments are in full force
and effect and are valid and enforceable obligations of the
parties thereto in accordance with their respective terms
(except as may be limited by the laws of bankruptcy,
insolvency or creditors rights generally and subject to the
enforceability and availability of equitable remedies), and to
the knowledge of the Company, no defenses, off-sets or
counterclaims have been asserted by any party thereto, nor has
the Company waived in writing any rights thereunder, except as
described in SCHEDULE 3.22. The Company has not received
written notice of any default with respect to any Commitment.
(b) No Cancellation or Termination of Commitments.
Except as contemplated hereby, the Company has not received
written notice of any plan or
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<PAGE> 17
intention of any other party to any Commitment to exercise any
right to cancel or terminate any Commitment.
3.23 Conflict of Interest Transactions. Except as set forth on
SCHEDULE 3.23, no director, Common Stock holder, member of management
of the Company, or their spouses or children, owns directly or
indirectly, on an individual or joint basis, any interests, has any
investment in or serves as an officer, partner or director in any
corporation, business or other person that is a customer, supplier or
competitor of the Company, or that has a material contract or
arrangement with the Company or its competitor, other than the
ownership of less than one percent (1%) of the securities of any
company that are publicly traded on any national exchange or over the
counter market.
3.24 Environmental Matters. To the Company's knowledge,
neither the Company nor any of its assets is currently in material
violation of, or subject to any material existing, pending or
threatened investigation or inquiry by any governmental authority or to
any remedial obligations under any environmental laws, and this
representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all
relevant facts, conditions and circumstances, if any, pertaining to the
assets and operations of the Company. To the Company's knowledge, the
assets of the Company have never been used in a manner that would be in
material violation of any of the environmental laws. To the Company's
knowledge, the Company is not required to obtain any permits, licenses
or similar authorizations to construct, occupy, operate or use any
buildings, improvements, fixtures and equipment owned or leased by the
Company by reason of any environmental laws. None of the assets owned
or leased by the Company are on any federal or state "Superfund" list
or subject to any environmentally related liens.
3.25 Other Transactions. Other than the offering and sale of
the Series A Convertible Preferred Stock hereunder, the Company has not
entered into any agreements or arrangements and has no knowledge of any
pending or possible offers or discussions concerning or providing for
the merger or consolidation of the Company or the sale of all or any
substantial portion of its assets, the sale by the Company or any
material shareholder of the Company of any Securities of the Company or
any similar transaction affecting the Company or its security holders.
3.26 No Bankruptcies. For the past five years, neither the
Company nor any of its officers, directors or affiliates, have
voluntarily sought, consented to or acquiesced in the benefits of, or
become the subject of a proceeding under the Bankruptcy Code of the
United States or any other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally.
3.27 Year 2000 Compliance. To the Company's knowledge, the
computer systems used by the Company are Year 2000 compliant, meaning
that such systems will continue to function, and functionality and
accuracy will not be affected as a result of the
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<PAGE> 18
run date or the dates being processed in the twentieth or twenty-first
century, including the advent of the Year 2000, or from the extra day
occurring in any leap year.
3.28 Disclosure. To the Company's knowledge, this Agreement
and the exhibits and schedules hereto, when taken as a whole with other
documents and certificates furnished by the Company to the Purchasers
or their counsel, do not contain any untrue statement of material fact
or omit any material fact necessary in order to make the statements
therein not misleading; provided, however, certain materials provided
to the Purchasers contain projections and estimates of future events,
and such projections and estimates are subject to the statements in the
Placement Memorandum (as hereinafter defined), including, without
limitation, the statements set forth on page 42 thereof. There is no
fact known to the Company that has not been disclosed to the Purchasers
prior to the date of this Agreement that materially and adversely
affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company, taken as a whole, or the
ability of the Company to perform under this Agreement or the other
agreements contemplated hereby or to consummate the transactions
contemplated hereby or thereby. For purposes of this SECTION 3.28 only,
"to the Company's knowledge" shall include any information the Company
would have known except for its reckless disregard for the accuracy of
any material fact.
3.29 Legal Compliance. Except as set forth on SCHEDULE 3.29,
(a) the Company has all material franchises, permits, licenses and
other rights and privileges necessary to permit it to own its
respective properties and to conduct its respective businesses as
presently conducted (all of which such items are set forth on SCHEDULE
3.29) and (b) the Company, and the business and operations of the
Company, have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations (including,
without limitation, all employment, labor practices, safety and health
laws and regulations), and the Company is not in violation of any
judgment, order or decree. There is no existing law, rule, regulation
or order which would prohibit or restrict the Company from, or
otherwise materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting business or,
to the Company's knowledge, in which it proposes to conduct business.
3.30 Small Business Concern. The Company, taken together with
its "affiliates" (as that term is defined in Section 121.401 of Title
13 of the Code of Federal Regulations) is a "Small Business Concern"
within the meaning of Section 103(5) of the Small Business Investment
Act of 1958, as amended (the "SBIC Act"), and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
121.3, and meets the applicable size and eligibility criteria set forth
in Title 13, Code of Federal Regulations, Section 121.802(a)(2).
Neither the Company nor any of its subsidiaries, if any, presently
engages in any activity for which a small business investment company
is prohibited from providing funds by the SBIC Act and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
107.
3.31 Small Business Administration Documentation. The Company
has provided Purchasers, who have requested, a Small Business
Administration "SBA"
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<PAGE> 19
Form 480 (Size Status Declaration) and SBA Form 652 (Assurance of
Compliance), of such Forms, which have been completed and executed by
the Company, and SBA Form 1031 (Portfolio Finance Report), Part A of
which has been completed by the Company.
3.32 Prior Sales of Series A Convertible Preferred Stock. All
shares of Series A Convertible Preferred Stock sold by the Company have
been sold on substantially the same terms as set forth in this
Agreement for the Purchasers.
4. Representations, Warranties and Covenants of Purchasers.
4.1 Organization and Good Standing. Each Purchaser severally
represents and warrants that, if a corporation, partnership, trust or
other form of business entity, it is duly organized, validly existing
and in good standing under the laws of the state of its organization,
has all requisite power and authority to own its property and assets
and to carry on its business as it is presently being conducted and as
it proposes to carry on its business, is duly qualified and in good
standing and authorized to do business in each of the jurisdictions in
which the failure to be so qualified would have a material adverse
effect on the Purchaser.
4.2 Authorization; Approvals. Each Purchaser severally
represents and warrants that the execution and delivery of this
Agreement has been duly authorized by such Purchaser and this Agreement
is a valid and legally binding obligation of such Purchaser legally
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and
general principles of equity. Each Purchaser, if a corporation,
partnership, trust or other form of business entity, is duly qualified
to purchase and hold the Series A Convertible Preferred Stock sold
hereunder. Each Purchaser represents and warrants that the information
set forth on SCHEDULE 1 hereto regarding such Purchaser's business and
residence addresses, telephone numbers, citizenship and taxpayer
identification number is true, accurate and complete. Each Purchaser
severally represents and warrants that it has obtained, or will obtain
prior to the Closing Date, all necessary consents, authorizations,
approvals and orders required on the part of such Purchaser in
connection with the consummation of the transactions contemplated by
this Agreement.
4.3 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute a default under any
terms or provisions of (a) if a corporation, partnership, trust or
other form of business entity, the applicable charter documents of such
Purchaser; (b) any material contract, indenture or other agreement to
which the Purchaser is a party; or (c) any judgment, decree or order or
any material statute, rule or governmental regulation applicable to the
Purchaser.
4.4 Investment Representations. Each Purchaser severally
represents and warrants that it is acquiring the Series A Convertible
Preferred Stock to be purchased by
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<PAGE> 20
it (and any Class A Common Stock into which it may be converted) for
its own account, for investment and not with a view to, or for sale in
connection with, any distribution of such stock or any part thereof.
4.5 Investment Experience; Access to Information. Each
Purchaser severally represents and warrants that it (a) is an
"accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act (or any successor provision), (b)
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of this investment,
(c) has the ability to bear the economic risks of this investment for
an indefinite period of time, and (d) has received a copy of the
Private Placement Memorandum and any supplements thereto (collectively,
the "PLACEMENT MEMORANDUM") attached hereto as EXHIBIT D.
4.6 Absence of Registration. Each Purchaser understands that:
(a) The Series A Convertible Preferred Stock to be
sold and issued hereunder and the Class A Common Stock into
which it may be converted have not been registered under the
Securities Act or any other securities laws on the basis that
the sale of such stock to the Purchaser is exempt from
registration under the Securities Act and such other
securities laws, and the Purchaser may be required to hold
such stock indefinitely unless it is subsequently registered
under the Securities Act and any other applicable securities
laws, or exemptions from such registration are available.
(b) The Company's reliance on the exemptions referred
to in SECTION 4.6(A) above is predicated in part upon the
Purchaser's representations and warranties contained in this
ARTICLE 4.
(c) Except as provided in that certain Registration
Rights Agreement, to be executed at the Closing, by and among
the Company and the Purchasers (the "Registration Rights
Agreement"), attached hereto as EXHIBIT E and as noted in
SCHEDULE 4.6 hereto, the Company is under no obligation to
file a registration statement with the Commission or any other
securities regulatory agency with respect to the Series A
Convertible Preferred Stock or the Class A Common Stock into
which it may be converted.
(d) Rule 144 promulgated under the Securities Act or
any successor provision ("RULE 144"), which provides for
certain limited sales of unregistered securities, is not
presently available with respect to the Series A Convertible
Preferred Stock or the Class A Common Stock into which it may
be converted, and the Company is under no obligation to make
Rule 144 available.
4.7 Restrictions on Transfer. Each Purchaser agrees that: (a)
it will not offer, sell, pledge, hypothecate, or otherwise dispose of
the Series A Convertible Preferred Stock or the Class A Common Stock
into which it may be converted unless such offer, sale, pledge,
hypothecation or other disposition is in accordance with the Statement
of
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<PAGE> 21
Designation and this Agreement and is (i) registered under the
Securities Act and any other applicable securities laws, or (ii) in
compliance with an opinion of counsel to such Purchaser, delivered to
the Company and reasonably acceptable to it, to the effect that such
offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act or such other securities laws; and (b)
the certificate(s) representing the Series A Convertible Preferred
Stock (and any Class A Common Stock into which it may be converted)
shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS
THEREOF.
In addition, the certificates evidencing the Series A Convertible
Preferred Stock shall bear legends stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE
HEREOF, AS SET FORTH IN THE STOCK PURCHASE AGREEMENT BETWEEN
THE ISSUER AND INITIAL PURCHASER, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS
SET FORTH IN SAID STOCK PURCHASE AGREEMENT.
THE ISSUER IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR
SERIES OF CAPITAL STOCK. A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF CAPITAL
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS (TO THE EXTENT ESTABLISHED) IS
ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS. THE
ISSUER WILL FURNISH A COPY OF SUCH STATEMENT TO ANY
SHAREHOLDER OF RECORD, WITHOUT CHARGE, UPON THE WRITTEN
REQUEST TO THE
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<PAGE> 22
ISSUER AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE.
Upon request of a holder of Series A Convertible Preferred
Stock or the Class A Common Stock into which it has been converted, the
Company shall remove the legend set forth above from the certificates
evidencing such Series A Convertible Preferred Stock or Class A Common
Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the
Company, in form and substance reasonably satisfactory to the Company,
to the effect that a transfer by said holder of such Series A
Convertible Preferred Stock or Class A Common Stock will not violate
the Securities Act or any other applicable securities laws.
Notwithstanding the provisions above, no such registration or
opinion of counsel shall be necessary for a pro rata transfer by a
Purchaser which is a corporation to an affiliate of such corporation,
or a Purchaser which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date
hereof without the payment of compensation by such partner, or to the
estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his spouse or lineal
descendants or ancestors, if the transferee agrees in writing to be
subject to the terms hereof to the same extent as if such transferee
were an original Purchaser hereunder, including without limitation, the
representations, warranties, covenants and agreements contained in
SECTIONS 4.1 to 4.7 hereto, inclusive.
4.8 Transfer Instructions. Each Purchaser agrees that the
Company may place and make appropriate notations in its record books
against the transfer of the shares of Series A Convertible Preferred
Stock to be purchased by it and any Class A Common Stock into which
such shares may be converted, and may take any other actions which it
deems necessary to prevent any violations of the Securities Act or any
other securities laws by reason of the delivery of such stock or any
subsequent transaction with respect to such stock.
4.9 Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by the purchase of
Series A Convertible Preferred Stock and any Class A Common Stock into
which it may be converted for an indefinite period.
4.10 Fees and Commissions. Each Purchaser represents and
warrants that it has retained no finder, broker, agent, financial
advisor or other intermediary (hereinafter collectively referred to as
"INTERMEDIARY") in connection with the transactions contemplated by
this Agreement and agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against such
liability or alleged liability.
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<PAGE> 23
5. Conditions to Closing of the Purchasers. The obligation of each
Purchaser on the Closing Date to consummate the transactions contemplated by
this Agreement shall be subject to each of the following conditions precedent,
any one or more of which may be waived by such Purchaser:
5.1 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and
as of the Closing Date.
5.2 Performance. The Company shall have performed and complied
with all agreements, conditions and covenants contained herein or in
any other ancillary documents incident to the transactions contemplated
by this Agreement required to be performed or complied with by it prior
to or at the Closing.
5.3 Company Consents, etc. The Company shall have secured all
permits, consents and authorizations that shall be necessary or
required lawfully to consummate this Agreement, to issue the Series A
Convertible Preferred Stock to be purchased by the Purchasers and to
issue the Class A Common Stock into which it may be converted.
5.4 Compliance Certificates. The Company shall have delivered
to each Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate in all material respects
on the Closing Date, and that all conditions specified in SECTIONS 5.1
to 5.3 hereof, inclusive, have been fulfilled and that there has been
no materially adverse change in the business, affairs, prospects,
operations or condition of the Company since the Balance Sheet Date.
5.5 Government Actions. No action, suit or proceeding shall
have been instituted before any court, governmental or regulatory body
or arbitral tribunal, or instituted or threatened by any governmental
or regulatory body to restrain, modify or prevent the carrying out of
the transactions contemplated hereby or to seek damages or a discovery
order in connection with such transactions.
5.6 The Statement of Designation. Each Purchaser shall have
received evidence that the Company shall have duly authorized and filed
the Statement of Designation with the Secretary of State of the State
of Texas, substantially in the form attached hereto as EXHIBIT C;
5.7 The Articles of Incorporation. Each Purchaser shall have
received a copy of the Articles of Incorporation of the Company and all
amendments thereto, certified by the Secretary of State of Texas, which
shall include evidence that the Company shall have duly authorized and
filed the Amended and Restated Articles of Incorporation with the
Secretary of State of the State of Texas, substantially in the form
attached hereto as EXHIBIT A;
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<PAGE> 24
5.8 Legal Opinion. Counsel for the Company, Winstead, Sechrest
& Minick, P.C., shall have delivered to the Purchasers a legal opinion,
dated as of the Closing Date and substantially in the form attached
hereto as EXHIBIT F;
5.9 Company Deliveries. The Company shall have delivered to
the Purchasers:
(e) (i) copies of the resolutions of the Company's
Board of Directors authorizing and approving this Agreement
and all of the transactions and agreements contemplated hereby
and thereby, (ii) the Bylaws of the Company and (iii) the
names of the officer or officers of the Company authorized to
execute this Agreement and any and all documents, agreements
and instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in
full force and effect and unmodified as of the Closing Date;
(f) a certificate of existence for the Company from
the Secretary of State of the State of Texas;
(g) a certificate of account status for the Company
from the Comptroller of the State of Texas; and
(h) certificates from each state where the Company is
required to be qualified as a foreign corporation showing such
qualification, dated as of a date within ten (10) days of the
Closing Date; and
(i) a Registration Rights Agreement in substantially
the form attached hereto as EXHIBIT E.
6. Conditions to Closing of Company. The obligation of the Company on
the Closing Date to consummate the transactions contemplated by this Agreement
shall be subject to the following conditions precedent, any one or more of which
may be waived by the Company:
6.1 Representations and Warranties. The representations and
warranties made by the Purchasers herein shall be true and accurate on
and as of the Closing Date.
6.2 Performance. Purchasers shall have performed and complied
with all agreements and conditions contained herein or in any other
ancillary documents incident to the transactions contemplated by this
Agreement required to be performed or complied with by such Purchasers
prior to or at the Closing.
6.3 Purchaser Consents, etc. Purchasers shall have secured all
permits, consents, waivers and authorizations that shall be necessary
or required lawfully to consummate this Agreement.
6.4 Compliance Certificates. Each Purchaser shall have
delivered to the Company at the Closing an Officer's Certificate to the
effect that the representations and
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<PAGE> 25
warranties of the Purchaser continue to be true and accurate in all
material respects on the Closing Date, and that all conditions
specified in SECTIONS 6.1 to 6.3 hereof, inclusive, have been
fulfilled.
7. Affirmative Covenants.
7.1 Financial Information. The Company will deliver to each
Purchaser:
(j) within forty five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash
flow prepared in accordance with GAAP and certified by the
Company's Chief Financial Officer, except such financial
statements shall not contain normal and recurring year-end
audit adjustments.
(k) within one hundred twenty (120) days after the
fiscal year end, an annual independent certified audit from an
outside accounting firm reasonably designated by the Company;
(l) As soon as practicable, but no later than thirty
(30) days after the beginning of each fiscal year, beginning
January 1, 2000, the Company shall provide to the Purchasers a
copy of the annual budget and plan for such year which shall
include, without limitation, plans for incurrences of
indebtedness for borrowed money and projections regarding
types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections.
7.2 Use of Proceeds. The Company shall use the proceeds from
the sale of Series A Convertible Preferred Stock for the purposes of
capital expenditures and general corporate purposes, including working
capital.
7.3 Confidentiality. Any information provided pursuant to this
Agreement shall be used by a Purchaser solely in furtherance of its
interests as an investor in the Company, and each Purchaser shall
(except as otherwise required by law) maintain the confidentiality of
all non-public information of the Company obtained under said section.
Each Purchaser will have no obligation to maintain confidentiality of
any information which (i) at the time of disclosure or thereafter is
generally available to and known by the public (other than as a result
of a disclosure directly or indirectly by a Purchaser or the
Purchaser's representatives), (ii) was available to a Purchaser on a
nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting the information to such
Purchaser or the Purchaser's representatives by a contractual, legal or
fiduciary obligation, or (iii) has been independently acquired or
developed by a Purchaser without violating any of such Purchaser's
obligations under this Agreement or any other agreement such Purchaser
has with the Company or its agents.
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7.4 Right of First Refusal. Except in the event of and after
the consummation of an Approved Offering (as hereinafter defined) and
with respect to dispositions to any direct or indirect parent or
subsidiary of a Purchaser who agrees to be bound by the terms of this
Agreement, no Purchaser shall be permitted to dispose of any shares of
the Series A Convertible Preferred Stock unless such shares shall have
been offered for sale in writing first to the Company and then to the
other shareholders of the Company (including the other Purchasers) pro
rata as set forth in this SECTION 7.4. In the event a shareholder
desires to transfer any Series A Convertible Preferred Stock, the
shareholder desiring to make such transfer (the "TRANSFERRING
SHAREHOLDER") shall deliver written notice (the "OFFER NOTICE") to the
Company and to all other shareholders (including the other Purchasers)
at least ninety (90) days prior to the proposed transfer. The Offer
Notice will disclose in reasonable detail the proposed number of shares
to be transferred, the proposed transferee and the proposed price,
terms and conditions of the transfer.
(m) Upon receipt of the Offer Notice, the Company
shall have the option (the "COMPANY'S OPTION") for a period of
thirty (30) days to purchase or otherwise acquire all or part
of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as
the "OPTION PRICE") equal to the bona fide purchase price to
be paid by the proposed purchaser as described in the Offer
Notice (which amount shall be zero if the proposed transfer
would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current holders
of Series A Convertible Preferred Stock as to whether it will
exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
(n) In the event that the Company does not elect to
fully exercise the Company's Option within thirty (30) days
after receipt of the Offer Notice, the remaining holders of
Series A Convertible Preferred Stock shall have the option
(each a "SERIES A SHAREHOLDER'S OPTION") for a period of ten
(10) days from the earlier of (i) their receipt of written
notice from the Company of its decision not to exercise or to
only partially exercise the Company's Option, or (ii) the
expiration of the Company's Option (the "SERIES A SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the Company does not choose
to purchase pursuant to the Company's Option, in proportion to
their respective ownership of shares of Series A Convertible
Preferred Stock which, for purposes of such determination,
shall include without duplication all outstanding options,
warrants or other rights owned by such shareholders that are
convertible into shares of Series A Convertible Preferred
Stock as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each holder of
Series A Convertible Preferred Stock shall notify in writing
all then current holders of Series A Convertible Preferred
Stock as to whether such shareholder will exercise, partially
exercise or not exercise the Series A Shareholder's Option
before the expiration of the Series A Shareholder Election
Period.
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(c) For a period of ten (10) days from the earlier of
(i) the receipt by the other holders of Series A Convertible
Preferred Stock of a written notice from a holder of Series A
Convertible Preferred Stock that it does not want to exercise
its option or will only partially exercise its option, or (ii)
the expiration of the Series A Shareholder Election Period,
the other holders of Series A Convertible Preferred Stock
shall have the right (the "SERIES A SHAREHOLDER'S SECOND
OPTION") to purchase or otherwise acquire such shareholder's
portion of the shares described in the Offer Notice in
proportion to their respective ownership of shares of Series A
Convertible Preferred Stock (determined as described in
SECTION 7.4(b) above).
(o) In the event that the holders of Series A
Convertible Preferred Stock do not elect to fully exercise the
Series A Shareholder's Second Option before the expiration of
the Series A Shareholder's Second Option, the remaining
shareholders shall have the option (each a "SHAREHOLDER'S
OPTION") for a period of ten (10) days from the earlier of (i)
their receipt of written notice from the holders of the Series
A Convertible Preferred Stock of their decision not to
exercise or to only partially exercise the Series A
Shareholder's Second Option, or (ii) the expiration of the
Series A Shareholder's Second Option (the "OTHER SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the holders of Series A
Convertible Preferred Stock do not choose to purchase pursuant
to the Series A Shareholder's Second Option, in proportion to
their respective ownership of shares which, for purposes of
such determination, shall include without, duplication all
outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date
of such notice from the holders of the Series A Convertible
Preferred Stock (or the expiration of the Series A
Shareholder's Second Option), for an amount equal to the
applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether
such shareholder will exercise, partially exercise or not
exercise the Shareholder's Option before the expiration of the
Other Shareholder Election Period.
(p) For a period of ten (10) days from the earlier of
(i) the receipt by the other shareholders of a written notice
from a shareholder that it does not want to exercise its
option or will only partially exercise its option, or (ii) the
expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise
acquire such shareholder's portion of the shares described in
the Offer Notice in proportion to their respective ownership
of shares (determined as described in SECTION 7.4(d) above).
(q) If shares of a Transferring Shareholder remain
unsold after compliance with the procedures set forth in this
SECTION 7.4, the Company shall have the final option for ten
(10) days to purchase or otherwise acquire all of the
remaining shares proposed to be transferred for an amount
equal to the applicable portion of the Option Price. If,
however, the Company and the other shareholders do not
individually or collectively elect to purchase all of the
shares being offered,
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the Transferring Shareholder may, within thirty (30) days
after the expiration of the Other Shareholder Election Period
(subject to the provisions of SECTION 7.4(h) below), transfer
all of the shares specified in the Offer Notice to the
transferee identified in the Offer Notice at the price and
terms stated in the Offer Notice. Any shares so transferred
thereupon shall continue to be subject to this Agreement, and
the transferee shall have the rights and obligations set forth
in this Agreement hereunder with respect to such shares. If
the Transferring Shareholder fails to consummate such transfer
within the thirty day period after the expiration of the Other
Shareholder Election Period, any transfer of the shares
thereafter shall again be subject to the provisions of this
SECTION 7.4.
(r) Unless otherwise agreed in writing, signed by the
person against whom such writing is sought to be enforced, the
closing of any acquisition of Series A Convertible Preferred
Stock hereunder pursuant to the Company's Option, a Series A
Shareholder's Option, or a Shareholder's Option shall take
place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such
forty-five day period, then the shares that were to be
acquired shall be offered in accordance with this SECTION 7.4
as though the applicable option had not been exercised.
(s) Notwithstanding the foregoing provisions of this
SECTION 7.4, the following shall apply in the event of any
Involuntary Transfer of Series A Convertible Preferred Stock.
An "INVOLUNTARY TRANSFER" shall mean any transfer caused by
the death of a shareholder, as well as any transfer,
proceeding or action by, through, as a consequence of, or in
which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the Series A
Convertible Preferred Stock of the Company, including, without
limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant
to a filing of a voluntary or an involuntary petition under
the United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Company
shall give written notice to each shareholder upon the
occurrence, or prospective occurrence, of such Involuntary
Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective
occurrence of such Involuntary Transfer. The foregoing
provisions of this SECTION 7.4 then shall apply, except (i)
the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually
agreeable to the Company and the
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<PAGE> 29
shareholder who made, or may make, the Involuntary Transfer,
multiplied by the percentage of all equity interests in the
Company that is then represented by the shares that are the
subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book
value of the Company, and (ii) the appraiser shall deliver
written notice of such valuation to the Company and to all
other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the
Option Notice for purposes of this SECTION 7.4. The cost of
the appraisal shall be shared equally by the Company and the
shareholder who made, or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this SECTION 7.4(g), the involuntary
transferee shall deliver certificates representing the Series
A Convertible Preferred Stock being purchased, duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes, and such shares shall be conveyed free and clear of any
liens, claims, options, charges, encumbrances or rights of
others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall
so represent and warrant. The involuntary transferee shall
further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this SECTION 7.4(g)
shall be held to be unenforceable with respect to any
particular Involuntary Transfer of Series A Convertible
Preferred Stock, or if all of the shares subject to the
Involuntary Transfer are not purchased by the Company and/or
one or more shareholders, and if the involuntary transferee
subsequently desires to transfer such Series A Convertible
Preferred Stock, the involuntary transferee shall be deemed to
be a "Transferring Shareholder" under this SECTION 7.4 and
shall be bound by the other provisions of this Agreement.
(t) Notwithstanding anything to the contrary
contained in this SECTION 7.4, no shareholder shall transfer
any Series A Convertible Preferred Stock at any time if such
action would constitute a violation of any federal or state
securities laws or a breach of the conditions to any exemption
from registration of the shares under any such laws or a
breach of any undertaking or agreement of such shareholder
entered into pursuant to such laws or in connection with
obtaining an exemption thereunder. Each shareholder agrees
that any shares purchased or acquired by such shareholder
shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal
and state securities laws, in addition to a legend referring,
to the restrictions set forth in this Agreement.
(u) The Amended and Restated Articles of
Incorporation shall contain provisions similar to the
foregoing provisions of SECTION 7.4 by which all of the
holders of the Common Stock grant a similar right of first
refusal to purchase the shares of such holders to the Company
and the holders of the Series A Convertible Preferred Stock,
and such provisions may not be amended without the
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<PAGE> 30
consent or approval of the holders of a majority of the
outstanding shares of the Series A Convertible Preferred
Stock.
7.5 Sale of the Company. At any time after April 4,
2001, and before the consummation of an Approved Offering, if
a bona fide offer is made by any person (other than I 3S
Funding I, L.L.C. ("FUNDING"), Blue Ridge Investors Limited
Partnership ("BLUE RIDGE") and Spotswood Capital, LLC
("SPOTSWOOD"), or any person or entity related to or
affiliated with Funding, Blue Ridge and Spotswood), to
purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written
notice that it desires such offer to be accepted, the Company
shall either accept the offer and consummate the sale on the
terms and conditions of the offer (in which case, if the
transaction is a stock sale or merger, Spotswood and Blue
Ridge also shall sell all of their equity interests in the
Company on those terms and conditions), or, subject to the
last paragraph of this SECTION 7.5, the Company shall acquire
all the equity interests owned by Funding, Spotswood and Blue
Ridge in the Company on the same terms and conditions as the
offer; provided, however, that if such offer is made prior to
April 4, 2003, the Company shall have no such obligation
unless the total consideration of such offer is at least
$350,000,000. If at any time Funding approves the sale of
substantially all of the assets or shares of stock of the
Company or if the transaction is a stock sale or merger, Blue
Ridge and Spotswood shall sell all of their equity interests
in the Company on the terms and conditions so approved. If the
Company accepts an offer to sell the Company made after April
4, 2001, the Purchasers and any person that acquires the
Series A Convertible Preferred Stock shall sell their shares
of Series A Convertible Preferred Stock (and Class A Common
Stock, if the shares of Preferred Stock have been converted)
and/or vote in favor of the proposed transaction (as the case
may be) so long as the holders of the Series A Convertible
Preferred Stock shall receive for their shares of Preferred
Stock an amount in cash equal to the aggregate Liquidation
Preference (as defined in the Statement of Designation of the
Series A Convertible Preferred Stock) plus accrued and unpaid
dividends for such shares of Series A Convertible Preferred
Stock, in preference to any other holders of capital stock of
the Company. At least 20 days prior to the consummation of any
such sale, the Company shall give the holders of the Series A
Convertible Preferred Stock written notice of the material
terms of the proposed sale. The holders of the outstanding
shares of Series A Convertible Preferred Stock shall have the
right to convert their shares into shares of Class A Common
Stock prior to or concurrently with the consummation of any
such sale and thereby be entitled to receive their pro rata
share of the proceeds of the sale that would otherwise be
payable to the holders of the Class A Common Stock (assuming
for such calculation the conversion of such shares of Series A
Convertible Preferred Stock as have exercised such right to
convert). The exercise of such right to convert by a holder of
Series A Convertible Preferred Stock shall be in lieu of any
right to receive such Liquidation Preference plus accrued and
unpaid dividends as a holder of such Series A Convertible
Preferred Stock or otherwise. In determining the total
consideration for purposes of the
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<PAGE> 31
foregoing, any deferred payment shall be discounted to present
value at a discount rate of eight percent (8%) per annum.
Under its agreements with Funding, the Company has the right to avoid
the required sale of the Company, as described in this SECTION 7.5, by redeeming
the outstanding shares of Class B Common Stock and Class C Common Stock held by
Funding, Blue Ridge and Spotswood. The Company acknowledges and agrees that it
may not redeem such shares without first obtaining the consent or approval of
the holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, as required by the Statement of Designation.
7.6 Right of Co-Sale. At any time prior to the consummation of
an Approved Offering, the Purchasers and the holders of Class B Common
Stock and Class C Common Stock shall have the right to participate pro
rata to the fullest extent of their equity interest in the Company in
any sale or transfer of stock (with each share of Series A Convertible
Preferred Stock being treated for such purposes as the number of shares
of Class A Common Stock into which it could then be converted), by any
holder of shares of Class A Common Stock to any third party.
7.7 Observers. Each Purchaser who purchases at least 531,915
shares of Series A Convertible Preferred Stock, and so long as such
Purchaser continues to beneficially own at least 531,915 shares of
Series A Convertible Preferred Stock or Common Stock (as adjusted for a
Recapitalization Event), may designate one person to serve as an
observer (an "OBSERVER"). An observer shall be entitled (i) to receive
the same notice in respect of all meetings (both regular and special)
of the Board of Directors and each committee thereof (other than the
Audit Committee and Compensation Committee) as required to be furnished
to members of the Board of Directors of such committee by law or by the
Amended and Restated Articles of Incorporation or the Amended and
Restated Bylaws of the Company, (ii) to attend all meetings of the
Board of Directors and each committee thereof (other than the Audit
Committee and Compensation Committee), (iii) to receive all information
and reports which are furnished to members of the Board of Directors
and each committee thereof (including the Audit Committee and
Compensation Committee) at the time so furnished, and (iv) to
participate in all discussions conducted at meetings of the Board of
Directors and each committee thereof (other than the Audit Committee
and Compensation Committee). In the event that the directors are
discussing or voting on matters that directly relate to any business
dealings between the Company and (i) any Purchaser beneficially owning
at least 531,915 shares of Series A Convertible Preferred Stock or (ii)
any other vendor that competes with a Purchaser that has observer
rights hereunder, the Board may recuse all (but not less than all) of
the Observers until such matters have been concluded. An Observer may
share any information gained from presence at such meetings with the
Purchaser that designated such Observer and such Purchaser's employees,
officers, directors, attorneys and advisors (collectively, the
"PURCHASER'S Representatives"), but such information shall otherwise be
kept confidential by the Observer, Purchaser and Purchaser's
Representatives to the same extent that financial information or other
confidential information with regard to the Company is required to be
kept confidential in accordance with Section 7.3.
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<PAGE> 32
7.8 Key Man Insurance. The Company has obtained and will
maintain (so long as they are officers of the Company) a "key man life
insurance policy" in the amount of $1,000,000 each on the lives of
James R. Price, Charles W. Price, Matthew Hutchins, William H. Anderton
and Daniel A. Gillett.
7.9 Access to Information. The Company will permit the
Purchasers to inspect at the Purchasers' expense any of the properties
or books and records of the Company, and to discuss the affairs and
condition of the Company with representatives of the Company, except
for information that (i) relates to any of the business dealings
between the Company and any of the Purchasers, (ii) relates to any
other vendor that competes with any of the Purchasers, or (iii) is
subject to any obligation of the Company to maintain the
confidentiality of such information, during normal business hours and
upon at least 24 hours prior notice to the Company, but no more
frequent than once each calendar quarter.
7.10 Restricted Corporate Actions. The Company will not,
without the vote or written approval of the holders of a majority of
the outstanding Series A Convertible Preferred Stock, take any of the
following actions:
(v) engage in any business outside the
Telecommunications Business. For purposes of this SECTION
7.10(a) and as otherwise used in this Agreement,
"TELECOMMUNICATIONS BUSINESS" shall mean the business of (i)
transmitting, or providing services relating to the
transmission of, voice, data or video through owned or leased
transmission facilities, (ii) constructing, creating,
developing or marketing communications-related network
equipment, software and other devices for use in a
telecommunications business or (iii) evaluating, participating
or pursuing any other activity or opportunity that is
primarily related to those identified in clauses (i) or (ii)
above;
(w) make any loans to any officers, directors or
affiliates of the Company in an aggregate amount exceeding
$100,000, other than commission advances and travel or
miscellaneous cash advances in the ordinary course of business
and loans to employees seeking to exercise stock options
issued pursuant to any of the Plans, the proceeds of which are
used to exercise such options;
(c) enter into any business arrangement or agreement
(other than a stock option agreement in accordance with the
Plans) with any officer, director or affiliate of the Company
on terms less favorable to the Company than an arms-length
transaction;
(d) acquire substantially all of the assets,
properties or capital stock of other persons or entities in
one or more transactions for an aggregate total consideration
consisting of an amount of cash exceeding ten percent (10%) of
the total purchase price paid to the Company for the original
issuance of all of the Series A Convertible Preferred Stock;
or
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<PAGE> 33
(e) issue any stock, options, warrants, or securities
convertible into the capital stock of the Company with
exercise prices, in the case of options or warrants, or issue
prices, in the case of stock or convertible securities, at
less than fair market value, as determined in good faith by
the Company's Board of Directors, as of the date of grant in
the case of options or warrants or the date of issuance in the
case of stock or securities convertible into the capital stock
of the Company. No such restriction shall apply upon the
issuance of capital stock pursuant to the exercise of options
or warrants or the conversion of convertible securities of the
Company.
7.11 Shareholder and Director Information. At the request of
the Purchasers, the Company shall promptly deliver to the Purchasers
information regarding the security holders, officers and directors of
the Company, including, without limitation, names, addresses, types of
securities held and terms of securities held.
7.12 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the
Series A Convertible Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the Series A Convertible
Preferred Stock or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in
connection with the issuance of shares of Common Stock upon conversion
of the Series A Convertible Preferred Stock.
7.13 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, provide in writing, upon the written
request of the Purchasers or a prospective buyer of the Series A
Convertible Preferred Stock or shares of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock from the
Purchasers, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities
Act ("RULE 144A INFORMATION"). The Company's obligations under this
SECTION 7.13 shall at all times be contingent upon the Purchasers
obtaining from the prospective buyer of Series A Convertible Preferred
Stock or shares of Common Stock issued upon conversion of the Series A
Convertible Preferred Stock a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to
anyone other than
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<PAGE> 34
a person who will assist such buyer in evaluating the purchase of any
Series A Convertible Preferred Stock or of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock.
7.14 Sale of Series A Convertible Preferred Stock. The Company
agrees that any additional shares of Series A Convertible Preferred
Stock sold by the Company after the Closing will be sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
7.15 Termination of Covenants. The covenants set forth in
SECTIONS 7.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 AND
7.14 hereof shall terminate and be of no further force or effect on the
earlier of the consummation of the first underwritten public offering
of common stock of the Company pursuant to a registration statement
filed with the Commission under the Securities Act with a concurrent
listing on the New York Stock Exchange, the American Stock Exchange, or
the Nasdaq Stock Market, Inc. at an initial offering price of at least
$20.00 per share (as adjusted for a Recapitalization Event) that
results in gross proceeds to the Company (before deduction of
underwriting discounts and expenses of sale) of not less than
$30,000,000 (an "APPROVED OFFERING"). For purposes of this Agreement, a
"RECAPITALIZATION EVENT" means an event described under Section 2.5 of
the Statement of Designation of the Series A Convertible Preferred
Stock.
8. Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay: (a) all the costs and expenses of the
reproduction of the Placement Memorandum, this Agreement, of all agreements and
documents referred to herein and of the certificates for the Series A
Convertible Preferred Stock and the Class A Common Stock into which it may be
converted; (b) all taxes (if any) payable with respect to this Agreement and the
issuance of the Series A Convertible Preferred Stock and the Class A Common
Stock into which it may be converted; (c) all costs of complying with the
securities or Blue Sky laws of any jurisdiction with respect to the offering or
sale of the Series A Convertible Preferred Stock and the Class A Common Stock
into which it may be converted; (d) the cost of delivering to such address as
each Purchaser shall specify the certificates for the Series A Convertible
Preferred Stock purchased by each such Purchaser and the certificates for the
Class A Common Stock into which the Series A Convertible Preferred Stock may be
converted; (e) the fees, expenses and disbursements of the Company's counsel in
connection with the Closing; and (f) the fees and expenses incurred with respect
to any amendments to this Agreement or the Amended and Restated Articles of
Incorporation of the Company proposed by the Company (whether or not the same
become effective).
9. Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the parties hereto
or on their behalf) and any disposition of the Series A Convertible Preferred
Stock or of the Class A Common Stock issued upon conversion thereof and shall
continue to survive for a period of time expiring on the earlier of (a) the
consummation of an Approved Offering, or (b) June 30, 2001. All statements
contained in any certificate or other
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<PAGE> 35
instrument executed and delivered by the parties hereto or their duly authorized
officers or representatives pursuant hereto in connection with the transactions
contemplated hereby shall be deemed representations hereunder, and no officer or
representative of such parties shall have personal liability for such statements
unless such officer or representative shall make such statement in a grossly
negligent manner, in bad faith, fraudulently or pursuant to willful misconduct.
10. Notices. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this SECTION 10) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
(x) If to the Company:
I3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
(y) If to the Purchasers at the address set forth on
SCHEDULE 1 hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth in ARTICLE 7 hereof, the date of mailing shall be deemed to be the
delivery date. The financial statements required by ARTICLE 7 hereof may be
mailed by first-class regular mail.
11. Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company, and (b) holders of at least 66 2/3% of the
outstanding shares of the Series A Convertible Preferred Stock acting together
as a single class. Additionally, SECTION 9 of this Agreement may not be amended,
in any manner, without the unanimous consent of the holders of the outstanding
shares of the Series A Convertible Preferred Stock.
12. Entire Agreement. This Agreement and the Registration Rights
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated
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hereby, and supersedes all negotiations, agreements, representations, warranties
and commitments relating to the transactions contemplated hereby, whether in
writing or oral, prior to the date hereof, except for those certain
Confidentiality Agreements entered into by the Purchasers with Donaldson, Lufkin
& Jenrette on behalf of the Company.
13. Successors and Assigns. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in the Registration Rights
Agreement may only be transferred in accordance with Section 12 of the
Registration Rights Agreement.
14. Enforcement.
14.1 Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or
as of the date it was made, furnished or delivered, any party damaged
may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term
contained in this Agreement or the Amended and Restated Articles of
Incorporation of the Company (including the Statement of Designation)
or for an injunction against the breach of any such term or in
furtherance of the exercise of any power granted in this Agreement or
such Amended and Restated Articles (including the Statement of
Designation), or to enforce any other legal or equitable right of such
party or to take any one or more of such actions. The prevailing party
in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement or the Amended and
Restated Articles of Incorporation (including the Statement of
Designation) of the Company, including without limitation reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
14.2 Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any default shall
be a waiver of any future or subsequent default. The failure or delay
in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right shall not exhaust the same or constitute a waiver of
any other right provided herein.
15. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and
32
<PAGE> 37
such counterparts together shall constitute one instrument. Each party shall
receive a duplicate original of the counterpart copy or copies executed by it
and by the Company.
16. Governing Law and Severability. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas County, Texas. In the
event any provision of this Agreement or the application of any such provision
to any party shall be held by a court of competent jurisdiction to be contrary
to law, the remaining provisions of this Agreement shall remain in full force
and effect.
17. Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
33
<PAGE> 38
This Agreement is hereby executed as of the date first above written.
THE COMPANY
I3S, INC.
By:
--------------------------------
Name:
-------------------------
Title:
--------------------------
THE PURCHASERS:
ARCHSTONE COMMUNITIES TRUST
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
ARCHSTONE COMMUNITIES
INVESTMENT LLC-I
By: Archstone Communities Trust,
its Manager
By:
----------------------------
Name:
-----------------------
Title:
----------------------
34
<PAGE> 39
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF
INCORPORATION
<PAGE> 40
EXHIBIT B
AMENDED AND RESTATED BYLAWS
<PAGE> 41
EXHIBIT C
FORM OF STATEMENT OF DESIGNATION FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
<PAGE> 42
EXHIBIT D
PLACEMENT MEMORANDUM
<PAGE> 43
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 44
EXHIBIT F
FORM OF OPINION OF WINSTEAD SECHREST & MINICK, P.C.
<PAGE> 45
SCHEDULE I
THE PURCHASERS
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible Aggregate
Preferred Purchase Copy of Notices
Name of Purchasers Notice Address Stock Price Must be sent to
------------------ -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Archstone 7670 S. Chester Street 372,340 $ 7,000,000 Mayer Brown & Platt
Communities Trust Suite 100 190 South La Salle Street
Englewood, Colorado 80112 Chicago, Illinois 60603-3441
Attn: Charles E. Mueller Attention: Edward J. Schneidman
Telephone: (312) 701-7348
Telecopy: (312) 706-8200
E-Mail:
[email protected]
Archstone 7670 S. Chester Street 17,294 $325,120.20 Mayer Brown & Platt
Communities Suite 100 190 South La Salle Street
Investment LLC-I Englewood, Colorado 80112 Chicago, Illinois 60603-3441
Attn: Charles E. Mueller Attention: Edward J. Schneidman
Telephone: (312) 701-7348
Telecopy: (312) 706-8200
E-Mail:
[email protected]
</TABLE>
<PAGE> 1
EXHIBIT 10.36
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
BROADBANDNOW, INC.
JANUARY 27, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purchase and Sale........................................................................................1
2. Closing of Purchase and Sale.............................................................................1
2.1 Closing; Closing Date...........................................................................1
2.2 Transactions at Closing.........................................................................1
3. Representations and Warranties of Company................................................................1
3.1 Organization, Standing and Qualification........................................................1
3.2 Capitalization..................................................................................2
3.3 Validity of Stock...............................................................................3
3.4 Subsidiaries....................................................................................3
3.5 Financial Statements............................................................................3
3.6 Absence of Undisclosed Liabilities..............................................................4
3.7 Absence of Certain Changes......................................................................4
3.8 Authorization; Approvals........................................................................5
3.9 No Conflict with Other Instruments..............................................................5
3.10 Labor Agreements and Actions....................................................................6
3.11 Employee Matters................................................................................6
3.12 Title to Properties; Liens and Encumbrances.....................................................6
3.13 Compliance with Corporate Instruments...........................................................7
3.14 Patents, Trademarks and Other Intangible Assets.................................................7
3.15 Trade Secrets and Customer Lists................................................................8
3.16 Tax Matters.....................................................................................8
3.17 Litigation......................................................................................9
3.18 Minute Books....................................................................................9
3.19 Insurance.......................................................................................9
3.20 Fees and Commissions............................................................................9
3.21 Employee Benefit Plans.........................................................................10
3.22 Material Contracts and Commitments.............................................................12
3.23 Conflict of Interest Transactions..............................................................13
3.24 Environmental Matters..........................................................................13
3.25 Other Transactions.............................................................................14
3.26 No Bankruptcies................................................................................14
3.27 Year 2000 Compliance...........................................................................14
3.28 Disclosure.....................................................................................14
3.29 Legal Compliance...............................................................................15
3.30 Small Business Concern.........................................................................15
3.31 Small Business Administration Documentation....................................................15
3.32 Prior Sales of Series A Convertible Preferred Stock............................................15
4. Representations, Warranties and Covenants of Purchasers.................................................15
4.1 Organization and Good Standing.................................................................15
4.2 Authorization; Approvals.......................................................................16
4.3 No Conflict with Other Instruments.............................................................16
4.4 Investment Representations.....................................................................16
4.5 Investment Experience; Access to Information...................................................16
4.6 Absence of Registration........................................................................16
4.7 Restrictions on Transfer.......................................................................17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.8 Transfer Instructions..........................................................................19
4.9 Economic Risk..................................................................................19
4.10 Fees and Commissions...........................................................................19
5. Conditions to Closing of the Purchasers.................................................................19
5.1 Representations and Warranties.................................................................19
5.2 Performance....................................................................................19
5.3 Company Consents, etc..........................................................................19
5.4 Compliance Certificates........................................................................20
5.5 Government Actions.............................................................................20
5.6 The Certificate of Designation.................................................................20
5.7 The Articles of Incorporation..................................................................20
5.8 Legal Opinion..................................................................................20
5.9 Company Deliveries.............................................................................20
6. Conditions to Closing of Company........................................................................21
6.1 Representations and Warranties.................................................................21
6.2 Performance....................................................................................21
6.3 Purchaser Consents, etc........................................................................21
6.4 Compliance Certificates........................................................................21
7. Affirmative Covenants...................................................................................21
7.1 Financial Information..........................................................................21
7.2 Use of Proceeds................................................................................22
7.3 Confidentiality................................................................................22
7.4 Right of First Refusal.........................................................................22
7.5 Sale of the Company............................................................................26
7.6 Right of Co-Sale...............................................................................28
7.7 Observers......................................................................................28
7.8 Key Man Insurance..............................................................................28
7.9 Access to Information..........................................................................28
7.10 Restricted Corporate Actions...................................................................29
7.11 Shareholder and Director Information...........................................................30
7.12 Reserve for Conversion Shares..................................................................30
7.13 Rule 144A Information..........................................................................30
7.14 Sale of Series A Convertible Preferred Stock...................................................30
7.15 Termination of Covenants.......................................................................30
8. Expenses................................................................................................31
9. Survival of Agreements..................................................................................31
10. Notices.................................................................................................31
11. Modifications; Waiver...................................................................................32
12. Entire Agreement........................................................................................32
13. Successors and Assigns..................................................................................33
14. Enforcement.............................................................................................33
14.1 Remedies at Law or in Equity...................................................................33
14.2 Remedies Cumulative; Waiver....................................................................33
15. Execution and Counterparts..............................................................................33
16. Governing Law and Severability..........................................................................33
17. Headings................................................................................................34
</TABLE>
ii
<PAGE> 4
EXHIBITS
Exhibit A - Certificate of Incorporation
Exhibit B - Bylaws
Exhibit C - Form of Certificate of Designation for the Series A Convertible
Preferred Stock
Exhibit D - Placement Memorandum
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Winstead Sechrest & Minick, P.C.
SCHEDULES
Schedule 1 Purchasers
Schedule 3.1 Jurisdictions
Schedule 3.2 Capitalization
Schedule 3.4 Subsidiaries
Schedule 3.5 Financial Statements
Schedule 3.7 Absence of Certain Changes
Schedule 3.9 No Conflict with Other Instruments
Schedule 3.11 Employee Matters
Schedule 3.12 Title to Properties; Liens and Encumbrances
Schedule 3.14 Patents, Trademarks and Other Intangible Assets
Schedule 3.15 Trade Secrets and Customer Lists
Schedule 3.16 Tax Matters
Schedule 3.19 Insurance
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Material Contracts and Commitments
Schedule 3.23 Conflict of Interest Transactions
Schedule 3.29 Legal Compliance
Schedule 4.6 Registration Rights
Schedule 7.5 Prior Stock Purchase Agreement
iii
<PAGE> 5
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (this
"AGREEMENT"), dated as of January 27, 2000 is by and among BroadbandNOW, Inc., a
Delaware corporation (the "COMPANY"), and the purchasers identified in SCHEDULE
1 hereto (hereinafter referred to individually as a "PURCHASER" and collectively
as the "PURCHASERS").
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Purchase and Sale. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined), the Company will sell to each of the
Purchasers, severally and not jointly, and each of the Purchasers, severally and
not jointly, will purchase from the Company, the number of shares of Series A
Convertible Preferred Stock, par value $0.001 per share (the "SERIES A
CONVERTIBLE PREFERRED STOCK"), set forth opposite each such Purchaser's name in
SCHEDULE 1 annexed hereto at a price per share of Eighteen and 80/100 Dollars
($18.80).
2. Closing of Purchase and Sale.
2.1 Closing; Closing Date. The purchase and sale of the Series
A Convertible Preferred Stock (the "CLOSING") shall take place at the
offices of the Company at 1440 Corporate Drive, Irving, Texas 75038, at
10:00 a.m., local time, on January 27, 2000 (the "CLOSING DATE") or at
such other place or time as may be agreed upon by the Company and the
Purchasers.
2.2 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates for the shares
of Series A Convertible Preferred Stock to be issued and sold to such
Purchaser at the Closing, duly registered in such Purchaser's name,
against payment in full by such Purchaser of the aggregate purchase
price set forth opposite such Purchaser's name in SCHEDULE 1 hereto by
a wire transfer of funds made to the order of "BroadbandNOW, Inc." in
the amount of such aggregate purchase price. The Company shall also
deliver to the Purchasers those items required to be delivered to them
by the Company as described in ARTICLE 5 of this Agreement. The
Purchasers shall also deliver to the Company those items required to be
delivered to the Company by the Purchasers as described in ARTICLE 6 of
this Agreement.
3. Representations and Warranties of Company. The Company represents
and warrants to the Purchasers that:
3.1 Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, has all requisite corporate power
and authority to own its property and assets and to carry on its
business as it is presently being conducted and as it proposes to carry
on its business. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and the other
agreements contemplated herein, to issue and sell the Series A
Convertible Preferred Stock hereunder, to issue shares of Class A
Common Stock (as hereinafter defined) upon conversion of the Series A
Convertible
<PAGE> 6
Preferred Stock, and to carry out the transactions contemplated by this
Agreement and the other agreements contemplated herein. The Certificate
of Incorporation and Bylaws, copies of which are attached hereto as
EXHIBITS A and B, respectively, are true, correct and complete. The
Company is duly qualified and in good standing as a foreign corporation
authorized to do business in each of the jurisdictions in which the
failure to be so qualified would have a material adverse effect on the
Company. SCHEDULE 3.1 sets forth the jurisdictions in which the Company
is qualified.
3.2 Capitalization. The authorized capital stock of the
Company, as of the Closing Date, will consist of: (a) 100,000,000
shares of Class A Common Stock, par value $0.001 per share (the "CLASS
A COMMON STOCK"), of which 4,684,400 shares are issued and outstanding,
(b) 25,000,000 shares of Class B Common Stock, par value $0.001 per
share (the "CLASS B COMMON STOCK"), of which 4,979,777 shares are
issued and outstanding, (c) 25,000,000 shares of Class C Common Stock,
par value $0.001 per share (the "CLASS C COMMON STOCK"), of which
2,074,464 shares are issued and outstanding, and (d) 6,900,000 shares
of Preferred Stock, all of which have been designated as Series A
Convertible Preferred Stock, of which 3,756,420 shares are issued and
outstanding. The relative rights, preferences, restrictions and other
provisions relating to the Series A Convertible Preferred Stock are as
set forth in the Certificate of Designations, Preferences and Relative
Rights (the "CERTIFICATE OF DESIGNATION"), attached hereto as EXHIBIT
C. The Class A Common Stock, Class B Common Stock and Class C Common
Stock are hereinafter collectively referred to as the "COMMON STOCK".
SCHEDULE 3.2 sets forth the name and, to the Company's knowledge, the
current address of each holder of Common Stock and Series A Convertible
Preferred Stock and number and class of shares so held by each holder.
Of the Class A Common Stock, (i) 4,979,777 shares are reserved for
issuance on the conversion of the Class B Common Stock, (ii) 2,074,464
shares are reserved for issuance on the conversion of the Class C
Common Stock, (iii) 4,893,617 shares are reserved for issuance on the
conversion of the Series A Convertible Preferred Stock, and (iv)
5,961,220 shares are reserved for issuance pursuant to employee stock
purchase or stock option plans adopted or to be adopted by the Company
for key employees and prior stock option grants. All of the outstanding
shares of the Common Stock are duly authorized and validly issued in
accordance with applicable law, fully paid and non-assessable.
Except as set forth on SCHEDULE 3.2 hereto, or as otherwise
contemplated by this Agreement, as of the date hereof there are, and
immediately following the Closing, there will be (i) no outstanding
options, warrants, agreements, conversion rights, preemptive rights or
other rights to subscribe for, purchase or acquire any issued or
unissued shares of capital stock of the Company, or any securities
convertible or exchangeable for such stock, and (ii) no restrictions
upon the voting or transfer of any shares of capital stock of the
Company pursuant to its Certificate of Incorporation, Bylaws or other
governing documents or any agreement or other instruments to which it
is a party or by which it is bound, and (iii) there are no agreements
to which the Company is a party or of which the Company has knowledge
regarding the issuance, registration, voting or transfer of or
obligation (contingent or otherwise) of the Company to repurchase or
otherwise acquire
-2-
<PAGE> 7
or retire or redeem any of its outstanding shares of capital stock. No
dividends are accrued but unpaid on any capital stock of the Company.
3.3 Validity of Stock. The Series A Convertible Preferred
Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will be duly and validly authorized and issued, fully
paid, non-assessable and free and clear of all encumbrances or
restrictions on transfer except those imposed by applicable securities
laws, the Certificate of Incorporation, the Certificate of Designation
and this Agreement. The Class A Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock, when issued, sold and
delivered in accordance with the terms of this Agreement, will be duly
and validly authorized and issued, fully paid, non-assessable and free
and clear of all encumbrances or restrictions on transfer except those
imposed by applicable securities laws, the Certificate of
Incorporation, the Certificate of Designation and this Agreement. All
existing preemptive rights have been waived for purposes of the
issuance of the Series A Convertible Preferred Stock.
3.4 Subsidiaries. Except as set forth on SCHEDULE 3.4 hereto,
the Company does not control, directly or indirectly, or own any equity
interest in, any other corporation, partnership, joint venture,
association or business entity. The Company owns all of the issued and
outstanding capital stock of the corporation listed on Schedule 3.4
(the "SUBSIDIARY"). The Company has no assets or liabilities other than
the stock of the Subsidiary and holds a note from the Subsidiary
secured by the real property used as the Company's and the Subsidiary's
corporate headquarters. All issued and outstanding capital stock of the
Subsidiary has been duly and validly authorized and issued and is fully
paid and non-assessable and free and clear of all encumbrances. As of
the date hereof there are, and immediately following the Closing there
will be, no outstanding options, warrants, agreements, conversion
rights, preemptive rights or other rights to subscribe for, purchase or
acquire any issued or unissued shares of capital stock of the
Subsidiary, or any securities convertible into or exchangeable for such
stock. The Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, has all
requisite corporate power and authority to own its property and assets
and to carry on its business as it is presently being conducted and as
it proposes to carry on its business. The Subsidiary is duly qualified
and in good standing as a foreign corporation authorized to do business
in each of the jurisdictions in which the failure to be so qualified
would have a material adverse effect on the Subsidiary. SCHEDULE 3.4
sets forth the jurisdictions in which the Subsidiary is qualified.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are
the unaudited balance sheets as at December 31, 1997 and September 30,
1999 and unaudited statements of income, changes in stockholders
equity, and cash flow of the Subsidiary for the year ended December 31,
1997 and the quarter ended September 30, 1999, and the audited balance
sheet as at December 31, 1998, and audited statements of income,
changes in stockholders equity, and cash flow of the Subsidiary for the
year ended December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance
with the books and records of the Subsidiary and generally accepted
accounting principles ("GAAP") (except the
-3-
<PAGE> 8
September 30, 1999 financial statements and the September 30, 1999
balance sheet (the "BALANCE SHEET") are subject to normal and recurring
year-end audit adjustments which are not expected to be material in
amount) and fairly and accurately reflect the financial condition and
the results of operations (except for the year ended December 31, 1997)
of the Subsidiary as of the respective dates thereof or for the periods
covered in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as provided in
the Financial Statements, neither the Company nor the Subsidiary has
any material debt, liability or obligation, absolute or contingent
(including without limitation obligations in any capacity as guarantor
or surety), other than obligations incurred in the ordinary course of
business since September 30, 1999 (the "BALANCE SHEET DATE"). Without
limiting the generality of the foregoing, the Company knows of no basis
for the assertion against the Company or the Subsidiary as of the date
hereof of any material liabilities (not reflected in the Financial
Statements) of the Company or the Subsidiary.
3.7 Absence of Certain Changes. Except as set forth in
SCHEDULE 3.7, since the Balance Sheet Date, neither the Company nor the
Subsidiary has:
suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company or any
shareholder of the Company, or the Subsidiary, in their
respective condition (financial or otherwise), operations,
assets, liabilities, business or prospects, taken as a whole;
contracted for the purchase of any capital assets
having a cost in excess of $500,000 or paid any capital
expenditures in excess of $500,000;
incurred any indebtedness for borrowed money or
issued or sold any debt securities in excess of $150,000;
incurred or discharged any liabilities or
obligations, except in the ordinary course of business;
mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of
its properties or assets other than equipment financing liens
incurred in the ordinary course of business;
suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has
materially and adversely affected, or could reasonably be
expected to, materially and adversely affect, its business;
acquired or disposed of any assets except in the
ordinary course of business;
waived any material rights or forgiven any material
claims;
-4-
<PAGE> 9
lost, terminated or, to the Company's knowledge,
experienced any change in the relationship with any employee,
customer or supplier, which termination or change has
materially and adversely affected, or could reasonably be
expected to materially and adversely affect, its business or
assets;
loaned any money to any person or entity in excess of
$100,000;
redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any
of its capital stock or securities or any rights to acquire
such capital stock or securities, or agreed to change the
terms and conditions of any such rights or paid any dividends
or made any distribution to the holders of the Company's
capital stock other than stock options granted to employees
under the Company's Incentive Stock Option Plan; or
committed to do any of the foregoing.
3.8 Authorization; Approvals. All corporate action on the part
of the Company and its shareholders necessary for the authorization,
execution, delivery, and performance of all its obligations under this
Agreement, and for the authorization, issuance, and delivery of the
Series A Convertible Preferred Stock being sold under this Agreement
and of the Class A Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock has been taken. This Agreement
constitutes a valid and legally binding obligation of the Company
legally enforceable against it in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general principles of equity. The Company has obtained or will
obtain prior to the Closing Date all necessary consents,
authorizations, approvals and orders from any federal, state or other
relevant governmental authority and from any individual, corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company or other entity, and has made all
registrations, qualifications, designations, declarations or filings
with all federal, state, or other relevant governmental authorities,
all as may be required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement,
except for filings pursuant to applicable securities laws which will be
made after the Closing Date.
3.9 No Conflict with Other Instruments. Except as set forth on
SCHEDULE 3.9, the execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute
a default under any terms or provision of (a) the Company's Certificate
of Incorporation or Bylaws; (b) any Commitments (as hereinafter
defined); or (c) any judgment, decree or order or any statute, rule or
governmental regulation applicable to the Company or the Subsidiary.
Subject to the truth and accuracy of each Purchaser's representations
and warranties herein and the Company making any required filings which
the Company agrees to do, the offer and sale of the Series A
Convertible Preferred Stock to each Purchaser will be in compliance
with all federal and state securities laws.
-5-
<PAGE> 10
3.10 Labor Agreements and Actions. Neither the Company nor the
Subsidiary is bound by or subject to (and none of their respective
assets or properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge,
sought to represent any of the employees, representatives or agents of
the Company or the Subsidiary. There is no strike or other labor
dispute involving the Company or the Subsidiary pending, or, to the
Company's knowledge, threatened, which could have a material adverse
effect on the financial condition, operating results, or business of
the Company and the Subsidiary taken as a whole, nor is the Company
aware of any labor organization activity involving its employees of the
Company or the Subsidiary.
3.11 Employee Matters. SCHEDULE 3.11 contains a complete and
accurate list of the names, titles and Cash Compensation (as
hereinafter defined) of all members of executive management of the
Company, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year or who
earned in excess of $100,000 during the Company's preceding fiscal
year. For purposes of this SECTION 3.11, "CASH COMPENSATION" shall mean
wages, salaries, bonuses (discretionary or otherwise) and other
compensation paid or payable in cash. Except as disclosed in SCHEDULE
3.11, neither the Company nor the Subsidiary has any employment
agreements, employee leasing agreements, employee service agreements,
or noncompetition agreements.
3.12 Title to Properties; Liens and Encumbrances.
Except as disclosed on SCHEDULE 3.12(a), each of the
Company and the Subsidiary has good and marketable title to
its assets, including, without limitation, those reflected on
the Balance Sheet (other than those since disposed of in the
ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for
(i) liens for taxes not yet due and payable or being contested
in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of their
respective businesses or ownership of property, not incurred
in connection with the borrowing of money or the obtaining of
credit, and which do not in the aggregate materially detract
from the value of the assets affected or materially impair
their use by the Company or the Subsidiary. With respect to
the assets of the Company or the Subsidiary that are leased,
the Company or the Subsidiary is in compliance with all
material provisions of such leases. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned,
leased or used by the Company or the Subsidiary are in good
operating condition and repair, normal wear and tear excepted,
and are adequate and sufficient for the business of the
Company and the Subsidiary.
The Company or the Subsidiary enjoys peaceful and
undisturbed possession under all real property leases under
which the Company or the Subsidiary is operating, and all such
leases are valid and subsisting and none of them is in
default. A listing of said real property leases, their terms
and total lease payments is attached hereto as SCHEDULE
3.12(b).
-6-
<PAGE> 11
Except as disclosed in SCHEDULE 3.12(c), neither the
Company nor the Subsidiary owns any real property.
3.13 Compliance with Corporate Instruments. The Company is not
in violation of any provision of its Certificate of Incorporation,
Bylaws of the Company or Certificate of Designation, and neither the
Company nor the Subsidiary is in default or violation of any Commitment
to which the Company or the Subsidiary is a party or by which any of
their respective property is bound, the default or violation of which
would materially and adversely affect the Company's business,
prospects, condition, affairs or operations of the Company and the
Subsidiary taken as a whole.
3.14 Patents, Trademarks and Other Intangible Assets.
SCHEDULE 3.14(a) hereto sets forth the true and
correct list of all registered patents, trademarks and
copyrights (or applications therefor) held by the Company or
the Subsidiary. Except as set forth on SCHEDULE 3.14(a), the
Company or the Subsidiary possesses ownership or has the right
to use all patents, copyrights, trademarks, service marks,
trade secrets and other proprietary intellectual property
rights necessary for the operation of its business except
where the failure of the Company or the Subsidiary to own or
have such right to use such intellectual property would not
have a material adverse effect on the Company and the
Subsidiary, taken as a whole (the "INTELLECTUAL PROPERTY"). To
the Company's knowledge, neither the Company nor the
Subsidiary (a) is infringing upon the intellectual property
rights of others in connection with its business; (b) requires
the consent of any person which has not been obtained (all of
such consents being set forth in SCHEDULE 3.14(a)) to use the
Intellectual Property; (c) is restricted from freely
transferring the Intellectual Property (other than as set
forth in SCHEDULE 3.14(a)); or (d) has received any written
notice of conflict with respect to the intellectual property
rights of any other person or entity. All of the Intellectual
Property is valid and subsisting, has not been canceled,
abandoned or otherwise terminated and, if applicable, has been
duly issued or filed. The employees and consultants of the
Company or the Subsidiary, who, either alone or in concert
with others, developed, invested, discovered, derived,
programmed or designed any of the Intellectual Property owned
by the Company or the Subsidiary have entered into written
agreements to protect the confidentiality of such Intellectual
Property and to assign to the Company or the Subsidiary all
rights therein.
The Company has no knowledge of any claim that, or
inquiry as to whether, any product, activity or operation of
the Company or the Subsidiary infringes upon or involves, or
has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are
threatened that challenge the rights of the Company or the
Subsidiary with respect thereto. Any agreement of
indemnification by the Company or the Subsidiary for any
Intellectual Property as
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to any license granted by it or any property manufactured,
used or sold by it is set forth in SCHEDULE 3.14(b).
3.15 Trade Secrets and Customer Lists. The Company or the
Subsidiary has the right to use, free and clear of any claims or rights
of others, except claims or rights specifically set forth in SCHEDULE
3.15, all trade secrets, customer lists and proprietary information
required for the marketing of all merchandise and services formerly or
presently sold or marketed by the Company or the Subsidiary. To the
Company's knowledge, neither it nor the Subsidiary is using, or in any
way making use of, any confidential information or trade secrets of any
third party, including, without limitation, any past or present
employee of the Company or the Subsidiary, except under valid and
existing license agreements (all such license agreements being set
forth in SCHEDULE 3.15).
3.16 Tax Matters.
All required foreign, federal, state, local and other
tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns) of the Company
and the Subsidiary have been accurately prepared in all
material respects and duly and timely filed, and all foreign,
federal, state, local and other taxes required to be paid with
respect to the periods covered by such returns have been paid.
Neither the Company nor the Subsidiary is or has been
delinquent in the payment of any tax, assessment or
governmental charge. Neither the Company nor the Subsidiary is
a party to any agreement, contract, arrangement or plan that
has resulted or would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. Neither the Company nor
the Subsidiary has or has had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
Except as set forth in SCHEDULE 3.16, neither the
Company nor the Subsidiary has had any tax deficiency proposed
or assessed against it and has not executed any waiver of any
statute of limitations on the assessment or collection of any
tax or governmental charge. Except as set forth in SCHEDULE
3.16, and except for sales tax audits, none of the Company's
or the Subsidiary's franchise tax returns has ever been
audited by governmental authorities. No tax audit, action,
suit, proceeding, investigation or claim is now pending nor,
to the best knowledge of the Company, threatened against the
Company or the Subsidiary, and no issue or question has been
raised (and is currently pending) by any taxing authority in
connection with any of the Company's or the Subsidiary's tax
returns or reports.
To the Company's knowledge, the reserves for taxes,
assessments and governmental charges reflected on the Balance
Sheet are and will be sufficient for the payment of all unpaid
taxes and governmental charges payable by the
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Company or the Subsidiary with respect to the period ended on
the Balance Sheet Date. Since the Balance Sheet Date, the
Company or the Subsidiary has made adequate provisions on its
books of account for all taxes, assessments and governmental
charges with respect to business, properties and operations
for such period. The Company or the Subsidiary withheld or
collected from each payment made to its employees, the amount
of all taxes (including, but not limited to, federal income
taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or
collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
3.17 Litigation. No action, proceeding or investigation is
pending or threatened against the Company, the Subsidiary or any of
their respective properties before any court, arbitration board or
tribunal or administrative or other governmental agency (including,
without limitation, unfair labor practices or discrimination charges or
complaints), that might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
condition, affairs, operations, or assets of the Company and the
Subsidiary, taken as a whole, or in any material liability on the part
of the Company or the Subsidiary. The foregoing includes, without
limiting its generality, actions pending or threatened involving the
prior employment of any of the Company's or the Subsidiary's employees
or use by any of them in connection with the Company's or the
Subsidiary's business of any information, property or techniques
allegedly proprietary to any of their former employers.
3.18 Minute Books. The minute books of the Company and the
Subsidiary have been made available to the counsel for the Purchasers
and contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects.
3.19 Insurance. The Company and/or the Subsidiary carries
property, liability, workers' compensation and such other types of
insurance as is customary in the Company's and/or the Subsidiary's
industry. A list and brief description of all insurance policies of the
Company and the Subsidiary are set forth in SCHEDULE 3.19. All of such
policies are valid and enforceable policies, issued by insurers of
recognized responsibility in amounts and against such risks and losses
as are customary in the Company's and/or the Subsidiary's industry. All
casualty insurance is sufficient in amount to allow the Company or the
Subsidiary to replace any of its properties that might be damaged or
destroyed.
3.20 Fees and Commissions. The Company has retained Donaldson,
Lufkin & Jenrette ("DLJ") as financial advisor and placement agent in
connection with the transactions contemplated by this Agreement. The
Company shall pay all fees owed DLJ in connection with the transactions
contemplated by this Agreement from the proceeds of the sale of the
Preferred Stock (the "OFFERING") pursuant to the Placement Memorandum
(as hereinafter defined). The Company represents and warrants that
other than as stated in this SECTION 3.20, neither it nor the
Subsidiary has retained any finder, broker, agent, financial adviser or
other intermediary in connection with the transactions contemplated
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<PAGE> 14
by this Agreement. The Company agrees to indemnify and hold harmless
the Purchasers for any brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by the Company or
the Subsidiary.
3.21 Employee Benefit Plans.
SCHEDULE 3.21 contains true, complete and correct
information as to any bonus, incentive, insurance (including
any self-insured arrangements), compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing,
salary reduction, deferred compensation, stock purchase, stock
option, workers' compensation, disability benefits,
supplemental unemployment benefits (including without
limitation any "voluntary employees' beneficiary association"
as defined in Section 501(c)(9) of the Code) (as hereinafter
defined), vacation, holiday and sick pay or other similar
benefit plans, programs or arrangements (whether written or
oral) (said plans, programs or arrangements being referred to
as the "PLANS") in which any employees of the Company or the
Subsidiary participate. All Plans are listed on the attached
SCHEDULE 3.21. All obligations of the Company or the
Subsidiary, whether arising by operation of law, by contract
or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect
to unemployment compensation benefits, social security
benefits or any other benefits for employees of the Company or
the Subsidiary have been paid or shall be paid by the Company
or the Subsidiary at the time the Company or the Subsidiary is
obligated to make such payments. All benefits payable directly
to the Company's or the Subsidiary's employees have been paid
or shall be paid by the Company or the Subsidiary at the time
the Company or the Subsidiary is obligated to make such
payments. All reasonably anticipated obligations of the
Company or the Subsidiary, whether arising by operation of
law, by contract or by past custom, for vacation and holiday
pay, bonuses and other forms of compensation or benefits which
are or may become payable to employees or any of them have
been paid, or shall be paid, in accordance with the provisions
of applicable laws, regulations, benefit plans or policies.
True, complete and correct copies of all relevant
documents with respect to the Plans, including, but not
limited to, each of the following documents: (i) a copy of the
Plan and each related trust or other funding agreement,
including insurance contracts (and all amendments thereto);
(ii) the last filed Form 5500, where applicable; (iii) the
most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to
be qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "CODE"); and (iv) the summary plan
descriptions and all material modifications thereto, have been
delivered to Purchasers.
All Plans, related trust agreements, annuity
contracts or other funding arrangements comply in all
substantial respects and the Company or the
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<PAGE> 15
Subsidiary has administered and operated each such Plan,
related trust agreements, annuity contracts or other funding
arrangements in substantial compliance with the requirements
of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"),
and the Code, and no such Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA has incurred any "accumulated
funding deficiency" within the meaning of Section 302 of ERISA
or Section 412 of the Code, whether or not waived.
Neither the Company nor the Subsidiary maintains or
is required to contribute to any multi-employer plan (as
defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company or the
Subsidiary. Neither the Company nor the Subsidiary maintains a
self-insured "multiple employer welfare arrangement" as
defined in Section 3(40) of ERISA.
The Pension Benefit Guaranty Corporation ("PBGC") has
not instituted proceedings to terminate any of the Company's
or the Subsidiary's defined benefit plans and no condition
exists that presents a risk that such proceedings shall be
instituted. There has been no "reportable event" within the
meaning of Section 4043(b) of ERISA with respect to any
defined benefit plan and no defined benefit plan has been
terminated within the preceding six years or is expected to be
terminated. No liability (other than for the payment of
premiums) to the PBGC has been or is expected to be incurred
by the Company or the Subsidiary or any officer, director,
shareholder or employee of the Company or the Subsidiary with
respect to any defined benefit plan.
Neither the Company nor the Subsidiary has any
liability with respect to any transaction which relates to any
Plan and which is in violation of Sections 404 or 406 of ERISA
or constitutes a "prohibited transaction," as defined in
Section 4975(c)(1) of the Code, and for which no exemption
exists under Section 408 of ERISA or Section 4975(c)(2) or (d)
of the Code. To the Company's knowledge, neither the Company
nor the Subsidiary has participated in a violation of Part 4
of Title I, Subtitle B of ERISA by any plan fiduciary of any
Plan and has no unpaid civil penalty under Section 502(1) of
ERISA.
There is no material action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation,
proceeding, arbitral action, governmental audit or
investigation (including, without limitation, any such audit
or investigation by the Internal Revenue Service, Department
of Labor, or PBGC) relating to or seeking benefits under any
Plan that is pending or, to the Company's knowledge,
threatened or anticipated against the Company or the
Subsidiary other than routine claims for benefits.
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<PAGE> 16
3.22 Material Contracts and Commitments.
Material Contracts and Commitments. Except as set
forth in SCHEDULE 3.22, neither the Company nor the Subsidiary
has entered into, nor is the capital stock, the assets or the
business of the Company or the Subsidiary bound by, whether or
not in writing, any
deed of trust securing a lien in any real
property owned by the Company or the Subsidiary;
security agreement granting a security
interest in connection with the Company's or the
Subsidiary's incurrence of indebtedness for borrowed
money;
guaranty or suretyship agreement or
performance bond, in each case involving a contingent
obligation of the Company or the Subsidiary in excess
of $100,000;
consulting or compensation agreement or
similar arrangement that is not an Employment
Agreement and that involves compensation payable by
the Company or the Subsidiary in excess of $100,000
annually or an agreement relating to the election or
retention in office of any director or officer;
debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed
money;
money lent or to be lent by the Company or
the Subsidiary to another in an amount in excess of
$10,000;
lease of real property, whether as lessor,
lessee, sublessor or sublessee (excluding the real
estate leases set forth on SCHEDULE 3.12);
lease of personal property, whether as
lessor, lessee, sublessor or sublessee involving
lease payments in an annual amount in excess of
$50,000;
any agreement for the acquisition of
services, supplies, equipment or other personal
property (excluding leases of real or personal
property) and involving more than $100,000 in the
aggregate;
contracts containing noncompetition
covenants restricting the Company's or the
Subsidiary's ability to compete in the
Telecommunications Business (as hereinafter defined);
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<PAGE> 17
agreement providing for the purchase from a
supplier of all or substantially all of the
requirements of the Company or the Subsidiary of a
particular product or service; or
agreement or commitment a copy of which
would be required to be filed with the Securities and
Exchange Commission (the "COMMISSION") as an exhibit
to a registration statement on Form S-1, or a
successor form, pursuant to Paragraph 10 of Item 601
of Regulation S-K, if the Company were registering
securities under the Securities Act of 1933, as
amended (the "Securities Act").
All of the documents listed on SCHEDULE 3.22 hereof are
hereinafter collectively referred to as the "COMMITMENTS."
True, correct and complete copies of the written Commitments
have heretofore been made available to Purchasers. To the
knowledge of the Company, the Commitments are in full force
and effect and are valid and enforceable obligations of the
parties thereto in accordance with their respective terms
(except as may be limited by the laws of bankruptcy,
insolvency or creditors rights generally and subject to the
enforceability and availability of equitable remedies), and to
the knowledge of the Company, no defenses, off-sets or
counterclaims have been asserted by any party thereto, nor has
the Company or the Subsidiary waived in writing any rights
thereunder, except as described in SCHEDULE 3.22. Neither the
Company nor the Subsidiary has received written notice of any
default with respect to any Commitment.
No Cancellation or Termination of Commitments.
Neither the Company nor the Subsidiary has received written
notice of any plan or intention of any other party to any
Commitment to exercise any right to cancel or terminate any
Commitment.
3.23 Conflict of Interest Transactions. Except as set forth on
SCHEDULE 3.23, no director, Common Stock holder, member of management
of the Company, or their spouses or children, owns directly or
indirectly, on an individual or joint basis, any interests, has any
investment in or serves as an officer, partner or director in any
corporation, business or other person that is a customer, supplier or
competitor of the Company or the Subsidiary, or that has a material
contract or arrangement with the Company or the Subsidiary or their
competitor, other than the ownership of less than one percent (1%) of
the securities of any company that are publicly traded on any national
exchange or over the counter market.
3.24 Environmental Matters. To the Company's knowledge,
neither the Company nor the Subsidiary nor any of their respective
assets is currently in material violation of, or subject to any
material existing, pending or threatened investigation or inquiry by
any governmental authority or to any remedial obligations under any
environmental laws, and this representation and warranty would continue
to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the assets and operations of the
Company and the
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<PAGE> 18
Subsidiary. To the Company's knowledge, the assets of the Company and
the Subsidiary have never been used in a manner that would be in
material violation of any of the environmental laws. To the Company's
knowledge, neither the Company nor the Subsidiary is required to obtain
any permits, licenses or similar authorizations to construct, occupy,
operate or use any buildings, improvements, fixtures and equipment
owned or leased by the Company or the Subsidiary by reason of any
environmental laws. None of the assets owned or leased by the Company
or the Subsidiary are on any federal or state "Superfund" list or
subject to any environmentally related liens.
3.25 Other Transactions. Other than the offering and sale of
the Series A Convertible Preferred Stock hereunder, the Company has not
entered into any agreements or arrangements and has no knowledge of any
pending or possible offers or discussions concerning or providing for
the merger or consolidation of the Company or the Subsidiary or the
sale of all or any substantial portion of their respective assets, the
sale by the Company or any material shareholder of the Company of any
Securities of the Company or the Subsidiary or any similar transaction
affecting the Company or the Subsidiary or their respective security
holders.
3.26 No Bankruptcies. For the past five years, neither the
Company nor the Subsidiary nor any of their respective officers,
directors or affiliates, have voluntarily sought, consented to or
acquiesced in the benefits of, or become the subject of a proceeding
under the Bankruptcy Code of the United States or any other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor relief laws
from time to time in effect affecting the rights of creditors
generally.
3.27 Year 2000 Compliance. To the Company's knowledge, the
computer systems used by the Company and the Subsidiary are Year 2000
compliant, meaning that such systems will continue to function, and
functionality and accuracy will not be affected as a result of the run
date or the dates being processed in the twentieth or twenty-first
century, including the advent of the Year 2000, or from the extra day
occurring in any leap year.
3.28 Disclosure. To the Company's knowledge, this Agreement
and the exhibits and schedules hereto, when taken as a whole with other
documents and certificates furnished by the Company to the Purchasers
or their counsel, do not contain any untrue statement of material fact
or omit any material fact necessary in order to make the statements
therein not misleading; provided, however, certain materials provided
to the Purchasers contain projections and estimates of future events,
and such projections and estimates are subject to the statements in the
Placement Memorandum (as hereinafter defined), including, without
limitation, the statements set forth on page 42 thereof. There is no
fact known to the Company that has not been disclosed to the Purchasers
prior to the date of this Agreement that materially and adversely
affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company and the Subsidiary, taken as a
whole, or the ability of the Company to perform under this Agreement or
the other agreements contemplated hereby or to consummate the
transactions contemplated hereby or thereby. For purposes of this
SECTION 3.28 only, "to the Company's knowledge" shall
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<PAGE> 19
include any information the Company would have known except for its
reckless disregard for the accuracy of any material fact.
3.29 Legal Compliance. Except as set forth on SCHEDULE 3.29,
(a) each of the Company and the Subsidiary has all material franchises,
permits, licenses and other rights and privileges necessary to permit
it to own its respective properties and to conduct its respective
businesses as presently conducted (all of which such items are set
forth on SCHEDULE 3.29) and (b) the Company, the Subsidiary and the
business and operations of the Company and the Subsidiary, have been
and are being conducted in all material respects in accordance with all
applicable laws, rules and regulations (including, without limitation,
all employment, labor practices, safety and health laws and
regulations), and the Company is not in violation of any judgment,
order or decree. There is no existing law, rule, regulation or order
which would prohibit or restrict the Company or the Subsidiary from, or
otherwise materially adversely affect the Company or the Subsidiary in,
conducting its business in any jurisdiction in which it is now
conducting business or, to the Company's knowledge, in which it
proposes to conduct business.
3.30 Small Business Concern. The Company, taken together with
its "affiliates" (as that term is defined in Section 121.401 of Title
13 of the Code of Federal Regulations) is a "Small Business Concern"
within the meaning of Section 103(5) of the Small Business Investment
Act of 1958, as amended (the "SBIC Act"), and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
121.3, and meets the applicable size and eligibility criteria set forth
in Title 13, Code of Federal Regulations, Section 121.802(a)(2).
Neither the Company nor any of its subsidiaries, if any, presently
engages in any activity for which a small business investment company
is prohibited from providing funds by the SBIC Act and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
107.
3.31 Small Business Administration Documentation. The Company
has provided Purchasers, who have requested, a Small Business
Administration "SBA" Form 480 (Size Status Declaration) and SBA Form
652 (Assurance of Compliance), of such Forms, which have been completed
and executed by the Company, and SBA Form 1031 (Portfolio Finance
Report), Part A of which has been completed by the Company.
3.32 Prior Sales of Series A Convertible Preferred Stock. All
shares of Series A Convertible Preferred Stock sold by the Company or
sold by the Subsidiary and converted into or exchanged for Series A
Convertible Preferred Stock of the Company have been sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
4. Representations, Warranties and Covenants of Purchasers.
4.1 Organization and Good Standing. Each Purchaser severally
represents and warrants that, if a corporation, partnership, trust or
other form of business entity, it is duly organized, validly existing
and in good standing under the laws of the state of its organization,
has all requisite power and authority to own its property and assets
and to
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<PAGE> 20
carry on its business as it is presently being conducted and as it
proposes to carry on its business, is duly qualified and in good
standing and authorized to do business in each of the jurisdictions in
which the failure to be so qualified would have a material adverse
effect on the Purchaser.
4.2 Authorization; Approvals. Each Purchaser severally
represents and warrants that the execution and delivery of this
Agreement has been duly authorized by such Purchaser and this Agreement
is a valid and legally binding obligation of such Purchaser legally
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and
general principles of equity. Each Purchaser, if a corporation,
partnership, trust or other form of business entity, is duly qualified
to purchase and hold the Series A Convertible Preferred Stock sold
hereunder. Each Purchaser represents and warrants that the information
set forth on SCHEDULE 1 hereto regarding such Purchaser's business and
residence addresses, telephone numbers, citizenship and taxpayer
identification number is true, accurate and complete. Each Purchaser
severally represents and warrants that it has obtained, or will obtain
prior to the Closing Date, all necessary consents, authorizations,
approvals and orders required on the part of such Purchaser in
connection with the consummation of the transactions contemplated by
this Agreement.
4.3 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute a default under any
terms or provisions of (a) if a corporation, partnership, trust or
other form of business entity, the applicable charter documents of such
Purchaser; (b) any material contract, indenture or other agreement to
which the Purchaser is a party; or (c) any judgment, decree or order or
any material statute, rule or governmental regulation applicable to the
Purchaser.
4.4 Investment Representations. Each Purchaser severally
represents and warrants that it is acquiring the Series A Convertible
Preferred Stock to be purchased by it (and any Class A Common Stock
into which it may be converted) for its own account, for investment and
not with a view to, or for sale in connection with, any distribution of
such stock or any part thereof.
4.5 Investment Experience; Access to Information. Each
Purchaser severally represents and warrants that it (a) is an
"accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act (or any successor provision), (b)
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of this investment,
(c) has the ability to bear the economic risks of this investment for
an indefinite period of time, and (d) has received a copy of the
Private Placement Memorandum and any supplements thereto (collectively,
the "PLACEMENT MEMORANDUM") attached hereto as EXHIBIT D.
4.6 Absence of Registration. Each Purchaser understands that:
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<PAGE> 21
The Series A Convertible Preferred Stock to be sold
and issued hereunder and the Class A Common Stock into which
it may be converted have not been registered under the
Securities Act or any other securities laws on the basis that
the sale of such stock to the Purchaser is exempt from
registration under the Securities Act and such other
securities laws, and the Purchaser may be required to hold
such stock indefinitely unless it is subsequently registered
under the Securities Act and any other applicable securities
laws, or exemptions from such registration are available.
The Company's reliance on the exemptions referred to
in SECTION 4.6(a) above is predicated in part upon the
Purchaser's representations and warranties contained in this
ARTICLE 4.
Except as provided in that certain Registration
Rights Agreement, to be executed at the Closing, by and among
the Company and the Purchasers (the "REGISTRATION RIGHTS
AGREEMENT"), attached hereto as EXHIBIT E and as noted in
SCHEDULE 4.6 hereto, the Company is under no obligation to
file a registration statement with the Commission or any other
securities regulatory agency with respect to the Series A
Convertible Preferred Stock or the Class A Common Stock into
which it may be converted.
Rule 144 promulgated under the Securities Act or any
successor provision ("RULE 144"), which provides for certain
limited sales of unregistered securities, is not presently
available with respect to the Series A Convertible Preferred
Stock or the Class A Common Stock into which it may be
converted, and the Company is under no obligation to make Rule
144 available.
4.7 Restrictions on Transfer. Each Purchaser agrees that: (a)
it will not offer, sell, pledge, hypothecate, or otherwise dispose of
the Series A Convertible Preferred Stock or the Class A Common Stock
into which it may be converted unless such offer, sale, pledge,
hypothecation or other disposition is in accordance with the
Certificate of Designation and this Agreement and is (i) registered
under the Securities Act and any other applicable securities laws, or
(ii) in compliance with an opinion of counsel to such Purchaser,
delivered to the Company and reasonably acceptable to it, to the effect
that such offer, sale, pledge, hypothecation or other disposition
thereof does not violate the Securities Act or such other securities
laws; and (b) the certificate(s) representing the Series A Convertible
Preferred Stock (and any Class A Common Stock into which it may be
converted) shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE
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<PAGE> 22
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE
PROVISIONS THEREOF.
In addition, the certificates evidencing the Series A Convertible
Preferred Stock shall bear legends stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE
HEREOF, AS SET FORTH IN THE STOCK PURCHASE AGREEMENT BETWEEN
THE ISSUER AND INITIAL PURCHASER, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS
SET FORTH IN SAID STOCK PURCHASE AGREEMENT.
THE ISSUER IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR
SERIES OF CAPITAL STOCK. A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF CAPITAL
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS (TO THE EXTENT ESTABLISHED) IS
ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE.
THE ISSUER WILL FURNISH A COPY OF SUCH STATEMENT TO ANY
SHAREHOLDER OF RECORD, WITHOUT CHARGE, UPON THE WRITTEN
REQUEST TO THE ISSUER AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
Upon request of a holder of Series A Convertible Preferred
Stock or the Class A Common Stock into which it has been converted, the
Company shall remove the legend set forth above from the certificates
evidencing such Series A Convertible Preferred Stock or Class A Common
Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the
Company, in form and substance reasonably satisfactory to the Company,
to the effect that a transfer by said holder of such Series A
Convertible Preferred Stock or Class A Common Stock will not violate
the Securities Act or any other applicable securities laws.
Notwithstanding the provisions above, no such registration or
opinion of counsel shall be necessary for a pro rata transfer by a
Purchaser which is a corporation to an
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<PAGE> 23
affiliate of such corporation, or a Purchaser which is a partnership to
a partner of such partnership or a retired partner of such partnership
who retires after the date hereof without the payment of compensation
by such partner, or to the estate of any such partner or retired
partner or the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the
transferee agrees in writing to be subject to the terms hereof to the
same extent as if such transferee were an original Purchaser hereunder,
including without limitation, the representations, warranties,
covenants and agreements contained in SECTIONS 4.1 to 4.7 hereto,
inclusive.
4.8 Transfer Instructions. Each Purchaser agrees that the
Company may place and make appropriate notations in its record books
against the transfer of the shares of Series A Convertible Preferred
Stock to be purchased by it and any Class A Common Stock into which
such shares may be converted, and may take any other actions which it
deems necessary to prevent any violations of the Securities Act or any
other securities laws by reason of the delivery of such stock or any
subsequent transaction with respect to such stock.
4.9 Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by the purchase of
Series A Convertible Preferred Stock and any Class A Common Stock into
which it may be converted for an indefinite period.
4.10 Fees and Commissions. Each Purchaser represents and
warrants that it has retained no finder, broker, agent, financial
advisor or other intermediary (hereinafter collectively referred to as
"INTERMEDIARY") in connection with the transactions contemplated by
this Agreement and agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against such
liability or alleged liability.
5. Conditions to Closing of the Purchasers. The obligation of each
Purchaser on the Closing Date to consummate the transactions contemplated by
this Agreement shall be subject to each of the following conditions precedent,
any one or more of which may be waived by such Purchaser:
5.1 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and
as of the Closing Date.
5.2 Performance. The Company shall have performed and complied
with all agreements, conditions and covenants contained herein or in
any other ancillary documents incident to the transactions contemplated
by this Agreement required to be performed or complied with by it prior
to or at the Closing.
5.3 Company Consents, etc. The Company shall have secured all
permits, consents and authorizations that shall be necessary or
required lawfully to consummate
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<PAGE> 24
this Agreement, to issue the Series A Convertible Preferred Stock to be
purchased by the Purchasers and to issue the Class A Common Stock into
which it may be converted.
5.4 Compliance Certificates. The Company shall have delivered
to each Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate in all material respects
on the Closing Date, and that all conditions specified in SECTIONS 5.1
to 5.3 hereof, inclusive, have been fulfilled and that there has been
no materially adverse change in the business, affairs, prospects,
operations or condition of the Company since the Balance Sheet Date.
5.5 Government Actions. No action, suit or proceeding shall
have been instituted before any court, governmental or regulatory body
or arbitral tribunal, or instituted or threatened by any governmental
or regulatory body to restrain, modify or prevent the carrying out of
the transactions contemplated hereby or to seek damages or a discovery
order in connection with such transactions.
5.6 The Certificate of Designation. Each Purchaser shall have
received evidence that the Company shall have duly authorized and filed
the Certificate of Designation with the Secretary of State of the State
of Delaware, substantially in the form attached hereto as EXHIBIT C;
5.7 The Certificate of Incorporation. Each Purchaser shall
have received a copy of the Certificate of Incorporation of the Company
and all amendments thereto, certified by the Secretary of State of
Delaware, which shall include evidence that the Company shall have duly
authorized and filed the Certificate of Incorporation with the
Secretary of State of the State of Delaware, substantially in the form
attached hereto as EXHIBIT A;
5.8 Legal Opinion. Counsel for the Company, Winstead, Sechrest
& Minick, P.C., shall have delivered to the Purchasers a legal opinion,
dated as of the Closing Date and substantially in the form attached
hereto as EXHIBIT F;
5.9 Company Deliveries. The Company shall have delivered to
the Purchasers:
(i) copies of the resolutions of the Company's Board
of Directors authorizing and approving this Agreement and all
of the transactions and agreements contemplated hereby and
thereby, (ii) the Bylaws of the Company and (iii) the names of
the officer or officers of the Company authorized to execute
this Agreement and any and all documents, agreements and
instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in
full force and effect and unmodified as of the Closing Date;
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<PAGE> 25
a certificate of good standing for the Company from
the Secretary of State of the State of Delaware and a
certificate of existence for the Subsidiary from the State of
Texas;
a certificate of account status for the Subsidiary
from the Comptroller of the State of Texas; and
certificates from each state where the Company or the
Subsidiary is required to be qualified as a foreign
corporation showing such qualification, dated as of a date
within ten (20) days of the Closing Date; and
a Registration Rights Agreement in substantially the
form attached hereto as EXHIBIT E.
6. Conditions to Closing of Company. The obligation of the Company on
the Closing Date to consummate the transactions contemplated by this Agreement
with respect to a particular Purchaser shall be subject to the following
conditions precedent, any one or more of which may be waived by the Company:
6.1 Representations and Warranties. The representations and
warranties made by such Purchaser herein shall be true and accurate on
and as of the Closing Date.
6.2 Performance. Such Purchaser shall have performed and
complied with all agreements and conditions contained herein or in any
other ancillary documents incident to the transactions contemplated by
this Agreement required to be performed or complied with by such
Purchaser prior to or at the Closing.
6.3 Purchaser Consents, etc. Such Purchaser shall have secured
all permits, consents, waivers and authorizations that shall be
necessary or required lawfully to consummate this Agreement.
6.4 Compliance Certificates. Such Purchaser shall have
delivered to the Company at the Closing an Officer's Certificate to the
effect that the representations and warranties of such Purchaser
continue to be true and accurate in all material respects on the
Closing Date, and that all conditions specified in SECTIONS 6.1 to 6.3
hereof, inclusive, have been fulfilled.
7. Affirmative Covenants.
7.1 Financial Information. The Company will deliver to each
Purchaser for the Company and the Subsidiary on a consolidated basis:
within forty five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash
flow prepared in accordance with GAAP and certified by the
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<PAGE> 26
Company's Chief Financial Officer, except such financial
statements shall not contain normal and recurring year-end
audit adjustments.
within one hundred twenty (120) days after the fiscal
year end, an annual independent certified audit from an
outside accounting firm reasonably designated by the Company;
as soon as practicable, but no later than thirty (30)
days after the beginning of each fiscal year, beginning
January 1, 2000, the Company shall provide to the Purchasers a
copy of the annual budget and plan for such year which shall
include, without limitation, plans for incurrences of
indebtedness for borrowed money and projections regarding
types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections.
7.2 Use of Proceeds. The Company shall use the proceeds from
the sale of Series A Convertible Preferred Stock for the purposes of
capital expenditures and general corporate purposes, including working
capital.
7.3 Confidentiality. Any information provided pursuant to this
Agreement shall be used by a Purchaser solely in furtherance of its
interests as an investor in the Company, and each Purchaser shall
(except as otherwise required by law) maintain the confidentiality of
all non-public information of the Company in accordance with this
SECTION 7.3. Each Purchaser will have no obligation to maintain
confidentiality of any information which (i) at the time of disclosure
or thereafter is generally available to and known by the public (other
than as a result of a disclosure directly or indirectly by a Purchaser
or the Purchaser's representatives), (ii) was available to a Purchaser
on a nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting the information to such
Purchaser or the Purchaser's representatives by a contractual, legal or
fiduciary obligation, or (iii) has been independently acquired or
developed by a Purchaser without violating any of such Purchaser's
obligations under this Agreement or any other agreement such Purchaser
has with the Company or its agents.
7.4 Right of First Refusal. Except in the event of and after
the consummation of an Approved Offering (as hereinafter defined) and
with respect to dispositions to any direct or indirect parent or
subsidiary of a Purchaser who agrees to be bound by the terms of this
Agreement, no Purchaser shall be permitted to dispose of any shares of
the Series A Convertible Preferred Stock unless such shares shall have
been offered for sale in writing first to the Company and then to the
other shareholders of the Company (including the other Purchasers) pro
rata as set forth in this SECTION 7.4. In the event a shareholder
desires to transfer any Series A Convertible Preferred Stock, the
shareholder desiring to make such transfer (the "TRANSFERRING
SHAREHOLDER") shall deliver written notice (the "OFFER NOTICE") to the
Company and to all other shareholders (including the other Purchasers)
at least ninety (90) days prior to the proposed transfer. The Offer
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<PAGE> 27
Notice will disclose in reasonable detail the proposed number of shares
to be transferred, the proposed transferee and the proposed price,
terms and conditions of the transfer.
Upon receipt of the Offer Notice, the Company shall
have the option (the "COMPANY'S OPTION") for a period of
thirty (30) days to purchase or otherwise acquire all or part
of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as
the "OPTION PRICE") equal to the bona fide purchase price to
be paid by the proposed purchaser as described in the Offer
Notice (which amount shall be zero if the proposed transfer
would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current holders
of Series A Convertible Preferred Stock as to whether it will
exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after
receipt of the Offer Notice, the remaining holders of Series A
Convertible Preferred Stock shall have the option (each a
"SERIES A SHAREHOLDER'S OPTION") for a period of ten (10) days
from the earlier of (i) their receipt of written notice from
the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the
expiration of the Company's Option (the "SERIES A SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the Company does not choose
to purchase pursuant to the Company's Option, in proportion to
their respective ownership of shares of Series A Convertible
Preferred Stock which, for purposes of such determination,
shall include without duplication all outstanding options,
warrants or other rights owned by such shareholders that are
convertible into shares of Series A Convertible Preferred
Stock as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each holder of
Series A Convertible Preferred Stock shall notify in writing
all then current holders of Series A Convertible Preferred
Stock as to whether such shareholder will exercise, partially
exercise or not exercise the Series A Shareholder's Option
before the expiration of the Series A Shareholder Election
Period.
(c) For a period of ten (10) days from the earlier of
(i) the receipt by the other holders of Series A Convertible
Preferred Stock of a written notice from a holder of Series A
Convertible Preferred Stock that it does not want to exercise
its option or will only partially exercise its option, or (ii)
the expiration of the Series A Shareholder Election Period,
the other holders of Series A Convertible Preferred Stock
shall have the right (the "SERIES A SHAREHOLDER'S SECOND
OPTION") to purchase or otherwise acquire such shareholder's
portion of the shares described in the Offer Notice in
proportion to their respective ownership of shares of Series A
Convertible Preferred Stock (determined as described in
SECTION 7.4(b) above).
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<PAGE> 28
In the event that the holders of Series A Convertible
Preferred Stock do not elect to fully exercise the Series A
Shareholder's Second Option before the expiration of the
Series A Shareholder's Second Option, the remaining
shareholders shall have the option (each a "SHAREHOLDER'S
OPTION") for a period of ten (10) days from the earlier of (i)
their receipt of written notice from the holders of the Series
A Convertible Preferred Stock of their decision not to
exercise or to only partially exercise the Series A
Shareholder's Second Option, or (ii) the expiration of the
Series A Shareholder's Second Option (the "OTHER SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the holders of Series A
Convertible Preferred Stock do not choose to purchase pursuant
to the Series A Shareholder's Second Option, in proportion to
their respective ownership of shares which, for purposes of
such determination, shall include without, duplication all
outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date
of such notice from the holders of the Series A Convertible
Preferred Stock (or the expiration of the Series A
Shareholder's Second Option), for an amount equal to the
applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether
such shareholder will exercise, partially exercise or not
exercise the Shareholder's Option before the expiration of the
Other Shareholder Election Period.
For a period of ten (10) days from the earlier of (i)
the receipt by the other shareholders of a written notice from
a shareholder that it does not want to exercise its option or
will only partially exercise its option, or (ii) the
expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise
acquire such shareholder's portion of the shares described in
the Offer Notice in proportion to their respective ownership
of shares (determined as described in SECTION 7.4(d) above).
If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this SECTION
7.4, the Company shall have the final option for ten (10) days
to purchase or otherwise acquire all of the remaining shares
proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the
Company and the other shareholders do not individually or
collectively elect to purchase all of the shares being
offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election
Period (subject to the provisions of SECTION 7.4(h) below),
transfer all of the shares specified in the Offer Notice to
the transferee identified in the Offer Notice at the price and
terms stated in the Offer Notice. Any shares so transferred
thereupon shall continue to be subject to this Agreement, and
the transferee shall have the rights and obligations set forth
in this Agreement hereunder with respect to such shares. If
the Transferring Shareholder fails to consummate such transfer
within the thirty (30) day period after the expiration of the
Other Shareholder Election Period, any transfer of the shares
thereafter shall again be subject to the provisions of this
SECTION 7.4.
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<PAGE> 29
Unless otherwise agreed in writing, signed by the
person against whom such writing is sought to be enforced, the
closing of any acquisition of Series A Convertible Preferred
Stock hereunder pursuant to the Company's Option, a Series A
Shareholder's Option, or a Shareholder's Option shall take
place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such
forty-five (45) day period, then the shares that were to be
acquired shall be offered in accordance with this SECTION 7.4
as though the applicable option had not been exercised.
Notwithstanding the foregoing provisions of this
SECTION 7.4, the following shall apply in the event of any
Involuntary Transfer of Series A Convertible Preferred Stock.
An "INVOLUNTARY TRANSFER" shall mean any transfer caused by
the death of a shareholder, as well as any transfer,
proceeding or action by, through, as a consequence of, or in
which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the Series A
Convertible Preferred Stock of the Company, including, without
limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant
to a filing of a voluntary or an involuntary petition under
the United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Company
shall give written notice to each shareholder upon the
occurrence, or prospective occurrence, of such Involuntary
Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective
occurrence of such Involuntary Transfer. The foregoing
provisions of this SECTION 7.4 then shall apply, except (i)
the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually
agreeable to the Company and the shareholder who made, or may
make, the Involuntary Transfer, multiplied by the percentage
of all equity interests in the Company that is then
represented by the shares that are the subject of the
Involuntary Transfer, such independent appraised value to take
into account the earnings and book value of the Company, and
(ii) the appraiser shall deliver written notice of such
valuation to the Company and to all other shareholders
promptly following his completion of such valuation, and such
written notice shall be considered the Option Notice for
purposes of this SECTION 7.4. The cost of the appraisal shall
be shared equally by the Company and the shareholder who made,
or may make, the Involuntary Transfer.
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<PAGE> 30
At the closing of any purchase by the Company or any
shareholders pursuant to this SECTION 7.4(g), the involuntary
transferee shall deliver certificates representing the Series
A Convertible Preferred Stock being purchased, duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes, and such shares shall be conveyed free and clear of any
liens, claims, options, charges, encumbrances or rights of
others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall
so represent and warrant. The involuntary transferee shall
further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this SECTION 7.4(g)
shall be held to be unenforceable with respect to any
particular Involuntary Transfer of Series A Convertible
Preferred Stock, or if all of the shares subject to the
Involuntary Transfer are not purchased by the Company and/or
one or more shareholders, and if the involuntary transferee
subsequently desires to transfer such Series A Convertible
Preferred Stock, the involuntary transferee shall be deemed to
be a "Transferring Shareholder" under this SECTION 7.4 and
shall be bound by the other provisions of this Agreement.
Notwithstanding anything to the contrary contained in
this SECTION 7.4, no shareholder shall transfer any Series A
Convertible Preferred Stock at any time if such action would
constitute a violation of any federal or state securities laws
or a breach of the conditions to any exemption from
registration of the shares under any such laws or a breach of
any undertaking or agreement of such shareholder entered into
pursuant to such laws or in connection with obtaining an
exemption thereunder. Each shareholder agrees that any shares
purchased or acquired by such shareholder shall bear
appropriate legends restricting the sale or other transfer of
such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring, to the
restrictions set forth in this Agreement.
The Certificate of Incorporation shall contain
provisions similar to the foregoing provisions of SECTION 7.4
by which all of the holders of the Common Stock grant a
similar right of first refusal to purchase the shares of such
holders to the Company and the holders of the Series A
Convertible Preferred Stock, and such provisions may not be
amended without the consent or approval of the holders of a
majority of the outstanding shares of the Series A Convertible
Preferred Stock.
7.5 Sale of the Company. At any time after April 4,
2001, and before the consummation of an Approved Offering, if
a bona fide offer is made by any person (other than I 3S
Funding I, L.L.C. ("FUNDING"), Blue Ridge Investors Limited
Partnership ("BLUE RIDGE") and Spotswood Capital, LLC
("SPOTSWOOD"), or any person or entity related to or
affiliated with Funding, Blue Ridge and Spotswood), to
purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written
notice that it desires such
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<PAGE> 31
offer to be accepted, the Company shall either accept the
offer and consummate the sale on the terms and conditions of
the offer (in which case, if the transaction is a stock sale
or merger, Spotswood and Blue Ridge also shall sell all of
their equity interests in the Company on those terms and
conditions), or, subject to the last paragraph of this SECTION
7.5, the Company shall acquire all the equity interests owned
by Funding, Spotswood and Blue Ridge in the Company on the
same terms and conditions as the offer; provided, however,
that if such offer is made prior to April 4, 2003, the Company
shall have no such obligation unless the total consideration
of such offer is at least $350,000,000. If at any time Funding
approves the sale of substantially all of the assets or shares
of stock of the Company or if the transaction is a stock sale
or merger, Blue Ridge and Spotswood shall sell all of their
equity interests in the Company on the terms and conditions so
approved. If the Company accepts an offer to sell the Company
made after April 4, 2001, the Purchasers and any person that
acquires the Series A Convertible Preferred Stock shall sell
their shares of Series A Convertible Preferred Stock (and
Class A Common Stock, if the shares of Preferred Stock have
been converted) and/or vote in favor of the proposed
transaction (as the case may be) so long as the holders of the
Series A Convertible Preferred Stock shall receive for their
shares of Preferred Stock an amount in cash equal to the
aggregate Liquidation Preference (as defined in the
Certificate of Designation of the Series A Convertible
Preferred Stock) plus accrued and unpaid dividends for such
shares of Series A Convertible Preferred Stock, in preference
to any other holders of capital stock of the Company. At least
twenty (20) days prior to the consummation of any such sale,
the Company shall give the holders of the Series A Convertible
Preferred Stock written notice of the material terms of the
proposed sale. The holders of the outstanding shares of Series
A Convertible Preferred Stock shall have the right to convert
their shares into shares of Class A Common Stock prior to or
concurrently with the consummation of any such sale and
thereby be entitled to receive their pro rata share of the
proceeds of the sale that would otherwise be payable to the
holders of the Class A Common Stock (assuming for such
calculation the conversion of such shares of Series A
Convertible Preferred Stock as have exercised such right to
convert). The exercise of such right to convert by a holder of
Series A Convertible Preferred Stock shall be in lieu of any
right to receive such Liquidation Preference plus accrued and
unpaid dividends as a holder of such Series A Convertible
Preferred Stock or otherwise. In determining the total
consideration for purposes of the foregoing, any deferred
payment shall be discounted to present value at a discount
rate of eight percent (8%) per annum.
Under its agreements with Funding, the Company has the right to avoid
the required sale of the Company, as described in this SECTION 7.5, by redeeming
the outstanding shares of Class B Common Stock and Class C Common Stock held by
Funding, Blue Ridge and Spotswood. The Company acknowledges and agrees that it
may not redeem such shares without first obtaining the consent or approval of
the holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, as required by the Certificate of Designation.
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<PAGE> 32
7.6 Right of Co-Sale. At any time prior to the consummation of
an Approved Offering, the Purchasers and the holders of Series A
Convertible Preferred Stock, Class B Common Stock and Class C Common
Stock shall have the right to participate pro rata to the fullest
extent of their equity interest in the Company in any sale or transfer
of stock (with each share of Series A Convertible Preferred Stock being
treated for such purposes as the number of shares of Class A Common
Stock into which it could then be converted), by any holder of shares
of Class A Common Stock to any third party.
7.7 Observers. Each Purchaser who purchases at least 531,915
shares of Series A Convertible Preferred Stock, and so long as such
Purchaser continues to beneficially own at least 531,915 shares of
Series A Convertible Preferred Stock or Common Stock (as adjusted for a
Recapitalization Event), may designate one person to serve as an
observer (an "OBSERVER"). An observer shall be entitled (i) to receive
the same notice in respect of all meetings (both regular and special)
of the Board of Directors and each committee thereof (other than the
Audit Committee and Compensation Committee) as required to be furnished
to members of the Board of Directors of such committee by law or by the
Certificate of Incorporation or the Bylaws of the Company, (ii) to
attend all meetings of the Board of Directors and each committee
thereof (other than the Audit Committee and Compensation Committee),
(iii) to receive all information and reports which are furnished to
members of the Board of Directors and each committee thereof (including
the Audit Committee and Compensation Committee) at the time so
furnished, and (iv) to participate in all discussions conducted at
meetings of the Board of Directors and each committee thereof (other
than the Audit Committee and Compensation Committee). In the event that
the directors are discussing or voting on matters that directly relate
to any business dealings between the Company and (i) any Purchaser
beneficially owning at least 531,915 shares of Series A Convertible
Preferred Stock or (ii) any other vendor that competes with a Purchaser
that has observer rights hereunder, the Board may recuse all (but not
less than all) of the Observers until such matters have been concluded.
An Observer may share any information gained from presence at such
meetings with the Purchaser that designated such Observer and such
Purchaser's employees, officers, directors, attorneys and advisors
(collectively, the "PURCHASER'S REPRESENTATIVES"), but such information
shall otherwise be kept confidential by the Observer, Purchaser and
Purchaser's Representatives to the same extent that financial
information or other confidential information with regard to the
Company is required to be kept confidential in accordance with SECTION
7.3.
7.8 Key Man Insurance. The Company has obtained and will
maintain (so long as they are officers of the Company) a "key man life
insurance policy" in the amount of $1,000,000 each on the lives of
Charles W. Price, Matthew Hutchins, Sr. and Daniel A. Gillett.
7.9 Access to Information. The Company will permit the
Purchasers to inspect at the Purchasers' expense any of the properties
or books and records of the Company, and to discuss the affairs and
condition of the Company with representatives of the Company, except
for information that (i) relates to any of the business dealings
between the Company and any of the Purchasers, (ii) relates to any
other vendor that
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<PAGE> 33
competes with any of the Purchasers, or (iii) is subject to any
obligation of the Company to maintain the confidentiality of such
information, during normal business hours and upon at least 24 hours
prior notice to the Company, but no more frequent than once each
calendar quarter.
7.10 Restricted Corporate Actions. The Company will not,
without the vote or written approval of the holders of a majority of
the outstanding Series A Convertible Preferred Stock, take or permit
the Subsidiary to take, any of the following actions:
engage in any business outside the Telecommunications
Business. For purposes of this SECTION 7.10(a) and as
otherwise used in this Agreement, "TELECOMMUNICATIONS
BUSINESS" shall mean the business of (i) transmitting, or
providing services relating to the transmission of, voice,
data or video through owned or leased transmission facilities,
(ii) constructing, creating, developing or marketing
communications-related network equipment, software and other
devices for use in a telecommunications business or (iii)
evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in
clauses (i) or (ii) above;
make any loans to any officers, directors or
affiliates of the Company in an aggregate amount exceeding
$100,000, other than commission advances and travel or
miscellaneous cash advances in the ordinary course of business
and loans to employees seeking to exercise stock options
issued pursuant to any of the Plans, the proceeds of which are
used to exercise such options;
(c) enter into any business arrangement or agreement
(other than a stock option agreement in accordance with the
Plans) with any officer, director or affiliate of the Company
or the Subsidiary on terms less favorable to the Company or
the Subsidiary than an arms-length transaction;
(d) acquire substantially all of the assets,
properties or capital stock of other persons or entities in
one or more transactions for an aggregate total consideration
consisting of an amount of cash exceeding ten percent (10%) of
the total purchase price paid to the Company for the original
issuance of all of the Series A Convertible Preferred Stock;
or
(e) issue any stock, options, warrants, or securities
convertible into the capital stock of the Company with
exercise prices, in the case of options or warrants, or issue
prices, in the case of stock or convertible securities, at
less than fair market value, as determined in good faith by
the Company's Board of Directors, as of the date of grant in
the case of options or warrants or the date of issuance in the
case of stock or securities convertible into the capital stock
of the Company. No such restriction shall apply upon the
issuance of capital stock pursuant to the exercise of options
or warrants or the conversion of convertible securities of the
Company.
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<PAGE> 34
7.11 Shareholder and Director Information. At the request of
the Purchasers, the Company shall promptly deliver to the Purchasers
information regarding the security holders, officers and directors of
the Company, including, without limitation, names, addresses, types of
securities held and terms of securities held.
7.12 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the
Series A Convertible Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the Series A Convertible
Preferred Stock or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in
connection with the issuance of shares of Common Stock upon conversion
of the Series A Convertible Preferred Stock.
7.13 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, provide in writing, upon the written
request of the Purchasers or a prospective buyer of the Series A
Convertible Preferred Stock or shares of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock from the
Purchasers, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities
Act ("RULE 144A INFORMATION"). The Company's obligations under this
SECTION 7.13 shall at all times be contingent upon the Purchasers
obtaining from the prospective buyer of Series A Convertible Preferred
Stock or shares of Common Stock issued upon conversion of the Series A
Convertible Preferred Stock a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the
purchase of any Series A Convertible Preferred Stock or of Common Stock
issued upon conversion of the Series A Convertible Preferred Stock.
7.14 Sale of Series A Convertible Preferred Stock. The Company
agrees that any additional shares of Series A Convertible Preferred
Stock sold by the Company after the Closing will be sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
7.15 Termination of Covenants. The covenants set forth in
SECTIONS 7.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 AND
7.14 hereof shall terminate and be of no
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<PAGE> 35
further force or effect on the earlier of the consummation of the first
underwritten public offering of common stock of the Company pursuant to
a registration statement filed with the Commission under the Securities
Act with a concurrent listing on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq Stock Market, Inc. at an initial
offering price of at least $20.00 per share (as adjusted for a
Recapitalization Event) that results in gross proceeds to the Company
(before deduction of underwriting discounts and expenses of sale) of
not less than $30,000,000 (an "APPROVED OFFERING"). For purposes of
this Agreement, a "RECAPITALIZATION EVENT" means an event described
under Section 2.5 of the Certificate of Designation of the Series A
Convertible Preferred Stock.
8. Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay: (a) all the costs and expenses of the
reproduction of the Placement Memorandum, this Agreement, of all agreements and
documents referred to herein and of the certificates for the Series A
Convertible Preferred Stock and the Class A Common Stock into which it may be
converted; (b) all taxes (if any) payable with respect to this Agreement and the
issuance of the Series A Convertible Preferred Stock and the Class A Common
Stock into which it may be converted; (c) all costs of complying with the
securities or Blue Sky laws of any jurisdiction with respect to the offering or
sale of the Series A Convertible Preferred Stock and the Class A Common Stock
into which it may be converted; (d) the cost of delivering to such address as
each Purchaser shall specify the certificates for the Series A Convertible
Preferred Stock purchased by each such Purchaser and the certificates for the
Class A Common Stock into which the Series A Convertible Preferred Stock may be
converted; (e) the fees, expenses and disbursements of the Company's counsel in
connection with the Closing; and (f) the fees and expenses incurred with respect
to any amendments to this Agreement or the Certificate of Incorporation of the
Company proposed by the Company (whether or not the same become effective).
9. Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the parties hereto
or on their behalf) and any disposition of the Series A Convertible Preferred
Stock or of the Class A Common Stock issued upon conversion thereof and shall
continue to survive for a period of time expiring on the earlier of (a) the
consummation of an Approved Offering, or (b) June 30, 2001. All statements
contained in any certificate or other instrument executed and delivered by the
parties hereto or their duly authorized officers or representatives pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations hereunder, and no officer or representative of such parties
shall have personal liability for such statements unless such officer or
representative shall make such statement in a grossly negligent manner, in bad
faith, fraudulently or pursuant to willful misconduct.
10. Notices. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this SECTION 10) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
-31-
<PAGE> 36
If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
If to the Purchasers at the address set forth on SCHEDULE 1 hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth in ARTICLE 7 hereof, the date of mailing shall be deemed to be the
delivery date. The financial statements required by ARTICLE 7 hereof may be
mailed by first-class regular mail.
11. Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company, and (b) holders of at least 66 2/3% of the
outstanding shares of the Series A Convertible Preferred Stock acting together
as a single class; provided, however, that prior to the Closing Date, this
Agreement may not be amended with respect to any Purchaser without the consent
of such Purchaser. Additionally, SECTION 9 of this Agreement may not be amended,
in any manner, without the unanimous consent of the holders of the outstanding
shares of the Series A Convertible Preferred Stock.
12. Entire Agreement. This Agreement and the Registration Rights
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties and commitments relating to the transactions
contemplated hereby, whether in writing or oral, prior to the date hereof,
except for those certain Confidentiality Agreements entered into by the
Purchasers with Donaldson, Lufkin & Jenrette on behalf of the Company.
-32-
<PAGE> 37
13. Successors and Assigns. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in the Registration Rights
Agreement may only be transferred in accordance with Section 12 of the
Registration Rights Agreement.
14. Enforcement.
14.1 Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or
as of the date it was made, furnished or delivered, any party damaged
may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term
contained in this Agreement or the Certificate of Incorporation of the
Company (including the Certificate of Designation) or for an injunction
against the breach of any such term or in furtherance of the exercise
of any power granted in this Agreement or such Certificate (including
the Certificate of Designation), or to enforce any other legal or
equitable right of such party or to take any one or more of such
actions. The prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to this
Agreement or the Certificate of Incorporation (including the
Certificate of Designation) of the Company, including without
limitation reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses
of appeals.
14.2 Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any default shall
be a waiver of any future or subsequent default. The failure or delay
in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right shall not exhaust the same or constitute a waiver of
any other right provided herein.
15. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
16. Governing Law and Severability. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas
-33-
<PAGE> 38
County, Texas. In the event any provision of this Agreement or the application
of any such provision to any party shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of this Agreement
shall remain in full force and effect.
17. Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
-34-
<PAGE> 39
This Agreement is hereby executed as of the date first above written.
THE COMPANY
BROADBANDNOW, INC.
By:
-------------------------------------------
Daniel A. Gillett,
Vice President of Corporate Development and
Chief Financial Officer
[PURCHASER SIGNATURE ON FOLLOWING PAGE]
-35-
<PAGE> 40
THE PURCHASER:
ARCHSTONE COMMUNITIES INVESTMENT
LLC-I
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-36-
<PAGE> 41
EXHIBIT A
CERTIFICATE OF INCORPORATION
<PAGE> 42
EXHIBIT B
BYLAWS
<PAGE> 43
EXHIBIT C
FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE RIGHTS FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
<PAGE> 44
EXHIBIT D
PLACEMENT MEMORANDUM
<PAGE> 45
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 46
EXHIBIT F
FORM OF OPINION OF WINSTEAD SECHREST & MINICK, P.C.
<PAGE> 47
SCHEDULE I
THE PURCHASERS
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible Aggregate
Preferred Purchase Copy of Notices
Name of Purchasers Notice Address Stock Price Must be sent to
- ------------------------- -------------------------------------- -------------- -------------- --------------------------------
<S> <C> <C> <C> <C>
Archstone Communities 7670 S. Chester Street 26,596 $500,000 Mayer Brown & Platt
Investment LLC-I Suite 100 190 South La Salle Street
Englewood, Colorado 80112 Chicago, Illinois 60603-3441
Attn: Charles E. Mueller Attention: Edward J. Schneidman
</TABLE>
<PAGE> 1
EXHIBIT 10.37
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
I 3S, INC.
NOVEMBER 24, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purchase and Sale........................................................................................1
2. Closing of Purchase and Sale.............................................................................1
2.1 Closing; Closing Date...........................................................................1
2.2 Transactions at Closing.........................................................................1
3. Representations and Warranties of Company................................................................1
3.1 Organization, Standing and Qualification........................................................1
3.2 Capitalization..................................................................................2
3.3 Validity of Stock...............................................................................3
3.4 Subsidiaries....................................................................................3
3.5 Financial Statements............................................................................3
3.6 Absence of Undisclosed Liabilities..............................................................3
3.7 Absence of Certain Changes......................................................................4
3.8 Authorization; Approvals........................................................................5
3.9 No Conflict with Other Instruments..............................................................5
3.10 Labor Agreements and Actions....................................................................5
3.11 Employee Matters................................................................................5
3.12 Title to Properties; Liens and Encumbrances.....................................................6
3.13 Compliance with Corporate Instruments...........................................................6
3.14 Patents, Trademarks and Other Intangible Assets.................................................6
3.15 Trade Secrets and Customer Lists................................................................7
3.16 Tax Matters.....................................................................................8
3.17 Litigation......................................................................................8
3.18 Minute Books....................................................................................9
3.19 Insurance.......................................................................................9
3.20 Fees and Commissions............................................................................9
3.21 Employee Benefit Plans..........................................................................9
3.22 Material Contracts and Commitments.............................................................11
3.23 Conflict of Interest Transactions..............................................................13
3.24 Environmental Matters..........................................................................13
3.25 Other Transactions.............................................................................13
3.26 No Bankruptcies................................................................................13
3.27 Year 2000 Compliance...........................................................................13
3.28 Disclosure.....................................................................................14
3.29 Legal Compliance...............................................................................14
3.30 Small Business Concern.........................................................................14
3.31 Small Business Administration Documentation....................................................14
3.32 Prior Sales of Series A Convertible Preferred Stock............................................15
4. Representations, Warranties and Covenants of Purchasers.................................................15
4.1 Organization and Good Standing.................................................................15
4.2 Authorization; Approvals.......................................................................15
4.3 No Conflict with Other Instruments.............................................................15
4.4 Investment Representations.....................................................................15
4.5 Investment Experience; Access to Information...................................................16
4.6 Absence of Registration........................................................................16
4.7 Restrictions on Transfer.......................................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.8 Transfer Instructions..........................................................................18
4.9 Economic Risk..................................................................................18
4.10 Fees and Commissions...........................................................................18
50 Conditions to Closing of the Purchasers.................................................................19
5.1 Representations and Warranties.................................................................19
5.2 Performance....................................................................................19
5.3 Company Consents, etc..........................................................................19
5.4 Compliance Certificates........................................................................19
5.5 Government Actions.............................................................................19
5.6 The Statement of Designation...................................................................19
5.7 The Articles of Incorporation..................................................................19
5.8 Legal Opinion..................................................................................20
5.9 Company Deliveries.............................................................................20
60 Conditions to Closing of Company........................................................................20
6.1 Representations and Warranties.................................................................20
6.2 Performance....................................................................................20
6.3 Purchaser Consents, etc........................................................................20
6.4 Compliance Certificates........................................................................20
7.0 Affirmative Covenants...................................................................................21
7.1 Financial Information..........................................................................21
7.2 Use of Proceeds................................................................................21
7.3 Confidentiality................................................................................21
7.4 Right of First Refusal.........................................................................22
7.5 Sale of the Company............................................................................26
7.6 Right of Co-Sale...............................................................................27
7.7 Observers......................................................................................27
7.8 Key Man Insurance..............................................................................28
7.9 Access to Information..........................................................................28
7.10 Restricted Corporate Actions...................................................................28
7.11 Shareholder and Director Information...........................................................29
7.12 Reserve for Conversion Shares..................................................................29
7.13 Rule 144A Information..........................................................................29
7.14 Sale of Series A Convertible Preferred Stock...................................................30
7.15 Termination of Covenants.......................................................................30
8. Expenses................................................................................................30
9. Survival of Agreements..................................................................................30
10. Notices.................................................................................................31
11. Modifications; Waiver...................................................................................31
12. Entire Agreement........................................................................................32
13. Successors and Assigns..................................................................................32
14. Enforcement.............................................................................................32
14.1 Remedies at Law or in Equity...................................................................32
14.2 Remedies Cumulative; Waiver....................................................................32
15. Execution and Counterparts..............................................................................33
16. Governing Law and Severability..........................................................................33
17. Headings................................................................................................33
</TABLE>
ii
<PAGE> 4
EXHIBITS
Exhibit A - Amended and Restated Articles of Incorporation
Exhibit B - Amended and Restated Bylaws
Exhibit C - Form of Statement of Designation for the Series A Convertible
Preferred Stock
Exhibit D - Placement Memorandum
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Winstead Sechrest & Minick, P.C.
SCHEDULES
Schedule 1 Purchasers
Schedule 3.1 Jurisdictions
Schedule 3.2 Capitalization
Schedule 3.4 Subsidiaries
Schedule 3.5 Financial Statements
Schedule 3.7 Absence of Certain Changes
Schedule 3.9 No Conflict with Other Instruments
Schedule 3.11 Employee Matters
Schedule 3.12 Title to Properties; Liens and Encumbrances
Schedule 3.14 Patents, Trademarks and Other Intangible Assets
Schedule 3.15 Trade Secrets and Customer Lists
Schedule 3.16 Tax Matters
Schedule 3.19 Insurance
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Material Contracts and Commitments
Schedule 3.23 Conflict of Interest Transactions
Schedule 3.29 Legal Compliance
Schedule 4.6 Registration Rights
Schedule 7.5 Prior Stock Purchase Agreement
iii
<PAGE> 5
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (this
"AGREEMENT"), dated as of November 24, 1999, is by and among I 3S, Inc., a Texas
corporation (the "COMPANY"), and the purchasers identified in SCHEDULE 1 hereto
(hereinafter referred to individually as a "PURCHASER" and collectively as the
"PURCHASERS").
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Purchase and Sale. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined), the Company will sell to each of the
Purchasers, severally and not jointly, and each of the Purchasers, severally and
not jointly, will purchase from the Company, the number of shares of Series A
Convertible Preferred Stock, no par value per share (the "SERIES A CONVERTIBLE
PREFERRED STOCK"), set forth opposite each such Purchaser's name in SCHEDULE 1
annexed hereto at a price per share of Eighteen and 80/100 Dollars ($18.80).
2. Closing of Purchase and Sale.
2.1 Closing; Closing Date. The purchase and sale of the Series
A Convertible Preferred Stock (the "CLOSING") shall take place at the
offices of the Company at 1440 Corporate Drive, Irving, Texas 75038, at
10:00 a.m., local time, on November 24, 1999 (the "CLOSING DATE") or at
such other place or time as may be agreed upon by the Company and the
Purchasers.
2.2 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates for the shares
of Series A Convertible Preferred Stock to be issued and sold to such
Purchaser at the Closing, duly registered in such Purchaser's name,
against payment in full by such Purchaser of the aggregate purchase
price set forth opposite such Purchaser's name in SCHEDULE 1 hereto by
a wire transfer of funds made to the order of "I 3S, Inc." in the
amount of such aggregate purchase price. The Company shall also deliver
to the Purchasers those items required to be delivered to them by the
Company as described in ARTICLE 5 of this Agreement. The Purchasers
shall also deliver to the Company those items required to be delivered
to the Company by the Purchasers as described in ARTICLE 6 of this
Agreement.
3. Representations and Warranties of Company. The Company represents
and warrants to the Purchasers that:
3.1 Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas, has all requisite corporate power and
authority to own its property and assets and to carry on its business
as it is presently being conducted and as it proposes to carry on its
business. The Company has all requisite corporate power and authority
to execute and deliver this Agreement and the other agreements
contemplated herein, to issue and sell the Series A Convertible
Preferred Stock hereunder, to issue shares of Class A Common Stock (as
hereinafter defined) upon conversion of the Series A Convertible
<PAGE> 6
Preferred Stock, and to carry out the transactions contemplated by this
Agreement and the other agreements contemplated herein. The Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws,
copies of which are attached hereto as EXHIBITS A and B, respectively,
are true, correct and complete. The Company is duly qualified and in
good standing as a foreign corporation authorized to do business in
each of the jurisdictions in which the failure to be so qualified would
have a material adverse effect on the Company. SCHEDULE 3.1 sets forth
the jurisdictions in which the Company is qualified.
3.2 Capitalization. The authorized capital stock of the
Company, as of the Closing Date, will consist of: (a) 100,000,000
shares of Class A Common Stock, no par value per share (the "CLASS A
COMMON STOCK"), of which 4,684,400 shares are issued and outstanding,
(b) 25,000,000 shares of Class B Common Stock, no par value per share
(the "CLASS B COMMON STOCK"), of which 4,979,777 shares are issued and
outstanding, (c) 25,000,000 shares of Class C Common Stock, no par
value per share (the "CLASS C COMMON STOCK"), of which 2,074,464 shares
are issued and outstanding, and (d) 6,900,000 shares of Preferred
Stock, all of which have been designated as Series A Convertible
Preferred Stock, of which 2,517,293 shares are issued and outstanding.
The relative rights, preferences, restrictions and other provisions
relating to the Series A Convertible Preferred Stock are as set forth
in the Statement of Designation, attached hereto as EXHIBIT C. The
Class A Common Stock, Class B Common Stock and Class C Common Stock are
hereinafter collectively referred to as the "COMMON STOCK". SCHEDULE
3.2 sets forth the name and, to the Company's knowledge, the current
address of each holder of Common Stock and Series A Convertible
Preferred Stock and number and class of shares so held by each holder.
Of the Class A Common Stock, (i) 4,979,777 shares are reserved for
issuance on the conversion of the Class B Common Stock, (ii) 2,074,464
shares are reserved for issuance on the conversion of the Class C
Common Stock, (iii) 4,787,234 shares are reserved for issuance on the
conversion of the Series A Convertible Preferred Stock, and (iv)
5,961,220 shares are reserved for issuance pursuant to employee stock
purchase or stock option plans adopted or to be adopted by the Company
for key employees and prior stock option grants. All of the outstanding
shares of the Common Stock are duly authorized and validly issued in
accordance with applicable law, fully paid and non-assessable.
Except as set forth on SCHEDULE 3.2 hereto, or as otherwise
contemplated by this Agreement, as of the date hereof there are, and
immediately following the Closing, there will be (i) no outstanding
options, warrants, agreements, conversion rights, preemptive rights or
other rights to subscribe for, purchase or acquire any issued or
unissued shares of capital stock of the Company, or any securities
convertible or exchangeable for such stock, and (ii) no restrictions
upon the voting or transfer of any shares of capital stock of the
Company pursuant to its Amended and Restated Articles of Incorporation,
Amended and Restated Bylaws or other governing documents or any
agreement or other instruments to which it is a party or by which it is
bound, and (iii) there are no agreements to which the Company is a
party or of which the Company has knowledge regarding the issuance,
registration, voting or transfer of or obligation (contingent or
otherwise) of the Company to repurchase or otherwise acquire or retire
or redeem any of
2
<PAGE> 7
its outstanding shares of capital stock. No dividends are accrued but
unpaid on any capital stock of the Company.
3.3 Validity of Stock. The Series A Convertible Preferred
Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will be duly and validly authorized and issued, fully
paid, non-assessable and free and clear of all encumbrances or
restrictions on transfer except those imposed by applicable securities
laws, the Amended and Restated Articles of Incorporation, the Statement
of Designation and this Agreement. The Class A Common Stock issuable
upon conversion of the Series A Convertible Preferred Stock, when
issued, sold and delivered in accordance with the terms of this
Agreement, will be duly and validly authorized and issued, fully paid,
non-assessable and free and clear of all encumbrances or restrictions
on transfer except those imposed by applicable securities laws, the
Amended and Restated Articles of Incorporation, the Statement of
Designation and this Agreement. All existing Common Stock preemptive
rights have been waived for purposes of the issuance of the Series A
Convertible Preferred Stock.
3.4 Subsidiaries. Except as set forth on SCHEDULE 3.4 hereto,
the Company does not control, directly or indirectly, or own any equity
interest in, any other corporation, partnership, joint venture,
association or business entity.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are
the unaudited balance sheets as at December 31, 1997 and June 30, 1999
and unaudited statements of income, changes in stockholders equity, and
cash flow of the Company for the year ended December 31, 1997 and the
quarter ended June 30, 1999, and the audited balance sheet as at
December 31, 1998, and audited statements of income, changes in
stockholders equity, and cash flow of the Company for the year ended
December 31, 1998 (collectively, the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared in accordance with the books
and records of the Company and generally accepted accounting principles
("GAAP") (except the June 30, 1999 financial statements and the June
30, 1999 balance sheet are subject to normal and recurring year-end
audit adjustments which are not expected to be material in amount) and
fairly and accurately reflect the financial condition and the results
of operations (except for the year ended December 31, 1997) of the
Company as of the respective dates thereof or for the periods covered
in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as provided in
the Financial Statements, the Company has no material debt, liability
or obligation, absolute or contingent (including without limitation
obligations in any capacity as guarantor or surety), other than
obligations incurred in the ordinary course of business since June 30,
1999 (the "BALANCE SHEET DATE"). Without limiting the generality of the
foregoing, the Company knows of no basis for the assertion against the
Company as of the date hereof of any material liabilities (not
reflected in the Financial Statements) of the Company.
3
<PAGE> 8
3.7 Absence of Certain Changes. Except as set forth in
SCHEDULE 3.7, since the Balance Sheet Date, the Company has not:
(a) suffered any material adverse change, whether or
not caused by any deliberate act or omission of the Company or
any shareholder of the Company, in its condition (financial or
otherwise), operations, assets, liabilities, business or
prospects, taken as a whole;
(b) contracted for the purchase of any capital assets
having a cost in excess of $500,000 or paid any capital
expenditures in excess of $500,000;
(c) incurred any indebtedness for borrowed money or
issued or sold any debt securities in excess of $150,000;
(d) incurred or discharged any liabilities or
obligations, except in the ordinary course of business;
(e) mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of
its properties or assets other than equipment financing liens
incurred in the ordinary course of business;
(f) suffered any damage or destruction to or loss of
any assets (whether or not covered by insurance) that has
materially and adversely affected, or could reasonably be
expected to, materially and adversely affect, its business;
(g) acquired or disposed of any assets except in the
ordinary course of business;
(h) waived any material rights or forgiven any
material claims;
(i) lost, terminated or, to the Company's knowledge,
experienced any change in the relationship with any employee,
customer or supplier, which termination or change has
materially and adversely affected, or could reasonably be
expected to materially and adversely affect, its business or
assets;
(j) loaned any money to any person or entity in
excess of $100,000;
(k) redeemed, purchased or otherwise acquired, or
sold, granted or otherwise disposed of, directly or
indirectly, any of its capital stock or securities or any
rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid
any dividends or made any distribution to the holders of the
Company's capital stock other than stock options granted to
employees under the Company's Incentive Stock Option Plan; or
(l) committed to do any of the foregoing.
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3.8 Authorization; Approvals. All corporate action on the part
of the Company and its shareholders necessary for the authorization,
execution, delivery, and performance of all its obligations under this
Agreement, and for the authorization, issuance, and delivery of the
Series A Convertible Preferred Stock being sold under this Agreement
and of the Class A Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock has been taken. This Agreement
constitutes a valid and legally binding obligation of the Company
legally enforceable against it in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general principles of equity. The Company has obtained or will
obtain prior to the Closing Date all necessary consents,
authorizations, approvals and orders from any federal, state or other
relevant governmental authority and from any individual, corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company or other entity, and has made all
registrations, qualifications, designations, declarations or filings
with all federal, state, or other relevant governmental authorities,
all as may be required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement,
except for filings pursuant to applicable securities laws which will be
made after the Closing Date.
3.9 No Conflict with Other Instruments. Except as set forth on
SCHEDULE 3.9, the execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute
a default under any terms or provision of (a) the Company's Amended and
Restated Articles of Incorporation or Amended and Restated Bylaws; (b)
any Commitments (as hereinafter defined); or (c) any judgment, decree
or order or any statute, rule or governmental regulation applicable to
the Company. Subject to the truth and accuracy of each Purchaser's
representations and warranties herein and the Company making any
required filings which the Company agrees to do, the offer and sale of
the Series A Convertible Preferred Stock to each Purchaser will be in
compliance with all federal and state securities laws.
3.10 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has
requested or, to the Company's knowledge, sought to represent any of
the employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company pending, or, to the
Company's knowledge, threatened, which could have a material adverse
effect on the financial condition, operating results, or business of
the Company, nor is the Company aware of any labor organization
activity involving its employees.
3.11 Employee Matters. SCHEDULE 3.11 contains a complete and
accurate list of the names, titles and Cash Compensation (as
hereinafter defined) of all members of executive management of the
Company, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year or who
earned in excess of $100,000 during the Company's preceding fiscal
year. For purposes
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<PAGE> 10
of this SECTION 3.11, "CASH COMPENSATION" shall mean wages, salaries,
bonuses (discretionary or otherwise) and other compensation paid or
payable in cash. Except as disclosed in SCHEDULE 3.11, the Company has
no employment agreements, employee leasing agreements, employee service
agreements, or noncompetition agreements.
3.12 Title to Properties; Liens and Encumbrances.
(a) Except as disclosed on SCHEDULE 3.12(A), the
Company has good and marketable title to its assets,
including, without limitation, those reflected on the Balance
Sheet (other than those since disposed of in the ordinary
course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (i) liens
for taxes not yet due and payable or being contested in good
faith in appropriate proceedings, and (ii) encumbrances that
are incidental to the conduct of their respective businesses
or ownership of property, not incurred in connection with the
borrowing of money or the obtaining of credit, and which do
not in the aggregate materially detract from the value of the
assets affected or materially impair their use by the Company.
With respect to the assets of the Company that are leased, the
Company is in compliance with all material provisions of such
leases. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair, normal
wear and tear excepted, and are adequate and sufficient for
the Company's business.
(b) The Company enjoys peaceful and undisturbed
possession under all real property leases under which the
Company is operating, and all such leases are valid and
subsisting and none of them is in default. A listing of said
real property leases, their terms and total lease payments is
attached hereto as SCHEDULE 3.12(b).
(c) Except as disclosed in SCHEDULE 3.12(c) the
Company does not own any real property.
3.13 Compliance with Corporate Instruments. The Company is not
in violation of any provision of its Amended and Restated Articles of
Incorporation, Amended and Restated Bylaws of the Company or Statement
of Designation, and the Company is not in default or violation of any
Commitment to which the Company is a party or by which any of its
property is bound, the default or violation of which would materially
and adversely affect the Company's business, prospects, condition,
affairs or operations.
3.14 Patents, Trademarks and Other Intangible Assets.
(a) SCHEDULE 3.14(a) hereto sets forth the true and
correct list of all registered patents, trademarks and
copyrights (or applications therefor) held by the Company.
Except as set forth on SCHEDULE 3.14(a), the Company possesses
ownership or has the right to use all patents, copyrights,
trademarks, service
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marks, trade secrets and other proprietary intellectual
property rights necessary for the operation of its business
except where the failure of the Company to own or have such
right to use such intellectual property would not have a
material adverse effect on the Company (the "INTELLECTUAL
PROPERTY"). To the Company's knowledge, the Company (a) is not
infringing upon the intellectual property rights of others in
connection with its business; (b) does not require the consent
of any person which has not been obtained (all of such
consents being set forth in SCHEDULE 3.14(a)) to use the
Intellectual Property; (c) may freely transfer the
Intellectual Property (other than as set forth in SCHEDULE
3.14(a)); or (d) has not received any written notice of
conflict with respect to the intellectual property rights of
any other person or entity. All of the Intellectual Property
is valid and subsisting, has not been canceled, abandoned or
otherwise terminated and, if applicable, has been duly issued
or filed. The employees and consultants of the Company, who,
either alone or in concert with others, developed, invested,
discovered, derived, programmed or designed any of the
Company's owned Intellectual Property have entered into
written agreements to protect the confidentiality of the
Company's owned Intellectual Property and to assign to the
Company all rights therein.
(b) The Company has no knowledge of any claim that,
or inquiry as to whether, any product, activity or operation
of the Company infringes upon or involves, or has resulted in
the infringement of, any proprietary right of any other
person, corporation or other entity; and no proceedings have
been instituted, are pending or are threatened that challenge
the rights of the Company with respect thereto. Any agreement
of indemnification by the Company for any Intellectual
Property as to any license granted by it or any property
manufactured, used or sold by it is set forth in SCHEDULE
3.14(b).
3.15 Trade Secrets and Customer Lists. The Company has the
right to use, free and clear of any claims or rights of others, except
claims or rights specifically set forth in SCHEDULE 3.15, all trade
secrets, customer lists and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or
marketed by the Company. To the Company's knowledge, it is not using,
or in any way making use of, any confidential information or trade
secrets of any third party, including, without limitation, any past or
present employee of the Company, except under valid and existing
license agreements (all such license agreements being set forth in
SCHEDULE 3.15).
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<PAGE> 12
3.16 Tax Matters.
(a) All required foreign, federal, state, local and
other tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns) of the Company
have been accurately prepared in all material respects and
duly and timely filed, and all foreign, federal, state, local
and other taxes required to be paid with respect to the
periods covered by such returns have been paid. The Company is
not and has not been delinquent in the payment of any tax,
assessment or governmental charge. The Company is not a party
to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. The Company does not have
and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
(b) Except as set forth in SCHEDULE 3.16, the Company
has not had any tax deficiency proposed or assessed against it
and has not executed any waiver of any statute of limitations
on the assessment or collection of any tax or governmental
charge. Except as set forth in SCHEDULE 3.16, and except for
sales tax audits, none of the Company's franchise tax returns
has ever been audited by governmental authorities. No tax
audit, action, suit, proceeding, investigation or claim is now
pending nor, to the best knowledge of the Company, threatened
against the Company, and no issue or question has been raised
(and is currently pending) by any taxing authority in
connection with any of the Company's tax returns or reports.
(c) To the Company's knowledge, the reserves for
taxes, assessments and governmental charges reflected on the
Balance Sheet are and will be sufficient for the payment of
all unpaid taxes and governmental charges payable by the
Company with respect to the period ended on the Balance Sheet
Date. Since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to business,
properties and operations for such period. The Company
withheld or collected from each payment made to its employees,
the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
3.17 Litigation. No action, proceeding or investigation is
pending or threatened against the Company, or any of its properties
before any court, arbitration board or tribunal or administrative or
other governmental agency (including, without limitation, unfair labor
practices or discrimination charges or complaints), that might result,
either individually or in the aggregate, in any material adverse change
in the
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<PAGE> 13
business, prospects, condition, affairs, operations, or assets of the
Company or in any material liability on the part of the Company. The
foregoing includes, without limiting its generality, actions pending or
threatened involving the prior employment of any of the Company's
employees or use by any of them in connection with the Company's
business of any information, property or techniques allegedly
proprietary to any of their former employers.
3.18 Minute Books. The minute books of the Company have been
made available to the counsel for the Purchasers and contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.19 Insurance. The Company carries property, liability,
workers' compensation and such other types of insurance as is customary
in the Company's industry. A list and brief description of all
insurance policies of the Company are set forth in SCHEDULE 3.19. All
of such policies are valid and enforceable policies, issued by insurers
of recognized responsibility in amounts and against such risks and
losses as are customary in the Company's industry. All casualty
insurance is sufficient in amount to allow the Company to replace any
of its properties that might be damaged or destroyed.
3.20 Fees and Commissions. The Company has retained Donaldson,
Lufkin & Jenrette ("DLJ") as financial advisor and placement agent in
connection with the transactions contemplated by this Agreement. The
Company shall pay all fees owed DLJ in connection with the transactions
contemplated by this Agreement from the proceeds of the sale of the
Preferred Stock (the "OFFERING") pursuant to the Placement Memorandum
(as hereinafter defined). The Company represents and warrants that
other than as stated in this SECTION 3.20, it has retained no finder,
broker, agent, financial adviser or other intermediary in connection
with the transactions contemplated by this Agreement. The Company
agrees to indemnify and hold harmless the Purchasers for any brokerage
commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any
arrangement or agreement made by the Company.
3.21 Employee Benefit Plans.
(a) SCHEDULE 3.21 contains true, complete and correct
information as to any bonus, incentive, insurance (including
any self-insured arrangements), compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing,
salary reduction, deferred compensation, stock purchase, stock
option, workers' compensation, disability benefits,
supplemental unemployment benefits (including without
limitation any "voluntary employees' beneficiary association"
as defined in Section 501(C)(9) of the Code) (as hereinafter
defined), vacation, holiday and sick pay or other similar
benefit plans, programs or arrangements (whether written or
oral) (said plans, programs or arrangements being referred to
as the "PLANS") in which any employees of the Company
participate. All Plans are listed on the attached SCHEDULE
3.21. All obligations of the Company,
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<PAGE> 14
whether arising by operation of law, by contract or by past
custom, for payment by it to trusts, retirement plans or other
funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other
benefits for employees of the Company have been paid or shall
be paid by the Company at the time the Company is obligated to
make such payments. All benefits payable directly to the
Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such
payments. All reasonably anticipated obligations of the
Company, whether arising by operation of law, by contract or
by past custom, for vacation and holiday pay, bonuses and
other forms of compensation or benefits which are or may
become payable to employees or any of them have been paid, or
shall be paid, in accordance with the provisions of applicable
laws, regulations, benefit plans or policies.
(b) True, complete and correct copies of all relevant
documents with respect to the Plans, including, but not
limited to, each of the following documents: (i) a copy of the
Plan and each related trust or other funding agreement,
including insurance contracts (and all amendments thereto);
(ii) the last filed Form 5500, where applicable; (iii) the
most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to
be qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "CODE"); and (iv) the summary plan
descriptions and all material modifications thereto, have been
delivered to Purchasers.
(c) All Plans, related trust agreements, annuity
contracts or other funding arrangements comply in all
substantial respects and the Company has administered and
operated each such Plan, related trust agreements, annuity
contracts or other funding arrangements in substantial
compliance with the requirements of applicable law, including,
without limitation, the Employee Retirement Income Security
Act of 1974 as amended ("ERISA"), and the Code, and no such
Plan that is subject to Part 3 of Subtitle B of Title I of
ERISA has incurred any "accumulated funding deficiency" within
the meaning of Section 302 of ERISA or Section 412 of the
Code, whether or not waived.
(d) The Company does not maintain and is not required
to contribute to any multi-employer plan (as defined in
Section 3(37) of ERISA) for the benefit of employees or former
employees of the Company. The Company does not maintain a
self-insured "multiple employer welfare arrangement" as
defined in Section 3(40) of ERISA.
(e) The Pension Benefit Guaranty Corporation ("PBGC")
has not instituted proceedings to terminate any of the
Company's defined benefit plans and no condition exists that
presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of
Section 4043(b) of ERISA with respect to any defined benefit
plan and no defined benefit plan has been terminated within
the preceding six years or is expected to be
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terminated. No liability (other than for the payment of
premiums) to the PBGC has been or is expected to be incurred
by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit
plan.
(f) The Company has no liability with respect to any
transaction which relates to any Plan and which is in
violation of Sections 404 or 406 of ERISA or constitutes a
"prohibited transaction," as defined in Section 4975(c)(1) of
the Code, and for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Code. To the
Company's knowledge, the Company has not participated in a
violation of Part 4 of Title I, Subtitle B of ERISA by any
plan fiduciary of any Plan and has no unpaid civil penalty
under Section 502(1) of ERISA.
(g) There is no material action, order, writ,
injunction, judgment or decree outstanding or claim, suit,
litigation, proceeding, arbitral action, governmental audit or
investigation (including, without limitation, any such audit
or investigation by the Internal Revenue Service, Department
of Labor, or PBGC) relating to or seeking benefits under any
Plan that is pending or, to the Company's knowledge,
threatened or anticipated against the Company other than
routine claims for benefits.
3.22 Material Contracts and Commitments.
(a) Material Contracts and Commitments. Except as set
forth in SCHEDULE 3.22, the Company has not entered into, nor
is the capital stock, the assets or the business of the
Company bound by, whether or not in writing, any
(i) deed of trust securing a lien in any
real property owned by the Company;
(ii) security agreement granting a security
interest in connection with the Company's incurrence
of indebtedness for borrowed money;
(iii) guaranty or suretyship agreement or
performance bond, in each case involving a contingent
obligation of the Company in excess of $100,000;
(iv) consulting or compensation agreement or
similar arrangement that is not an Employment
Agreement and that involves compensation payable by
the Company in excess of $100,000 annually or an
agreement relating to the election or retention in
office of any director or officer;
(v) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed
money;
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(vi) money lent or to be lent by the Company
to another in an amount in excess of $10,000;
(vii) lease of real property, whether as
lessor, lessee, sublessor or sublessee (excluding the
real estate leases set forth on SCHEDULE 3.12);
(viii) lease of personal property, whether
as lessor, lessee, sublessor or sublessee involving
lease payments in an annual amount in excess of
$50,000;
(ix) any agreement for the acquisition of
services, supplies, equipment or other personal
property (excluding leases of real or personal
property) and involving more than $100,000 in the
aggregate;
(x) contracts containing noncompetition
covenants restricting the Company's ability to
compete in the Telecommunications Business (as
hereinafter defined);
(xi) agreement providing for the purchase
from a supplier of all or substantially all of the
requirements of the Company of a particular product
or service; or
(xii) agreement or commitment a copy of
which would be required to be filed with the
Securities and Exchange Commission (the "Commission")
as an exhibit to a registration statement on Form
S-1, or a successor form, pursuant to Paragraph 10 of
Item 601 of Regulation S-K, if the Company were
registering securities under the Securities Act of
1933, as amended (the "Securities Act").
All of the documents listed on SCHEDULE 3.22 hereof are
hereinafter collectively referred to as the "COMMITMENTS."
True, correct and complete copies of the written Commitments
have heretofore been made available to Purchasers. To the
knowledge of the Company, the Commitments are in full force
and effect and are valid and enforceable obligations of the
parties thereto in accordance with their respective terms
(except as may be limited by the laws of bankruptcy,
insolvency or creditors rights generally and subject to the
enforceability and availability of equitable remedies), and to
the knowledge of the Company, no defenses, off-sets or
counterclaims have been asserted by any party thereto, nor has
the Company waived in writing any rights thereunder, except as
described in SCHEDULE 3.22. The Company has not received
written notice of any default with respect to any Commitment.
(b) No Cancellation or Termination of Commitments.
Except as contemplated hereby, the Company has not received
written notice of any plan or
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<PAGE> 17
intention of any other party to any Commitment to exercise any
right to cancel or terminate any Commitment.
3.23 Conflict of Interest Transactions. Except as set forth on
SCHEDULE 3.23, no director, Common Stock holder, member of management
of the Company, or their spouses or children, owns directly or
indirectly, on an individual or joint basis, any interests, has any
investment in or serves as an officer, partner or director in any
corporation, business or other person that is a customer, supplier or
competitor of the Company, or that has a material contract or
arrangement with the Company or its competitor, other than the
ownership of less than one percent (1%) of the securities of any
company that are publicly traded on any national exchange or over the
counter market.
3.24 Environmental Matters. To the Company's knowledge,
neither the Company nor any of its assets is currently in material
violation of, or subject to any material existing, pending or
threatened investigation or inquiry by any governmental authority or to
any remedial obligations under any environmental laws, and this
representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all
relevant facts, conditions and circumstances, if any, pertaining to the
assets and operations of the Company. To the Company's knowledge, the
assets of the Company have never been used in a manner that would be in
material violation of any of the environmental laws. To the Company's
knowledge, the Company is not required to obtain any permits, licenses
or similar authorizations to construct, occupy, operate or use any
buildings, improvements, fixtures and equipment owned or leased by the
Company by reason of any environmental laws. None of the assets owned
or leased by the Company are on any federal or state "Superfund" list
or subject to any environmentally related liens.
3.25 Other Transactions. Other than the offering and sale of
the Series A Convertible Preferred Stock hereunder, the Company has not
entered into any agreements or arrangements and has no knowledge of any
pending or possible offers or discussions concerning or providing for
the merger or consolidation of the Company or the sale of all or any
substantial portion of its assets, the sale by the Company or any
material shareholder of the Company of any Securities of the Company or
any similar transaction affecting the Company or its security holders.
3.26 No Bankruptcies. For the past five years, neither the
Company nor any of its officers, directors or affiliates, have
voluntarily sought, consented to or acquiesced in the benefits of, or
become the subject of a proceeding under the Bankruptcy Code of the
United States or any other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally.
3.27 Year 2000 Compliance. To the Company's knowledge, the
computer systems used by the Company are Year 2000 compliant, meaning
that such systems will continue to function, and functionality and
accuracy will not be affected as a result of the
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<PAGE> 18
run date or the dates being processed in the twentieth or twenty-first
century, including the advent of the Year 2000, or from the extra day
occurring in any leap year.
3.28 Disclosure. To the Company's knowledge, this Agreement
and the exhibits and schedules hereto, when taken as a whole with other
documents and certificates furnished by the Company to the Purchasers
or their counsel, do not contain any untrue statement of material fact
or omit any material fact necessary in order to make the statements
therein not misleading; provided, however, certain materials provided
to the Purchasers contain projections and estimates of future events,
and such projections and estimates are subject to the statements in the
Placement Memorandum (as hereinafter defined), including, without
limitation, the statements set forth on page 42 thereof. There is no
fact known to the Company that has not been disclosed to the Purchasers
prior to the date of this Agreement that materially and adversely
affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company, taken as a whole, or the
ability of the Company to perform under this Agreement or the other
agreements contemplated hereby or to consummate the transactions
contemplated hereby or thereby. For purposes of this SECTION 3.28 only,
"to the Company's knowledge" shall include any information the Company
would have known except for its reckless disregard for the accuracy of
any material fact.
3.29 Legal Compliance. Except as set forth on SCHEDULE 3.29,
(a) the Company has all material franchises, permits, licenses and
other rights and privileges necessary to permit it to own its
respective properties and to conduct its respective businesses as
presently conducted (all of which such items are set forth on SCHEDULE
3.29) and (b) the Company, and the business and operations of the
Company, have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations (including,
without limitation, all employment, labor practices, safety and health
laws and regulations), and the Company is not in violation of any
judgment, order or decree. There is no existing law, rule, regulation
or order which would prohibit or restrict the Company from, or
otherwise materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting business or,
to the Company's knowledge, in which it proposes to conduct business.
3.30 Small Business Concern. The Company, taken together with
its "affiliates" (as that term is defined in Section 121.401 of Title
13 of the Code of Federal Regulations) is a "Small Business Concern"
within the meaning of Section 103(5) of the Small Business Investment
Act of 1958, as amended (the "SBIC Act"), and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
121.3, and meets the applicable size and eligibility criteria set forth
in Title 13, Code of Federal Regulations, Section 121.802(a)(2).
Neither the Company nor any of its subsidiaries, if any, presently
engages in any activity for which a small business investment company
is prohibited from providing funds by the SBIC Act and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
107.
3.31 Small Business Administration Documentation. The Company
has provided Purchasers, who have requested, a Small Business
Administration "SBA"
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Form 480 (Size Status Declaration) and SBA Form 652 (Assurance of
Compliance), of such Forms, which have been completed and executed by
the Company, and SBA Form 1031 (Portfolio Finance Report), Part A of
which has been completed by the Company.
3.32 Prior Sales of Series A Convertible Preferred Stock. All
shares of Series A Convertible Preferred Stock sold by the Company have
been sold on substantially the same terms as set forth in this
Agreement for the Purchasers.
4. Representations, Warranties and Covenants of Purchasers.
4.1 Organization and Good Standing. Each Purchaser severally
represents and warrants that, if a corporation, partnership, trust or
other form of business entity, it is duly organized, validly existing
and in good standing under the laws of the state of its organization,
has all requisite power and authority to own its property and assets
and to carry on its business as it is presently being conducted and as
it proposes to carry on its business, is duly qualified and in good
standing and authorized to do business in each of the jurisdictions in
which the failure to be so qualified would have a material adverse
effect on the Purchaser.
4.2 Authorization; Approvals. Each Purchaser severally
represents and warrants that the execution and delivery of this
Agreement has been duly authorized by such Purchaser and this Agreement
is a valid and legally binding obligation of such Purchaser legally
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and
general principles of equity. Each Purchaser, if a corporation,
partnership, trust or other form of business entity, is duly qualified
to purchase and hold the Series A Convertible Preferred Stock sold
hereunder. Each Purchaser represents and warrants that the information
set forth on SCHEDULE 1 hereto regarding such Purchaser's business and
residence addresses, telephone numbers, citizenship and taxpayer
identification number is true, accurate and complete. Each Purchaser
severally represents and warrants that it has obtained, or will obtain
prior to the Closing Date, all necessary consents, authorizations,
approvals and orders required on the part of such Purchaser in
connection with the consummation of the transactions contemplated by
this Agreement.
4.3 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute a default under any
terms or provisions of (a) if a corporation, partnership, trust or
other form of business entity, the applicable charter documents of such
Purchaser; (b) any material contract, indenture or other agreement to
which the Purchaser is a party; or (c) any judgment, decree or order or
any material statute, rule or governmental regulation applicable to the
Purchaser.
4.4 Investment Representations. Each Purchaser severally
represents and warrants that it is acquiring the Series A Convertible
Preferred Stock to be purchased by
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it (and any Class A Common Stock into which it may be converted) for
its own account, for investment and not with a view to, or for sale in
connection with, any distribution of such stock or any part thereof.
4.5 Investment Experience; Access to Information. Each
Purchaser severally represents and warrants that it (a) is an
"accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act (or any successor provision), (b)
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of this investment,
(c) has the ability to bear the economic risks of this investment for
an indefinite period of time, and (d) has received a copy of the
Private Placement Memorandum and any supplements thereto (collectively,
the "PLACEMENT MEMORANDUM") attached hereto as EXHIBIT D.
4.6 Absence of Registration. Each Purchaser understands that:
(a) The Series A Convertible Preferred Stock to be
sold and issued hereunder and the Class A Common Stock into
which it may be converted have not been registered under the
Securities Act or any other securities laws on the basis that
the sale of such stock to the Purchaser is exempt from
registration under the Securities Act and such other
securities laws, and the Purchaser may be required to hold
such stock indefinitely unless it is subsequently registered
under the Securities Act and any other applicable securities
laws, or exemptions from such registration are available.
(b) The Company's reliance on the exemptions referred
to in SECTION 4.6(a) above is predicated in part upon the
Purchaser's representations and warranties contained in this
ARTICLE 4.
(c) Except as provided in that certain Registration
Rights Agreement, to be executed at the Closing, by and among
the Company and the Purchasers (the "REGISTRATION RIGHTS
AGREEMENT"), attached hereto as EXHIBIT E and as noted in
SCHEDULE 4.6 hereto, the Company is under no obligation to
file a registration statement with the Commission or any other
securities regulatory agency with respect to the Series A
Convertible Preferred Stock or the Class A Common Stock into
which it may be converted.
(d) Rule 144 promulgated under the Securities Act or
any successor provision ("RULE 144"), which provides for
certain limited sales of unregistered securities, is not
presently available with respect to the Series A Convertible
Preferred Stock or the Class A Common Stock into which it may
be converted, and the Company is under no obligation to make
Rule 144 available.
4.7 Restrictions on Transfer. Each Purchaser agrees that: (a)
it will not offer, sell, pledge, hypothecate, or otherwise dispose of
the Series A Convertible Preferred Stock or the Class A Common Stock
into which it may be converted unless such offer, sale, pledge,
hypothecation or other disposition is in accordance with the Statement
of
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<PAGE> 21
Designation and this Agreement and is (i) registered under the
Securities Act and any other applicable securities laws, or (ii) in
compliance with an opinion of counsel to such Purchaser, delivered to
the Company and reasonably acceptable to it, to the effect that such
offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act or such other securities laws; and (b)
the certificate(s) representing the Series A Convertible Preferred
Stock (and any Class A Common Stock into which it may be converted)
shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS
THEREOF.
In addition, the certificates evidencing the Series A Convertible
Preferred Stock shall bear legends stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE
HEREOF, AS SET FORTH IN THE STOCK PURCHASE AGREEMENT BETWEEN
THE ISSUER AND INITIAL PURCHASER, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS
SET FORTH IN SAID STOCK PURCHASE AGREEMENT.
THE ISSUER IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR
SERIES OF CAPITAL STOCK. A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF CAPITAL
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS (TO THE EXTENT ESTABLISHED) IS
ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS. THE
ISSUER WILL FURNISH A COPY OF SUCH STATEMENT TO ANY
SHAREHOLDER OF RECORD, WITHOUT CHARGE, UPON THE WRITTEN
REQUEST TO THE
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<PAGE> 22
ISSUER AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE.
Upon request of a holder of Series A Convertible Preferred
Stock or the Class A Common Stock into which it has been converted, the
Company shall remove the legend set forth above from the certificates
evidencing such Series A Convertible Preferred Stock or Class A Common
Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the
Company, in form and substance reasonably satisfactory to the Company,
to the effect that a transfer by said holder of such Series A
Convertible Preferred Stock or Class A Common Stock will not violate
the Securities Act or any other applicable securities laws.
Notwithstanding the provisions above, no such registration or
opinion of counsel shall be necessary for a pro rata transfer by a
Purchaser which is a corporation to an affiliate of such corporation,
or a Purchaser which is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date
hereof without the payment of compensation by such partner, or to the
estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his spouse or lineal
descendants or ancestors, if the transferee agrees in writing to be
subject to the terms hereof to the same extent as if such transferee
were an original Purchaser hereunder, including without limitation, the
representations, warranties, covenants and agreements contained in
SECTIONS 4.1 to 4.7 hereto, inclusive.
4.8 Transfer Instructions. Each Purchaser agrees that the
Company may place and make appropriate notations in its record books
against the transfer of the shares of Series A Convertible Preferred
Stock to be purchased by it and any Class A Common Stock into which
such shares may be converted, and may take any other actions which it
deems necessary to prevent any violations of the Securities Act or any
other securities laws by reason of the delivery of such stock or any
subsequent transaction with respect to such stock.
4.9 Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by the purchase of
Series A Convertible Preferred Stock and any Class A Common Stock into
which it may be converted for an indefinite period.
4.10 Fees and Commissions. Each Purchaser represents and
warrants that it has retained no finder, broker, agent, financial
advisor or other intermediary (hereinafter collectively referred to as
"INTERMEDIARY") in connection with the transactions contemplated by
this Agreement and agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against such
liability or alleged liability.
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<PAGE> 23
5. Conditions to Closing of the Purchasers. The obligation of each
Purchaser on the Closing Date to consummate the transactions contemplated by
this Agreement shall be subject to each of the following conditions precedent,
any one or more of which may be waived by such Purchaser:
5.1 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and
as of the Closing Date.
5.2 Performance. The Company shall have performed and complied
with all agreements, conditions and covenants contained herein or in
any other ancillary documents incident to the transactions contemplated
by this Agreement required to be performed or complied with by it prior
to or at the Closing.
5.3 Company Consents, etc. The Company shall have secured all
permits, consents and authorizations that shall be necessary or
required lawfully to consummate this Agreement, to issue the Series A
Convertible Preferred Stock to be purchased by the Purchasers and to
issue the Class A Common Stock into which it may be converted.
5.4 Compliance Certificates. The Company shall have delivered
to each Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate in all material respects
on the Closing Date, and that all conditions specified in SECTIONS 5.1
to 5.3 hereof, inclusive, have been fulfilled and that there has been
no materially adverse change in the business, affairs, prospects,
operations or condition of the Company since the Balance Sheet Date.
5.5 Government Actions. No action, suit or proceeding shall
have been instituted before any court, governmental or regulatory body
or arbitral tribunal, or instituted or threatened by any governmental
or regulatory body to restrain, modify or prevent the carrying out of
the transactions contemplated hereby or to seek damages or a discovery
order in connection with such transactions.
5.6 The Statement of Designation. Each Purchaser shall have
received evidence that the Company shall have duly authorized and filed
the Statement of Designation with the Secretary of State of the State
of Texas, substantially in the form attached hereto as EXHIBIT C;
5.7 The Articles of Incorporation. Each Purchaser shall have
received a copy of the Articles of Incorporation of the Company and all
amendments thereto, certified by the Secretary of State of Texas, which
shall include evidence that the Company shall have duly authorized and
filed the Amended and Restated Articles of Incorporation with the
Secretary of State of the State of Texas, substantially in the form
attached hereto as EXHIBIT A;
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<PAGE> 24
5.8 Legal Opinion. Counsel for the Company, Winstead, Sechrest
& Minick, P.C., shall have delivered to the Purchasers a legal opinion,
dated as of the Closing Date and substantially in the form attached
hereto as EXHIBIT F;
5.9 Company Deliveries. The Company shall have delivered to
the Purchasers:
(e) (i) copies of the resolutions of the Company's
Board of Directors authorizing and approving this Agreement
and all of the transactions and agreements contemplated hereby
and thereby, (ii) the Bylaws of the Company and (iii) the
names of the officer or officers of the Company authorized to
execute this Agreement and any and all documents, agreements
and instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in
full force and effect and unmodified as of the Closing Date;
(f) a certificate of existence for the Company from
the Secretary of State of the State of Texas;
(g) a certificate of account status for the Company
from the Comptroller of the State of Texas; and
(h) certificates from each state where the Company is
required to be qualified as a foreign corporation showing such
qualification, dated as of a date within ten (10) days of the
Closing Date; and
(i) a Registration Rights Agreement in substantially
the form attached hereto as EXHIBIT E.
6. Conditions to Closing of Company. The obligation of the Company on
the Closing Date to consummate the transactions contemplated by this Agreement
shall be subject to the following conditions precedent, any one or more of which
may be waived by the Company:
6.1 Representations and Warranties. The representations and
warranties made by the Purchasers herein shall be true and accurate on
and as of the Closing Date.
6.2 Performance. Purchasers shall have performed and complied
with all agreements and conditions contained herein or in any other
ancillary documents incident to the transactions contemplated by this
Agreement required to be performed or complied with by such Purchasers
prior to or at the Closing.
6.3 Purchaser Consents, etc. Purchasers shall have secured all
permits, consents, waivers and authorizations that shall be necessary
or required lawfully to consummate this Agreement.
6.4 Compliance Certificates. Each Purchaser shall have
delivered to the Company at the Closing an Officer's Certificate to the
effect that the representations and
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<PAGE> 25
warranties of the Purchaser continue to be true and accurate in all
material respects on the Closing Date, and that all conditions
specified in SECTIONS 6.1 to 6.3 hereof, inclusive, have been
fulfilled.
7. Affirmative Covenants.
7.1 Financial Information. The Company will deliver to each
Purchaser:
(j) within forty five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash
flow prepared in accordance with GAAP and certified by the
Company's Chief Financial Officer, except such financial
statements shall not contain normal and recurring year-end
audit adjustments.
(k) within one hundred twenty (120) days after the
fiscal year end, an annual independent certified audit from an
outside accounting firm reasonably designated by the Company;
(l) As soon as practicable, but no later than thirty
(30) days after the beginning of each fiscal year, beginning
January 1, 2000, the Company shall provide to the Purchasers a
copy of the annual budget and plan for such year which shall
include, without limitation, plans for incurrences of
indebtedness for borrowed money and projections regarding
types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections.
7.2 Use of Proceeds. The Company shall use the proceeds from
the sale of Series A Convertible Preferred Stock for the purposes of
capital expenditures and general corporate purposes, including working
capital.
7.3 Confidentiality. Any information provided pursuant to this
Agreement shall be used by a Purchaser solely in furtherance of its
interests as an investor in the Company, and each Purchaser shall
(except as otherwise required by law) maintain the confidentiality of
all non-public information of the Company obtained under said section.
Each Purchaser will have no obligation to maintain confidentiality of
any information which (i) at the time of disclosure or thereafter is
generally available to and known by the public (other than as a result
of a disclosure directly or indirectly by a Purchaser or the
Purchaser's representatives), (ii) was available to a Purchaser on a
nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting the information to such
Purchaser or the Purchaser's representatives by a contractual, legal or
fiduciary obligation, or (iii) has been independently acquired or
developed by a Purchaser without violating any of such Purchaser's
obligations under this Agreement or any other agreement such Purchaser
has with the Company or its agents.
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<PAGE> 26
7.4 Right of First Refusal. Except in the event of and after
the consummation of an Approved Offering (as hereinafter defined) and
with respect to dispositions to any direct or indirect parent or
subsidiary of a Purchaser who agrees to be bound by the terms of this
Agreement, no Purchaser shall be permitted to dispose of any shares of
the Series A Convertible Preferred Stock unless such shares shall have
been offered for sale in writing first to the Company and then to the
other shareholders of the Company (including the other Purchasers) pro
rata as set forth in this SECTION 7.4. In the event a shareholder
desires to transfer any Series A Convertible Preferred Stock, the
shareholder desiring to make such transfer (the "TRANSFERRING
SHAREHOLDER") shall deliver written notice (the "OFFER NOTICE") to the
Company and to all other shareholders (including the other Purchasers)
at least ninety (90) days prior to the proposed transfer. The Offer
Notice will disclose in reasonable detail the proposed number of shares
to be transferred, the proposed transferee and the proposed price,
terms and conditions of the transfer.
(m) Upon receipt of the Offer Notice, the Company
shall have the option (the "COMPANY'S OPTION") for a period of
thirty (30) days to purchase or otherwise acquire all or part
of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as
the "OPTION PRICE") equal to the bona fide purchase price to
be paid by the proposed purchaser as described in the Offer
Notice (which amount shall be zero if the proposed transfer
would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current holders
of Series A Convertible Preferred Stock as to whether it will
exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
(n) In the event that the Company does not elect to
fully exercise the Company's Option within thirty (30) days
after receipt of the Offer Notice, the remaining holders of
Series A Convertible Preferred Stock shall have the option
(each a "SERIES A SHAREHOLDER'S OPTION") for a period of ten
(10) days from the earlier of (i) their receipt of written
notice from the Company of its decision not to exercise or to
only partially exercise the Company's Option, or (ii) the
expiration of the Company's Option (the "SERIES A SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the Company does not choose
to purchase pursuant to the Company's Option, in proportion to
their respective ownership of shares of Series A Convertible
Preferred Stock which, for purposes of such determination,
shall include without duplication all outstanding options,
warrants or other rights owned by such shareholders that are
convertible into shares of Series A Convertible Preferred
Stock as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each holder of
Series A Convertible Preferred Stock shall notify in writing
all then current holders of Series A Convertible Preferred
Stock as to whether such shareholder will exercise, partially
exercise or not exercise the Series A Shareholder's Option
before the expiration of the Series A Shareholder Election
Period.
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<PAGE> 27
(c) For a period of ten (10) days from the earlier of
(i) the receipt by the other holders of Series A Convertible
Preferred Stock of a written notice from a holder of Series A
Convertible Preferred Stock that it does not want to exercise
its option or will only partially exercise its option, or (ii)
the expiration of the Series A Shareholder Election Period,
the other holders of Series A Convertible Preferred Stock
shall have the right (the "SERIES A SHAREHOLDER'S SECOND
OPTION") to purchase or otherwise acquire such shareholder's
portion of the shares described in the Offer Notice in
proportion to their respective ownership of shares of Series A
Convertible Preferred Stock (determined as described in
SECTION 7.4(b) above).
(o) In the event that the holders of Series A
Convertible Preferred Stock do not elect to fully exercise the
Series A Shareholder's Second Option before the expiration of
the Series A Shareholder's Second Option, the remaining
shareholders shall have the option (each a "SHAREHOLDER'S
OPTION") for a period of ten (10) days from the earlier of (i)
their receipt of written notice from the holders of the Series
A Convertible Preferred Stock of their decision not to
exercise or to only partially exercise the Series A
Shareholder's Second Option, or (ii) the expiration of the
Series A Shareholder's Second Option (the "OTHER SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the holders of Series A
Convertible Preferred Stock do not choose to purchase pursuant
to the Series A Shareholder's Second Option, in proportion to
their respective ownership of shares which, for purposes of
such determination, shall include without, duplication all
outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date
of such notice from the holders of the Series A Convertible
Preferred Stock (or the expiration of the Series A
Shareholder's Second Option), for an amount equal to the
applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether
such shareholder will exercise, partially exercise or not
exercise the Shareholder's Option before the expiration of the
Other Shareholder Election Period.
(p) For a period of ten (10) days from the earlier of
(i) the receipt by the other shareholders of a written notice
from a shareholder that it does not want to exercise its
option or will only partially exercise its option, or (ii) the
expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise
acquire such shareholder's portion of the shares described in
the Offer Notice in proportion to their respective ownership
of shares (determined as described in SECTION 7.4(d) above).
(q) If shares of a Transferring Shareholder remain
unsold after compliance with the procedures set forth in this
SECTION 7.4, the Company shall have the final option for ten
(10) days to purchase or otherwise acquire all of the
remaining shares proposed to be transferred for an amount
equal to the applicable portion of the Option Price. If,
however, the Company and the other shareholders do not
individually or collectively elect to purchase all of the
shares being offered,
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<PAGE> 28
the Transferring Shareholder may, within thirty (30) days
after the expiration of the Other Shareholder Election Period
(subject to the provisions of SECTION 7.4(h) below), transfer
all of the shares specified in the Offer Notice to the
transferee identified in the Offer Notice at the price and
terms stated in the Offer Notice. Any shares so transferred
thereupon shall continue to be subject to this Agreement, and
the transferee shall have the rights and obligations set forth
in this Agreement hereunder with respect to such shares. If
the Transferring Shareholder fails to consummate such transfer
within the thirty day period after the expiration of the Other
Shareholder Election Period, any transfer of the shares
thereafter shall again be subject to the provisions of this
SECTION 7.4.
(r) Unless otherwise agreed in writing, signed by the
person against whom such writing is sought to be enforced, the
closing of any acquisition of Series A Convertible Preferred
Stock hereunder pursuant to the Company's Option, a Series A
Shareholder's Option, or a Shareholder's Option shall take
place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such
forty-five day period, then the shares that were to be
acquired shall be offered in accordance with this SECTION 7.4
as though the applicable option had not been exercised.
(s) Notwithstanding the foregoing provisions of this
SECTION 7.4, the following shall apply in the event of any
Involuntary Transfer of Series A Convertible Preferred Stock.
An "INVOLUNTARY TRANSFER" shall mean any transfer caused by
the death of a shareholder, as well as any transfer,
proceeding or action by, through, as a consequence of, or in
which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the Series A
Convertible Preferred Stock of the Company, including, without
limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant
to a filing of a voluntary or an involuntary petition under
the United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Company
shall give written notice to each shareholder upon the
occurrence, or prospective occurrence, of such Involuntary
Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective
occurrence of such Involuntary Transfer. The foregoing
provisions of this SECTION 7.4 then shall apply, except (i)
the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually
agreeable to the Company and the
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<PAGE> 29
shareholder who made, or may make, the Involuntary Transfer,
multiplied by the percentage of all equity interests in the
Company that is then represented by the shares that are the
subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book
value of the Company, and (ii) the appraiser shall deliver
written notice of such valuation to the Company and to all
other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the
Option Notice for purposes of this SECTION 7.4. The cost of
the appraisal shall be shared equally by the Company and the
shareholder who made, or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this SECTION 7.4(g), the involuntary
transferee shall deliver certificates representing the Series
A Convertible Preferred Stock being purchased, duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes, and such shares shall be conveyed free and clear of any
liens, claims, options, charges, encumbrances or rights of
others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall
so represent and warrant. The involuntary transferee shall
further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this SECTION 7.4(g)
shall be held to be unenforceable with respect to any
particular Involuntary Transfer of Series A Convertible
Preferred Stock, or if all of the shares subject to the
Involuntary Transfer are not purchased by the Company and/or
one or more shareholders, and if the involuntary transferee
subsequently desires to transfer such Series A Convertible
Preferred Stock, the involuntary transferee shall be deemed to
be a "Transferring Shareholder" under this SECTION 7.4 and
shall be bound by the other provisions of this Agreement.
(t) Notwithstanding anything to the contrary
contained in this SECTION 7.4, no shareholder shall transfer
any Series A Convertible Preferred Stock at any time if such
action would constitute a violation of any federal or state
securities laws or a breach of the conditions to any exemption
from registration of the shares under any such laws or a
breach of any undertaking or agreement of such shareholder
entered into pursuant to such laws or in connection with
obtaining an exemption thereunder. Each shareholder agrees
that any shares purchased or acquired by such shareholder
shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal
and state securities laws, in addition to a legend referring,
to the restrictions set forth in this Agreement.
(u) The Amended and Restated Articles of
Incorporation shall contain provisions similar to the
foregoing provisions of SECTION 7.4 by which all of the
holders of the Common Stock grant a similar right of first
refusal to purchase the shares of such holders to the Company
and the holders of the Series A Convertible Preferred Stock,
and such provisions may not be amended without the
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<PAGE> 30
consent or approval of the holders of a majority of the
outstanding shares of the Series A Convertible Preferred
Stock.
7.5 Sale of the Company. At any time after April 4,
2001, and before the consummation of an Approved Offering, if
a bona fide offer is made by any person (other than I 3S
Funding I, L.L.C. ("FUNDING"), Blue Ridge Investors Limited
Partnership ("BLUE RIDGE") and Spotswood Capital, LLC
("SPOTSWOOD"), or any person or entity related to or
affiliated with Funding, Blue Ridge and Spotswood), to
purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written
notice that it desires such offer to be accepted, the Company
shall either accept the offer and consummate the sale on the
terms and conditions of the offer (in which case, if the
transaction is a stock sale or merger, Spotswood and Blue
Ridge also shall sell all of their equity interests in the
Company on those terms and conditions), or, subject to the
last paragraph of this SECTION 7.5, the Company shall acquire
all the equity interests owned by Funding, Spotswood and Blue
Ridge in the Company on the same terms and conditions as the
offer; provided, however, that if such offer is made prior to
April 4, 2003, the Company shall have no such obligation
unless the total consideration of such offer is at least
$350,000,000. If at any time Funding approves the sale of
substantially all of the assets or shares of stock of the
Company or if the transaction is a stock sale or merger, Blue
Ridge and Spotswood shall sell all of their equity interests
in the Company on the terms and conditions so approved. If the
Company accepts an offer to sell the Company made after April
4, 2001, the Purchasers and any person that acquires the
Series A Convertible Preferred Stock shall sell their shares
of Series A Convertible Preferred Stock (and Class A Common
Stock, if the shares of Preferred Stock have been converted)
and/or vote in favor of the proposed transaction (as the case
may be) so long as the holders of the Series A Convertible
Preferred Stock shall receive for their shares of Preferred
Stock an amount in cash equal to the aggregate Liquidation
Preference (as defined in the Statement of Designation of the
Series A Convertible Preferred Stock) plus accrued and unpaid
dividends for such shares of Series A Convertible Preferred
Stock, in preference to any other holders of capital stock of
the Company. At least 20 days prior to the consummation of any
such sale, the Company shall give the holders of the Series A
Convertible Preferred Stock written notice of the material
terms of the proposed sale. The holders of the outstanding
shares of Series A Convertible Preferred Stock shall have the
right to convert their shares into shares of Class A Common
Stock prior to or concurrently with the consummation of any
such sale and thereby be entitled to receive their pro rata
share of the proceeds of the sale that would otherwise be
payable to the holders of the Class A Common Stock (assuming
for such calculation the conversion of such shares of Series A
Convertible Preferred Stock as have exercised such right to
convert). The exercise of such right to convert by a holder of
Series A Convertible Preferred Stock shall be in lieu of any
right to receive such Liquidation Preference plus accrued and
unpaid dividends as a holder of such Series A Convertible
Preferred Stock or otherwise. In determining the total
consideration for purposes of the
26
<PAGE> 31
foregoing, any deferred payment shall be discounted to present
value at a discount rate of eight percent (8%) per annum.
Under its agreements with Funding, the Company has the right to avoid
the required sale of the Company, as described in this SECTION 7.5, by redeeming
the outstanding shares of Class B Common Stock and Class C Common Stock held by
Funding, Blue Ridge and Spotswood. The Company acknowledges and agrees that it
may not redeem such shares without first obtaining the consent or approval of
the holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, as required by the Statement of Designation.
7.6 Right of Co-Sale. At any time prior to the consummation of
an Approved Offering, the Purchasers and the holders of Class B Common
Stock and Class C Common Stock shall have the right to participate pro
rata to the fullest extent of their equity interest in the Company in
any sale or transfer of stock (with each share of Series A Convertible
Preferred Stock being treated for such purposes as the number of shares
of Class A Common Stock into which it could then be converted), by any
holder of shares of Class A Common Stock to any third party.
7.7 Observers. Each Purchaser who purchases at least 531,915
shares of Series A Convertible Preferred Stock, and so long as such
Purchaser continues to beneficially own at least 531,915 shares of
Series A Convertible Preferred Stock or Common Stock (as adjusted for a
Recapitalization Event), may designate one person to serve as an
observer (an "OBSERVER"). An observer shall be entitled (i) to receive
the same notice in respect of all meetings (both regular and special)
of the Board of Directors and each committee thereof (other than the
Audit Committee and Compensation Committee) as required to be furnished
to members of the Board of Directors of such committee by law or by the
Amended and Restated Articles of Incorporation or the Amended and
Restated Bylaws of the Company, (ii) to attend all meetings of the
Board of Directors and each committee thereof (other than the Audit
Committee and Compensation Committee), (iii) to receive all information
and reports which are furnished to members of the Board of Directors
and each committee thereof (including the Audit Committee and
Compensation Committee) at the time so furnished, and (iv) to
participate in all discussions conducted at meetings of the Board of
Directors and each committee thereof (other than the Audit Committee
and Compensation Committee). In the event that the directors are
discussing or voting on matters that directly relate to any business
dealings between the Company and (i) any Purchaser beneficially owning
at least 531,915 shares of Series A Convertible Preferred Stock or (ii)
any other vendor that competes with a Purchaser that has observer
rights hereunder, the Board may recuse all (but not less than all) of
the Observers until such matters have been concluded. An Observer may
share any information gained from presence at such meetings with the
Purchaser that designated such Observer and such Purchaser's employees,
officers, directors, attorneys and advisors (collectively, the
"PURCHASER'S REPRESENTATIVES"), but such information shall otherwise be
kept confidential by the Observer, Purchaser and Purchaser's
Representatives to the same extent that financial information or other
confidential information with regard to the Company is required to be
kept confidential in accordance with SECTION 7.3.
27
<PAGE> 32
7.8 Key Man Insurance. The Company has obtained and will
maintain (so long as they are officers of the Company) a "key man life
insurance policy" in the amount of $1,000,000 each on the lives of
James R. Price, Charles W. Price, Matthew Hutchins, William H. Anderton
and Daniel A. Gillett.
7.9 Access to Information. The Company will permit the
Purchasers to inspect at the Purchasers' expense any of the properties
or books and records of the Company, and to discuss the affairs and
condition of the Company with representatives of the Company, except
for information that (i) relates to any of the business dealings
between the Company and any of the Purchasers, (ii) relates to any
other vendor that competes with any of the Purchasers, or (iii) is
subject to any obligation of the Company to maintain the
confidentiality of such information, during normal business hours and
upon at least 24 hours prior notice to the Company, but no more
frequent than once each calendar quarter.
7.10 Restricted Corporate Actions. The Company will not,
without the vote or written approval of the holders of a majority of
the outstanding Series A Convertible Preferred Stock, take any of the
following actions:
(v) engage in any business outside the
Telecommunications Business. For purposes of this SECTION
7.10(a) and as otherwise used in this Agreement,
"TELECOMMUNICATIONS BUSINESS" shall mean the business of (i)
transmitting, or providing services relating to the
transmission of, voice, data or video through owned or leased
transmission facilities, (ii) constructing, creating,
developing or marketing communications-related network
equipment, software and other devices for use in a
telecommunications business or (iii) evaluating, participating
or pursuing any other activity or opportunity that is
primarily related to those identified in clauses (i) or (ii)
above;
(w) make any loans to any officers, directors or
affiliates of the Company in an aggregate amount exceeding
$100,000, other than commission advances and travel or
miscellaneous cash advances in the ordinary course of business
and loans to employees seeking to exercise stock options
issued pursuant to any of the Plans, the proceeds of which are
used to exercise such options;
(c) enter into any business arrangement or agreement
(other than a stock option agreement in accordance with the
Plans) with any officer, director or affiliate of the Company
on terms less favorable to the Company than an arms-length
transaction;
(d) acquire substantially all of the assets,
properties or capital stock of other persons or entities in
one or more transactions for an aggregate total consideration
consisting of an amount of cash exceeding ten percent (10%) of
the total purchase price paid to the Company for the original
issuance of all of the Series A Convertible Preferred Stock;
or
28
<PAGE> 33
(e) issue any stock, options, warrants, or securities
convertible into the capital stock of the Company with
exercise prices, in the case of options or warrants, or issue
prices, in the case of stock or convertible securities, at
less than fair market value, as determined in good faith by
the Company's Board of Directors, as of the date of grant in
the case of options or warrants or the date of issuance in the
case of stock or securities convertible into the capital stock
of the Company. No such restriction shall apply upon the
issuance of capital stock pursuant to the exercise of options
or warrants or the conversion of convertible securities of the
Company.
7.11 Shareholder and Director Information. At the request of
the Purchasers, the Company shall promptly deliver to the Purchasers
information regarding the security holders, officers and directors of
the Company, including, without limitation, names, addresses, types of
securities held and terms of securities held.
7.12 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the
Series A Convertible Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the Series A Convertible
Preferred Stock or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in
connection with the issuance of shares of Common Stock upon conversion
of the Series A Convertible Preferred Stock.
7.13 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, provide in writing, upon the written
request of the Purchasers or a prospective buyer of the Series A
Convertible Preferred Stock or shares of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock from the
Purchasers, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities
Act ("RULE 144A INFORMATION"). The Company's obligations under this
SECTION 7.13 shall at all times be contingent upon the Purchasers
obtaining from the prospective buyer of Series A Convertible Preferred
Stock or shares of Common Stock issued upon conversion of the Series A
Convertible Preferred Stock a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to
anyone other than
29
<PAGE> 34
a person who will assist such buyer in evaluating the purchase of any
Series A Convertible Preferred Stock or of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock.
7.14 Sale of Series A Convertible Preferred Stock. The Company
agrees that any additional shares of Series A Convertible Preferred
Stock sold by the Company after the Closing will be sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
7.15 Termination of Covenants. The covenants set forth in
SECTIONS 7.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 AND
7.14 hereof shall terminate and be of no further force or effect on the
earlier of the consummation of the first underwritten public offering
of common stock of the Company pursuant to a registration statement
filed with the Commission under the Securities Act with a concurrent
listing on the New York Stock Exchange, the American Stock Exchange, or
the Nasdaq Stock Market, Inc. at an initial offering price of at least
$20.00 per share (as adjusted for a Recapitalization Event) that
results in gross proceeds to the Company (before deduction of
underwriting discounts and expenses of sale) of not less than
$30,000,000 (an "APPROVED OFFERING"). For purposes of this Agreement, a
"RECAPITALIZATION EVENT" means an event described under Section 2.5 of
the Statement of Designation of the Series A Convertible Preferred
Stock.
8. Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay: (a) all the costs and expenses of the
reproduction of the Placement Memorandum, this Agreement, of all agreements and
documents referred to herein and of the certificates for the Series A
Convertible Preferred Stock and the Class A Common Stock into which it may be
converted; (b) all taxes (if any) payable with respect to this Agreement and the
issuance of the Series A Convertible Preferred Stock and the Class A Common
Stock into which it may be converted; (c) all costs of complying with the
securities or Blue Sky laws of any jurisdiction with respect to the offering or
sale of the Series A Convertible Preferred Stock and the Class A Common Stock
into which it may be converted; (d) the cost of delivering to such address as
each Purchaser shall specify the certificates for the Series A Convertible
Preferred Stock purchased by each such Purchaser and the certificates for the
Class A Common Stock into which the Series A Convertible Preferred Stock may be
converted; (e) the fees, expenses and disbursements of the Company's counsel in
connection with the Closing; and (f) the fees and expenses incurred with respect
to any amendments to this Agreement or the Amended and Restated Articles of
Incorporation of the Company proposed by the Company (whether or not the same
become effective).
9. Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the parties hereto
or on their behalf) and any disposition of the Series A Convertible Preferred
Stock or of the Class A Common Stock issued upon conversion thereof and shall
continue to survive for a period of time expiring on the earlier of (a) the
consummation of an Approved Offering, or (b) June 30, 2001. All statements
contained in any certificate or other
30
<PAGE> 35
instrument executed and delivered by the parties hereto or their duly authorized
officers or representatives pursuant hereto in connection with the transactions
contemplated hereby shall be deemed representations hereunder, and no officer or
representative of such parties shall have personal liability for such statements
unless such officer or representative shall make such statement in a grossly
negligent manner, in bad faith, fraudulently or pursuant to willful misconduct.
10. Notices. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this SECTION 10) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
(x) If to the Company:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
(y) If to the Purchasers at the address set forth on
SCHEDULE 1 hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth in ARTICLE 7 hereof, the date of mailing shall be deemed to be the
delivery date. The financial statements required by ARTICLE 7 hereof may be
mailed by first-class regular mail.
11. Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with)
31
<PAGE> 36
the written consent of (a) the Company, and (b) holders of at least 662/3 % of
the outstanding shares of the Series A Convertible Preferred Stock acting
together as a single class. Additionally, SECTION 9 of this Agreement may not be
amended, in any manner, without the unanimous consent of the holders of the
outstanding shares of the Series A Convertible Preferred Stock.
12. Entire Agreement. This Agreement and the Registration Rights
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties and commitments relating to the transactions
contemplated hereby, whether in writing or oral, prior to the date hereof,
except for those certain Confidentiality Agreements entered into by the
Purchasers with Donaldson, Lufkin & Jenrette on behalf of the Company.
13. Successors and Assigns. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in the Registration Rights
Agreement may only be transferred in accordance with Section 12 of the
Registration Rights Agreement.
14. Enforcement.
14.1 Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or
as of the date it was made, furnished or delivered, any party damaged
may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term
contained in this Agreement or the Amended and Restated Articles of
Incorporation of the Company (including the Statement of Designation)
or for an injunction against the breach of any such term or in
furtherance of the exercise of any power granted in this Agreement or
such Amended and Restated Articles (including the Statement of
Designation), or to enforce any other legal or equitable right of such
party or to take any one or more of such actions. The prevailing party
in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement or the Amended and
Restated Articles of Incorporation (including the Statement of
Designation) of the Company, including without limitation reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
14.2 Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any
32
<PAGE> 37
default shall be a waiver of any future or subsequent default. The
failure or delay in exercising any rights granted hereunder shall not
constitute a waiver of any such right and any single or partial
exercise of any particular right shall not exhaust the same or
constitute a waiver of any other right provided herein.
15. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
16. Governing Law and Severability. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas County, Texas. In the
event any provision of this Agreement or the application of any such provision
to any party shall be held by a court of competent jurisdiction to be contrary
to law, the remaining provisions of this Agreement shall remain in full force
and effect.
17. Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
33
<PAGE> 38
This Agreement is hereby executed as of the date first above written.
THE COMPANY
I 3S, INC.
By:
--------------------------------
Matthew Hutchins, Sr., President
[PURCHASER SIGNATURE ON FOLLOWING PAGE]
34
<PAGE> 39
THE PURCHASER:
MICROSOFT CORPORATION
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
35
<PAGE> 40
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 41
EXHIBIT B
AMENDED AND RESTATED BYLAWS
<PAGE> 42
EXHIBIT C
FORM OF STATEMENT OF DESIGNATION FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
<PAGE> 43
EXHIBIT D
PLACEMENT MEMORANDUM
<PAGE> 44
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 45
EXHIBIT F
FORM OF OPINION OF WINSTEAD SECHREST & MINICK, P.C.
<PAGE> 46
SCHEDULE I
THE PURCHASERS
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible Aggregate
Preferred Purchase Copy of Notices
Name of Purchasers Notice Address Stock Price Must be sent to
------------------ -------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Microsoft Corporation Chief Financial Officer 1,063,829 20,000,000 General Counsel
Microsoft Corporation Finance and Operations
One Microsoft Way, 8S/2055 Microsoft Corporation
Redmond, WA 98052 One Microsoft Way, 8S/2055
Redmond, WA 98052
</TABLE>
<PAGE> 1
EXHIBIT 10.38
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
BROADBANDNOW, INC.
JANUARY 25, 2000
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Purchase and Sale..................................................................................... 1
2. Closing of Purchase and Sale.......................................................................... 1
2.1 Closing; Closing Date........................................................................ 1
2.2 Transactions at Closing...................................................................... 1
3. Representations and Warranties of Company............................................................. 1
3.1 Organization, Standing and Qualification..................................................... 1
3.2 Capitalization............................................................................... 2
3.3 Validity of Stock............................................................................ 3
3.4 Subsidiaries................................................................................. 3
3.5 Financial Statements......................................................................... 3
3.6 Absence of Undisclosed Liabilities........................................................... 4
3.7 Absence of Certain Changes................................................................... 4
3.8 Authorization; Approvals..................................................................... 5
3.9 No Conflict with Other Instruments........................................................... 5
3.10 Labor Agreements and Actions................................................................. 6
3.11 Employee Matters............................................................................. 6
3.12 Title to Properties; Liens and Encumbrances.................................................. 6
3.13 Compliance with Corporate Instruments........................................................ 7
3.14 Patents, Trademarks and Other Intangible Assets.............................................. 7
3.15 Trade Secrets and Customer Lists............................................................. 8
3.16 Tax Matters.................................................................................. 8
3.17 Litigation................................................................................... 9
3.18 Minute Books................................................................................. 9
3.19 Insurance.................................................................................... 9
3.20 Fees and Commissions......................................................................... 9
3.21 Employee Benefit Plans....................................................................... 10
3.22 Material Contracts and Commitments........................................................... 12
3.23 Conflict of Interest Transactions............................................................ 13
3.24 Environmental Matters........................................................................ 13
3.25 Other Transactions........................................................................... 14
3.26 No Bankruptcies.............................................................................. 15
3.27 Year 2000 Compliance......................................................................... 15
3.28 Disclosure................................................................................... 15
3.29 Legal Compliance............................................................................. 15
3.30 Small Business Concern....................................................................... 15
3.31 Small Business Administration Documentation.................................................. 15
3.32 Prior Sales of Series A Convertible Preferred Stock.......................................... 15
4. Representations, Warranties and Covenants of Purchasers............................................... 15
4.1 Organization and Good Standing............................................................... 15
4.2 Authorization; Approvals..................................................................... 16
4.3 No Conflict with Other Instruments........................................................... 16
4.4 Investment Representations................................................................... 16
4.5 Investment Experience; Access to Information................................................. 16
4.6 Absence of Registration...................................................................... 16
4.7 Restrictions on Transfer..................................................................... 17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.8 Transfer Instructions........................................................................ 19
4.9 Economic Risk................................................................................ 19
4.10 Fees and Commissions......................................................................... 19
5. Conditions to Closing of the Purchasers............................................................... 19
5.1 Representations and Warranties............................................................... 19
5.2 Performance.................................................................................. 19
5.3 Company Consents, etc........................................................................ 19
5.4 Compliance Certificates...................................................................... 20
5.5 Government Actions........................................................................... 20
5.6 The Certificate of Designation............................................................... 20
5.7 The Articles of Incorporation................................................................ 20
5.8 Legal Opinion................................................................................ 20
5.9 Company Deliveries........................................................................... 20
6. Conditions to Closing of Company...................................................................... 21
6.1 Representations and Warranties............................................................... 21
6.2 Performance.................................................................................. 21
6.3 Purchaser Consents, etc...................................................................... 21
6.4 Compliance Certificates...................................................................... 21
7. Affirmative Covenants................................................................................. 21
7.1 Financial Information........................................................................ 21
7.2 Use of Proceeds.............................................................................. 22
7.3 Confidentiality.............................................................................. 22
7.4 Right of First Refusal....................................................................... 22
7.5 Sale of the Company.......................................................................... 26
7.6 Right of Co-Sale............................................................................. 28
7.7 Observers.................................................................................... 28
7.8 Key Man Insurance............................................................................ 28
7.9 Access to Information........................................................................ 28
7.10 Restricted Corporate Actions................................................................. 29
7.11 Shareholder and Director Information......................................................... 30
7.12 Reserve for Conversion Shares................................................................ 30
7.13 Rule 144A Information........................................................................ 30
7.14 Sale of Series A Convertible Preferred Stock................................................. 30
7.15 Termination of Covenants..................................................................... 30
8. Expenses.............................................................................................. 31
9. Survival of Agreements................................................................................ 31
10. Notices............................................................................................... 31
11. Modifications; Waiver................................................................................. 32
12. Entire Agreement...................................................................................... 32
13. Successors and Assigns................................................................................ 33
14. Enforcement........................................................................................... 33
14.1 Remedies at Law or in Equity................................................................. 33
14.2 Remedies Cumulative; Waiver.................................................................. 33
15. Execution and Counterparts............................................................................ 33
16. Governing Law and Severability........................................................................ 33
17. Headings.............................................................................................. 34
</TABLE>
ii
<PAGE> 4
EXHIBITS
Exhibit A - Certificate of Incorporation
Exhibit B - Bylaws
Exhibit C - Form of Certificate of Designation for the Series A Convertible
Preferred Stock
Exhibit D - Placement Memorandum
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Opinion of Winstead Sechrest & Minick, P.C.
SCHEDULES
Schedule 1 Purchasers
Schedule 3.1 Jurisdictions
Schedule 3.2 Capitalization
Schedule 3.4 Subsidiaries
Schedule 3.5 Financial Statements
Schedule 3.7 Absence of Certain Changes
Schedule 3.9 No Conflict with Other Instruments
Schedule 3.11 Employee Matters
Schedule 3.12 Title to Properties; Liens and Encumbrances
Schedule 3.14 Patents, Trademarks and Other Intangible Assets
Schedule 3.15 Trade Secrets and Customer Lists
Schedule 3.16 Tax Matters
Schedule 3.19 Insurance
Schedule 3.21 Employee Benefit Plans
Schedule 3.22 Material Contracts and Commitments
Schedule 3.23 Conflict of Interest Transactions
Schedule 3.29 Legal Compliance
Schedule 4.6 Registration Rights
Schedule 7.5 Prior Stock Purchase Agreement
iii
<PAGE> 5
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (this
"AGREEMENT"), dated as of January 25, 2000 is by and among BroadbandNOW, Inc., a
Delaware corporation (the "COMPANY"), and the purchasers identified in SCHEDULE
1 hereto (hereinafter referred to individually as a "PURCHASER" and collectively
as the "PURCHASERS").
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Purchase and Sale. Subject to the provisions of this Agreement, on
the Closing Date (as hereinafter defined), the Company will sell to each of the
Purchasers, severally and not jointly, and each of the Purchasers, severally and
not jointly, will purchase from the Company, the number of shares of Series A
Convertible Preferred Stock, par value $0.001 per share (the "SERIES A
CONVERTIBLE PREFERRED STOCK"), set forth opposite each such Purchaser's name in
SCHEDULE 1 annexed hereto at a price per share of Eighteen and 80/100 Dollars
($18.80).
2. Closing of Purchase and Sale.
2.1 Closing; Closing Date. The purchase and sale of the Series
A Convertible Preferred Stock (the "CLOSING") shall take place at the
offices of the Company at 1440 Corporate Drive, Irving, Texas 75038, at
10:00 a.m., local time, on January 25, 2000 (the "CLOSING DATE") or at
such other place or time as may be agreed upon by the Company and the
Purchasers.
2.2 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates for the shares
of Series A Convertible Preferred Stock to be issued and sold to such
Purchaser at the Closing, duly registered in such Purchaser's name,
against payment in full by such Purchaser of the aggregate purchase
price set forth opposite such Purchaser's name in SCHEDULE 1 hereto by
a wire transfer of funds made to the order of "BroadbandNOW, Inc." in
the amount of such aggregate purchase price. The Company shall also
deliver to the Purchasers those items required to be delivered to them
by the Company as described in ARTICLE 5 of this Agreement. The
Purchasers shall also deliver to the Company those items required to be
delivered to the Company by the Purchasers as described in ARTICLE 6 of
this Agreement.
3. Representations and Warranties of Company. The Company represents
and warrants to the Purchasers that:
3.1 Organization, Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, has all requisite corporate
power and authority to own its property and assets and to carry on its
business as it is presently being conducted and as it proposes to carry
on its business. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and the other
agreements contemplated herein, to issue and sell the Series A
Convertible Preferred Stock hereunder, to issue shares of Class A
Common Stock (as hereinafter defined) upon conversion of the Series A
Convertible
<PAGE> 6
Preferred Stock, and to carry out the transactions contemplated by this
Agreement and the other agreements contemplated herein. The Certificate
of Incorporation and Bylaws, copies of which are attached hereto as
EXHIBITS A and B, respectively, are true, correct and complete. The
Company is duly qualified and in good standing as a foreign corporation
authorized to do business in each of the jurisdictions in which the
failure to be so qualified would have a material adverse effect on the
Company. SCHEDULE 3.1 sets forth the jurisdictions in which the Company
is qualified.
3.2 Capitalization. The authorized capital stock of the
Company, as of the Closing Date, will consist of: (a) 100,000,000
shares of Class A Common Stock, par value $0.001 per share (the "CLASS
A COMMON STOCK"), of which 4,684,400 shares are issued and outstanding,
(b) 25,000,000 shares of Class B Common Stock, par value $0.001 per
share (the "CLASS B COMMON STOCK"), of which 4,979,777 shares are
issued and outstanding, (c) 25,000,000 shares of Class C Common Stock,
par value $0.001 per share (the "CLASS C COMMON STOCK"), of which
2,074,464 shares are issued and outstanding, and (d) 6,900,000 shares
of Preferred Stock, all of which have been designated as Series A
Convertible Preferred Stock, of which 3,756,420 shares are issued and
outstanding. The relative rights, preferences, restrictions and other
provisions relating to the Series A Convertible Preferred Stock are as
set forth in the Certificate of Designations, Preferences and Relative
Rights (the "CERTIFICATE OF DESIGNATION"), attached hereto as EXHIBIT
C. The Class A Common Stock, Class B Common Stock and Class C Common
Stock are hereinafter collectively referred to as the "COMMON Stock".
SCHEDULE 3.2 sets forth the name and, to the Company's knowledge, the
current address of each holder of Common Stock and Series A Convertible
Preferred Stock and number and class of shares so held by each holder.
Of the Class A Common Stock, (i) 4,979,777 shares are reserved for
issuance on the conversion of the Class B Common Stock, (ii) 2,074,464
shares are reserved for issuance on the conversion of the Class C
Common Stock, (iii) 4,893,617 shares are reserved for issuance on the
conversion of the Series A Convertible Preferred Stock, and (iv)
5,961,220 shares are reserved for issuance pursuant to employee stock
purchase or stock option plans adopted or to be adopted by the Company
for key employees and prior stock option grants. All of the outstanding
shares of the Common Stock are duly authorized and validly issued in
accordance with applicable law, fully paid and non-assessable.
Except as set forth on SCHEDULE 3.2 hereto, or as otherwise
contemplated by this Agreement, as of the date hereof there are, and
immediately following the Closing, there will be (i) no outstanding
options, warrants, agreements, conversion rights, preemptive rights or
other rights to subscribe for, purchase or acquire any issued or
unissued shares of capital stock of the Company, or any securities
convertible or exchangeable for such stock, and (ii) no restrictions
upon the voting or transfer of any shares of capital stock of the
Company pursuant to its Certificate of Incorporation, Bylaws or other
governing documents or any agreement or other instruments to which it
is a party or by which it is bound, and (iii) there are no agreements
to which the Company is a party or of which the Company has knowledge
regarding the issuance, registration, voting or transfer of or
obligation (contingent or otherwise) of the Company to repurchase or
otherwise acquire
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<PAGE> 7
or retire or redeem any of its outstanding shares of capital stock. No
dividends are accrued but unpaid on any capital stock of the Company.
3.3 Validity of Stock. The Series A Convertible Preferred
Stock, when issued, sold and delivered in accordance with the terms of
this Agreement, will be duly and validly authorized and issued, fully
paid, non-assessable and free and clear of all encumbrances or
restrictions on transfer except those imposed by applicable securities
laws, the Certificate of Incorporation, the Certificate of Designation
and this Agreement. The Class A Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock, when issued, sold and
delivered in accordance with the terms of this Agreement, will be duly
and validly authorized and issued, fully paid, non-assessable and free
and clear of all encumbrances or restrictions on transfer except those
imposed by applicable securities laws, the Certificate of
Incorporation, the Certificate of Designation and this Agreement. All
existing preemptive rights have been waived for purposes of the
issuance of the Series A Convertible Preferred Stock.
3.4 Subsidiaries. Except as set forth on SCHEDULE 3.4 hereto,
the Company does not control, directly or indirectly, or own any equity
interest in, any other corporation, partnership, joint venture,
association or business entity. The Company owns all of the issued and
outstanding capital stock of the corporation listed on Schedule 3.4
(the "SUBSIDIARY"). The Company has no assets or liabilities other than
the stock of the Subsidiary and holds a note from the Subsidiary
secured by the real property used as the Company's and the Subsidiary's
corporate headquarters. All issued and outstanding capital stock of the
Subsidiary has been duly and validly authorized and issued and is fully
paid and non-assessable and free and clear of all encumbrances. As of
the date hereof there are, and immediately following the Closing there
will be, no outstanding options, warrants, agreements, conversion
rights, preemptive rights or other rights to subscribe for, purchase or
acquire any issued or unissued shares of capital stock of the
Subsidiary, or any securities convertible into or exchangeable for such
stock. The Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, has all
requisite corporate power and authority to own its property and assets
and to carry on its business as it is presently being conducted and as
it proposes to carry on its business. The Subsidiary is duly qualified
and in good standing as a foreign corporation authorized to do business
in each of the jurisdictions in which the failure to be so qualified
would have a material adverse effect on the Subsidiary. SCHEDULE 3.4
sets forth the jurisdictions in which the Subsidiary is qualified.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are
the unaudited balance sheets as at December 31, 1997 and September 30,
1999 and unaudited statements of income, changes in stockholders
equity, and cash flow of the Subsidiary for the year ended December 31,
1997 and the quarter ended September 30, 1999, and the audited balance
sheet as at December 31, 1998, and audited statements of income,
changes in stockholders equity, and cash flow of the Subsidiary for the
year ended December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance
with the books and records of the Subsidiary and generally accepted
accounting principles ("GAAP") (except the
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<PAGE> 8
September 30, 1999 financial statements and the September 30, 1999
balance sheet (the "BALANCE SHEET") are subject to normal and recurring
year-end audit adjustments which are not expected to be material in
amount) and fairly and accurately reflect the financial condition and
the results of operations (except for the year ended December 31, 1997)
of the Subsidiary as of the respective dates thereof or for the periods
covered in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Except as provided in
the Financial Statements, neither the Company nor the Subsidiary has
any material debt, liability or obligation, absolute or contingent
(including without limitation obligations in any capacity as guarantor
or surety), other than obligations incurred in the ordinary course of
business since September 30, 1999 (the "BALANCE SHEET DATE"). Without
limiting the generality of the foregoing, the Company knows of no basis
for the assertion against the Company or the Subsidiary as of the date
hereof of any material liabilities (not reflected in the Financial
Statements) of the Company or the Subsidiary.
3.7 Absence of Certain Changes. Except as set forth in
SCHEDULE 3.7, since the Balance Sheet Date, neither the Company nor the
Subsidiary has:
suffered any material adverse change, whether or not
caused by any deliberate act or omission of the Company or any
shareholder of the Company, or the Subsidiary, in their
respective condition (financial or otherwise), operations,
assets, liabilities, business or prospects, taken as a whole;
contracted for the purchase of any capital assets
having a cost in excess of $500,000 or paid any capital
expenditures in excess of $500,000;
incurred any indebtedness for borrowed money or
issued or sold any debt securities in excess of $150,000;
incurred or discharged any liabilities or
obligations, except in the ordinary course of business;
mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of
its properties or assets other than equipment financing liens
incurred in the ordinary course of business;
suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has
materially and adversely affected, or could reasonably be
expected to, materially and adversely affect, its business;
acquired or disposed of any assets except in the
ordinary course of business;
waived any material rights or forgiven any material
claims;
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<PAGE> 9
lost, terminated or, to the Company's knowledge,
experienced any change in the relationship with any employee,
customer or supplier, which termination or change has
materially and adversely affected, or could reasonably be
expected to materially and adversely affect, its business or
assets;
loaned any money to any person or entity in excess of
$100,000;
redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any
of its capital stock or securities or any rights to acquire
such capital stock or securities, or agreed to change the
terms and conditions of any such rights or paid any dividends
or made any distribution to the holders of the Company's
capital stock other than stock options granted to employees
under the Company's Incentive Stock Option Plan; or
committed to do any of the foregoing.
3.8 Authorization; Approvals. All corporate action on the part
of the Company and its shareholders necessary for the authorization,
execution, delivery, and performance of all its obligations under this
Agreement, and for the authorization, issuance, and delivery of the
Series A Convertible Preferred Stock being sold under this Agreement
and of the Class A Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock has been taken. This Agreement
constitutes a valid and legally binding obligation of the Company
legally enforceable against it in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general principles of equity. The Company has obtained or will
obtain prior to the Closing Date all necessary consents,
authorizations, approvals and orders from any federal, state or other
relevant governmental authority and from any individual, corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company or other entity, and has made all
registrations, qualifications, designations, declarations or filings
with all federal, state, or other relevant governmental authorities,
all as may be required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement,
except for filings pursuant to applicable securities laws which will be
made after the Closing Date.
3.9 No Conflict with Other Instruments. Except as set forth on
SCHEDULE 3.9, the execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute
a default under any terms or provision of (a) the Company's Certificate
of Incorporation or Bylaws; (b) any Commitments (as hereinafter
defined); or (c) any judgment, decree or order or any statute, rule or
governmental regulation applicable to the Company or the Subsidiary.
Subject to the truth and accuracy of each Purchaser's representations
and warranties herein and the Company making any required filings which
the Company agrees to do, the offer and sale of the Series A
Convertible Preferred Stock to each Purchaser will be in compliance
with all federal and state securities laws.
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<PAGE> 10
3.10 Labor Agreements and Actions. Neither the Company nor the
Subsidiary is bound by or subject to (and none of their respective
assets or properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge,
sought to represent any of the employees, representatives or agents of
the Company or the Subsidiary. There is no strike or other labor
dispute involving the Company or the Subsidiary pending, or, to the
Company's knowledge, threatened, which could have a material adverse
effect on the financial condition, operating results, or business of
the Company and the Subsidiary taken as a whole, nor is the Company
aware of any labor organization activity involving its employees of the
Company or the Subsidiary.
3.11 Employee Matters. SCHEDULE 3.11 contains a complete and
accurate list of the names, titles and Cash Compensation (as
hereinafter defined) of all members of executive management of the
Company, regardless of compensation levels, and other employees who are
currently compensated at a rate in excess of $100,000 per year or who
earned in excess of $100,000 during the Company's preceding fiscal
year. For purposes of this SECTION 3.11, "CASH COMPENSATION" shall mean
wages, salaries, bonuses (discretionary or otherwise) and other
compensation paid or payable in cash. Except as disclosed in SCHEDULE
3.11, neither the Company nor the Subsidiary has any employment
agreements, employee leasing agreements, employee service agreements,
or noncompetition agreements.
3.12 Title to Properties; Liens and Encumbrances.
Except as disclosed on SCHEDULE 3.12(A), each of the
Company and the Subsidiary has good and marketable title to
its assets, including, without limitation, those reflected on
the Balance Sheet (other than those since disposed of in the
ordinary course of business), free and clear of all security
interests, liens, charges and other encumbrances, except for
(i) liens for taxes not yet due and payable or being contested
in good faith in appropriate proceedings, and (ii)
encumbrances that are incidental to the conduct of their
respective businesses or ownership of property, not incurred
in connection with the borrowing of money or the obtaining of
credit, and which do not in the aggregate materially detract
from the value of the assets affected or materially impair
their use by the Company or the Subsidiary. With respect to
the assets of the Company or the Subsidiary that are leased,
the Company or the Subsidiary is in compliance with all
material provisions of such leases. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned,
leased or used by the Company or the Subsidiary are in good
operating condition and repair, normal wear and tear excepted,
and are adequate and sufficient for the business of the
Company and the Subsidiary.
The Company or the Subsidiary enjoys peaceful and
undisturbed possession under all real property leases under
which the Company or the Subsidiary is operating, and all such
leases are valid and subsisting and none of them is in
default. A listing of said real property leases, their terms
and total lease payments is attached hereto as SCHEDULE
3.12(b).
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<PAGE> 11
Except as disclosed in SCHEDULE 3.12(C), neither the
Company nor the Subsidiary owns any real property.
3.13 Compliance with Corporate Instruments. The Company is not
in violation of any provision of its Certificate of Incorporation,
Bylaws of the Company or Certificate of Designation, and neither the
Company nor the Subsidiary is in default or violation of any Commitment
to which the Company or the Subsidiary is a party or by which any of
their respective property is bound, the default or violation of which
would materially and adversely affect the Company's business,
prospects, condition, affairs or operations of the Company and the
Subsidiary taken as a whole.
3.14 Patents, Trademarks and Other Intangible Assets.
SCHEDULE 3.14(a) hereto sets forth the true and
correct list of all registered patents, trademarks and
copyrights (or applications therefor) held by the Company or
the Subsidiary. Except as set forth on SCHEDULE 3.14(a), the
Company or the Subsidiary possesses ownership or has the right
to use all patents, copyrights, trademarks, service marks,
trade secrets and other proprietary intellectual property
rights necessary for the operation of its business except
where the failure of the Company or the Subsidiary to own or
have such right to use such intellectual property would not
have a material adverse effect on the Company and the
Subsidiary, taken as a whole (the "INTELLECTUAL PROPERTY"). To
the Company's knowledge, neither the Company nor the
Subsidiary (a) is infringing upon the intellectual property
rights of others in connection with its business; (b) requires
the consent of any person which has not been obtained (all of
such consents being set forth in SCHEDULE 3.14(a)) to use the
Intellectual Property; (c) is restricted from freely
transferring the Intellectual Property (other than as set
forth in SCHEDULE 3.14(a)); or (d) has received any written
notice of conflict with respect to the intellectual property
rights of any other person or entity. All of the Intellectual
Property is valid and subsisting, has not been canceled,
abandoned or otherwise terminated and, if applicable, has been
duly issued or filed. The employees and consultants of the
Company or the Subsidiary, who, either alone or in concert
with others, developed, invested, discovered, derived,
programmed or designed any of the Intellectual Property owned
by the Company or the Subsidiary have entered into written
agreements to protect the confidentiality of such Intellectual
Property and to assign to the Company or the Subsidiary all
rights therein.
The Company has no knowledge of any claim that, or
inquiry as to whether, any product, activity or operation of
the Company or the Subsidiary infringes upon or involves, or
has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are
threatened that challenge the rights of the Company or the
Subsidiary with respect thereto. Any agreement of
indemnification by the Company or the Subsidiary for any
Intellectual Property as
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<PAGE> 12
to any license granted by it or any property manufactured,
used or sold by it is set forth in SCHEDULE 3.14(B).
3.15 Trade Secrets and Customer Lists. The Company or the
Subsidiary has the right to use, free and clear of any claims or rights
of others, except claims or rights specifically set forth in SCHEDULE
3.15, all trade secrets, customer lists and proprietary information
required for the marketing of all merchandise and services formerly or
presently sold or marketed by the Company or the Subsidiary. To the
Company's knowledge, neither it nor the Subsidiary is using, or in any
way making use of, any confidential information or trade secrets of any
third party, including, without limitation, any past or present
employee of the Company or the Subsidiary, except under valid and
existing license agreements (all such license agreements being set
forth in SCHEDULE 3.15).
3.16 Tax Matters.
All required foreign, federal, state, local and other
tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns) of the Company
and the Subsidiary have been accurately prepared in all
material respects and duly and timely filed, and all foreign,
federal, state, local and other taxes required to be paid with
respect to the periods covered by such returns have been paid.
Neither the Company nor the Subsidiary is or has been
delinquent in the payment of any tax, assessment or
governmental charge. Neither the Company nor the Subsidiary is
a party to any agreement, contract, arrangement or plan that
has resulted or would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. Neither the Company nor
the Subsidiary has or has had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
Except as set forth in SCHEDULE 3.16, neither the
Company nor the Subsidiary has had any tax deficiency proposed
or assessed against it and has not executed any waiver of any
statute of limitations on the assessment or collection of any
tax or governmental charge. Except as set forth in SCHEDULE
3.16, and except for sales tax audits, none of the Company's
or the Subsidiary's franchise tax returns has ever been
audited by governmental authorities. No tax audit, action,
suit, proceeding, investigation or claim is now pending nor,
to the best knowledge of the Company, threatened against the
Company or the Subsidiary, and no issue or question has been
raised (and is currently pending) by any taxing authority in
connection with any of the Company's or the Subsidiary's tax
returns or reports.
To the Company's knowledge, the reserves for taxes,
assessments and governmental charges reflected on the Balance
Sheet are and will be sufficient for the payment of all unpaid
taxes and governmental charges payable by the
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<PAGE> 13
Company or the Subsidiary with respect to the period ended on
the Balance Sheet Date. Since the Balance Sheet Date, the
Company or the Subsidiary has made adequate provisions on its
books of account for all taxes, assessments and governmental
charges with respect to business, properties and operations
for such period. The Company or the Subsidiary withheld or
collected from each payment made to its employees, the amount
of all taxes (including, but not limited to, federal income
taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or
collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
3.17 Litigation. No action, proceeding or investigation is
pending or threatened against the Company, the Subsidiary or any of
their respective properties before any court, arbitration board or
tribunal or administrative or other governmental agency (including,
without limitation, unfair labor practices or discrimination charges or
complaints), that might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
condition, affairs, operations, or assets of the Company and the
Subsidiary, taken as a whole, or in any material liability on the part
of the Company or the Subsidiary. The foregoing includes, without
limiting its generality, actions pending or threatened involving the
prior employment of any of the Company's or the Subsidiary's employees
or use by any of them in connection with the Company's or the
Subsidiary's business of any information, property or techniques
allegedly proprietary to any of their former employers.
3.18 Minute Books. The minute books of the Company and the
Subsidiary have been made available to the counsel for the Purchasers
and contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects.
3.19 Insurance. The Company and/or the Subsidiary carries
property, liability, workers' compensation and such other types of
insurance as is customary in the Company's and/or the Subsidiary's
industry. A list and brief description of all insurance policies of the
Company and the Subsidiary are set forth in SCHEDULE 3.19. All of such
policies are valid and enforceable policies, issued by insurers of
recognized responsibility in amounts and against such risks and losses
as are customary in the Company's and/or the Subsidiary's industry. All
casualty insurance is sufficient in amount to allow the Company or the
Subsidiary to replace any of its properties that might be damaged or
destroyed.
3.20 Fees and Commissions. The Company has retained Donaldson,
Lufkin & Jenrette ("DLJ") as financial advisor and placement agent in
connection with the transactions contemplated by this Agreement. The
Company shall pay all fees owed DLJ in connection with the transactions
contemplated by this Agreement from the proceeds of the sale of the
Preferred Stock (the "OFFERING") pursuant to the Placement Memorandum
(as hereinafter defined). The Company represents and warrants that
other than as stated in this SECTION 3.20, neither it nor the
Subsidiary has retained any finder, broker, agent, financial adviser or
other intermediary in connection with the transactions contemplated
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<PAGE> 14
by this Agreement. The Company agrees to indemnify and hold harmless
the Purchasers for any brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by the Company or
the Subsidiary.
3.21 Employee Benefit Plans.
SCHEDULE 3.21 contains true, complete and correct
information as to any bonus, incentive, insurance (including
any self-insured arrangements), compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing,
salary reduction, deferred compensation, stock purchase, stock
option, workers' compensation, disability benefits,
supplemental unemployment benefits (including without
limitation any "voluntary employees' beneficiary association"
as defined in Section 501(c)(9) of the Code) (as hereinafter
defined), vacation, holiday and sick pay or other similar
benefit plans, programs or arrangements (whether written or
oral) (said plans, programs or arrangements being referred to
as the "PLANS") in which any employees of the Company or the
Subsidiary participate. All Plans are listed on the attached
SCHEDULE 3.21. All obligations of the Company or the
Subsidiary, whether arising by operation of law, by contract
or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect
to unemployment compensation benefits, social security
benefits or any other benefits for employees of the Company or
the Subsidiary have been paid or shall be paid by the Company
or the Subsidiary at the time the Company or the Subsidiary is
obligated to make such payments. All benefits payable directly
to the Company's or the Subsidiary's employees have been paid
or shall be paid by the Company or the Subsidiary at the time
the Company or the Subsidiary is obligated to make such
payments. All reasonably anticipated obligations of the
Company or the Subsidiary, whether arising by operation of
law, by contract or by past custom, for vacation and holiday
pay, bonuses and other forms of compensation or benefits which
are or may become payable to employees or any of them have
been paid, or shall be paid, in accordance with the provisions
of applicable laws, regulations, benefit plans or policies.
True, complete and correct copies of all relevant
documents with respect to the Plans, including, but not
limited to, each of the following documents: (i) a copy of the
Plan and each related trust or other funding agreement,
including insurance contracts (and all amendments thereto);
(ii) the last filed Form 5500, where applicable; (iii) the
most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to
be qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "CODE"); and (iv) the summary plan
descriptions and all material modifications thereto, have been
delivered to Purchasers.
All Plans, related trust agreements, annuity
contracts or other funding arrangements comply in all
substantial respects and the Company or the
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<PAGE> 15
Subsidiary has administered and operated each such Plan,
related trust agreements, annuity contracts or other funding
arrangements in substantial compliance with the requirements
of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"),
and the Code, and no such Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA has incurred any "accumulated
funding deficiency" within the meaning of Section 302 of ERISA
or Section 412 of the Code, whether or not waived.
Neither the Company nor the Subsidiary maintains or
is required to contribute to any multi-employer plan (as
defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company or the
Subsidiary. Neither the Company nor the Subsidiary maintains a
self-insured "multiple employer welfare arrangement" as
defined in Section 3(40) of ERISA.
The Pension Benefit Guaranty Corporation ("PBGC") has
not instituted proceedings to terminate any of the Company's
or the Subsidiary's defined benefit plans and no condition
exists that presents a risk that such proceedings shall be
instituted. There has been no "reportable event" within the
meaning of Section 4043(b) of ERISA with respect to any
defined benefit plan and no defined benefit plan has been
terminated within the preceding six years or is expected to be
terminated. No liability (other than for the payment of
premiums) to the PBGC has been or is expected to be incurred
by the Company or the Subsidiary or any officer, director,
shareholder or employee of the Company or the Subsidiary with
respect to any defined benefit plan.
Neither the Company nor the Subsidiary has any
liability with respect to any transaction which relates to any
Plan and which is in violation of Sections 404 or 406 of ERISA
or constitutes a "prohibited transaction," as defined in
Section 4975(c)(1) of the Code, and for which no exemption
exists under Section 408 of ERISA or Section 4975(c)(2) or (d)
of the Code. To the Company's knowledge, neither the Company
nor the Subsidiary has participated in a violation of Part 4
of Title I, Subtitle B of ERISA by any plan fiduciary of any
Plan and has no unpaid civil penalty under Section 502(1) of
ERISA.
There is no material action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation,
proceeding, arbitral action, governmental audit or
investigation (including, without limitation, any such audit
or investigation by the Internal Revenue Service, Department
of Labor, or PBGC) relating to or seeking benefits under any
Plan that is pending or, to the Company's knowledge,
threatened or anticipated against the Company or the
Subsidiary other than routine claims for benefits.
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<PAGE> 16
3.22 Material Contracts and Commitments.
Material Contracts and Commitments. Except as set
forth in SCHEDULE 3.22, neither the Company nor the Subsidiary
has entered into, nor is the capital stock, the assets or the
business of the Company or the Subsidiary bound by, whether or
not in writing, any
deed of trust securing a lien in any
real property owned by the Company or the Subsidiary;
security agreement granting a
security interest in connection with the Company's or
the Subsidiary's incurrence of indebtedness for
borrowed money;
guaranty or suretyship agreement or
performance bond, in each case involving a contingent
obligation of the Company or the Subsidiary in excess
of $100,000;
consulting or compensation agreement
or similar arrangement that is not an Employment
Agreement and that involves compensation payable by
the Company or the Subsidiary in excess of $100,000
annually or an agreement relating to the election or
retention in office of any director or officer;
debt instrument, loan agreement or
other obligation relating to indebtedness for
borrowed money;
money lent or to be lent by the
Company or the Subsidiary to another in an amount in
excess of $10,000;
lease of real property, whether as
lessor, lessee, sublessor or sublessee (excluding the
real estate leases set forth on SCHEDULE 3.12);
lease of personal property, whether
as lessor, lessee, sublessor or sublessee involving
lease payments in an annual amount in excess of
$50,000;
any agreement for the acquisition of
services, supplies, equipment or other personal
property (excluding leases of real or personal
property) and involving more than $100,000 in the
aggregate;
contracts containing noncompetition
covenants restricting the Company's or the
Subsidiary's ability to compete in the
Telecommunications Business (as hereinafter defined);
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<PAGE> 17
agreement providing for the purchase
from a supplier of all or substantially all of the
requirements of the Company or the Subsidiary of a
particular product or service; or
agreement or commitment a copy of
which would be required to be filed with the
Securities and Exchange Commission (the "COMMISSION")
as an exhibit to a registration statement on Form
S-1, or a successor form, pursuant to Paragraph 10 of
Item 601 of Regulation S-K, if the Company were
registering securities under the Securities Act of
1933, as amended (the "Securities Act") .
All of the documents listed on SCHEDULE 3.22 hereof are
hereinafter collectively referred to as the "COMMITMENTS."
True, correct and complete copies of the written Commitments
have heretofore been made available to Purchasers. To the
knowledge of the Company, the Commitments are in full force
and effect and are valid and enforceable obligations of the
parties thereto in accordance with their respective terms
(except as may be limited by the laws of bankruptcy,
insolvency or creditors rights generally and subject to the
enforceability and availability of equitable remedies), and to
the knowledge of the Company, no defenses, off-sets or
counterclaims have been asserted by any party thereto, nor has
the Company or the Subsidiary waived in writing any rights
thereunder, except as described in SCHEDULE 3.22. Neither the
Company nor the Subsidiary has received written notice of any
default with respect to any Commitment.
No Cancellation or Termination of Commitments.
Neither the Company nor the Subsidiary has received written
notice of any plan or intention of any other party to any
Commitment to exercise any right to cancel or terminate any
Commitment.
3.23 Conflict of Interest Transactions. Except as set forth on
SCHEDULE 3.23, no director, Common Stock holder, member of management
of the Company, or their spouses or children, owns directly or
indirectly, on an individual or joint basis, any interests, has any
investment in or serves as an officer, partner or director in any
corporation, business or other person that is a customer, supplier or
competitor of the Company or the Subsidiary, or that has a material
contract or arrangement with the Company or the Subsidiary or their
competitor, other than the ownership of less than one percent (1%) of
the securities of any company that are publicly traded on any national
exchange or over the counter market.
3.24 Environmental Matters. To the Company's knowledge,
neither the Company nor the Subsidiary nor any of their respective
assets is currently in material violation of, or subject to any
material existing, pending or threatened investigation or inquiry by
any governmental authority or to any remedial obligations under any
environmental laws, and this representation and warranty would continue
to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the assets and operations of the
Company and the
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<PAGE> 18
Subsidiary. To the Company's knowledge, the assets of the Company and
the Subsidiary have never been used in a manner that would be in
material violation of any of the environmental laws. To the Company's
knowledge, neither the Company nor the Subsidiary is required to obtain
any permits, licenses or similar authorizations to construct, occupy,
operate or use any buildings, improvements, fixtures and equipment
owned or leased by the Company or the Subsidiary by reason of any
environmental laws. None of the assets owned or leased by the Company
or the Subsidiary are on any federal or state "Superfund" list or
subject to any environmentally related liens.
3.25 Other Transactions. Other than the offering and sale of
the Series A Convertible Preferred Stock hereunder, the Company has not
entered into any agreements or arrangements and has no knowledge of any
pending or possible offers or discussions concerning or providing for
the merger or consolidation of the Company or the Subsidiary or the
sale of all or any substantial portion of their respective assets, the
sale by the Company or any material shareholder of the Company of any
Securities of the Company or the Subsidiary or any similar transaction
affecting the Company or the Subsidiary or their respective security
holders.
3.26 No Bankruptcies. For the past five years, neither the
Company nor the Subsidiary nor any of their respective officers,
directors or affiliates, have voluntarily sought, consented to or
acquiesced in the benefits of, or become the subject of a proceeding
under the Bankruptcy Code of the United States or any other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor relief laws
from time to time in effect affecting the rights of creditors
generally.
3.27 Year 2000 Compliance. To the Company's knowledge, the
computer systems used by the Company and the Subsidiary are Year 2000
compliant, meaning that such systems will continue to function, and
functionality and accuracy will not be affected as a result of the run
date or the dates being processed in the twentieth or twenty-first
century, including the advent of the Year 2000, or from the extra day
occurring in any leap year.
3.28 Disclosure. To the Company's knowledge, this Agreement
and the exhibits and schedules hereto, when taken as a whole with other
documents and certificates furnished by the Company to the Purchasers
or their counsel, do not contain any untrue statement of material fact
or omit any material fact necessary in order to make the statements
therein not misleading; provided, however, certain materials provided
to the Purchasers contain projections and estimates of future events,
and such projections and estimates are subject to the statements in the
Placement Memorandum (as hereinafter defined), including, without
limitation, the statements set forth on page 42 thereof. There is no
fact known to the Company that has not been disclosed to the Purchasers
prior to the date of this Agreement that materially and adversely
affects the business, assets, properties, prospects or condition
(financial or otherwise) of the Company and the Subsidiary, taken as a
whole, or the ability of the Company to perform under this Agreement or
the other agreements contemplated hereby or to consummate the
transactions contemplated hereby or thereby. For purposes of this
SECTION 3.28 only, "to the Company's knowledge" shall
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<PAGE> 19
include any information the Company would have known except for its
reckless disregard for the accuracy of any material fact.
3.29 Legal Compliance. Except as set forth on SCHEDULE 3.29,
(a) each of the Company and the Subsidiary has all material franchises,
permits, licenses and other rights and privileges necessary to permit
it to own its respective properties and to conduct its respective
businesses as presently conducted (all of which such items are set
forth on SCHEDULE 3.29) and (b) the Company, the Subsidiary and the
business and operations of the Company and the Subsidiary, have been
and are being conducted in all material respects in accordance with all
applicable laws, rules and regulations (including, without limitation,
all employment, labor practices, safety and health laws and
regulations), and the Company is not in violation of any judgment,
order or decree. There is no existing law, rule, regulation or order
which would prohibit or restrict the Company or the Subsidiary from, or
otherwise materially adversely affect the Company or the Subsidiary in,
conducting its business in any jurisdiction in which it is now
conducting business or, to the Company's knowledge, in which it
proposes to conduct business.
3.30 Small Business Concern. The Company, taken together with
its "affiliates" (as that term is defined in Section 121.401 of Title
13 of the Code of Federal Regulations) is a "Small Business Concern"
within the meaning of Section 103(5) of the Small Business Investment
Act of 1958, as amended (the "SBIC Act"), and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
121.3, and meets the applicable size and eligibility criteria set forth
in Title 13, Code of Federal Regulations, Section 121.802(a)(2).
Neither the Company nor any of its subsidiaries, if any, presently
engages in any activity for which a small business investment company
is prohibited from providing funds by the SBIC Act and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section
107.
3.31 Small Business Administration Documentation. The Company
has provided Purchasers, who have requested, a Small Business
Administration "SBA" Form 480 (Size Status Declaration) and SBA Form
652 (Assurance of Compliance), of such Forms, which have been completed
and executed by the Company, and SBA Form 1031 (Portfolio Finance
Report), Part A of which has been completed by the Company.
3.32 Prior Sales of Series A Convertible Preferred Stock. All
shares of Series A Convertible Preferred Stock sold by the Company or
sold by the Subsidiary and converted into or exchanged for Series A
Convertible Preferred Stock of the Company have been sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
4. Representations, Warranties and Covenants of Purchasers.
4.1 Organization and Good Standing. Each Purchaser severally
represents and warrants that, if a corporation, partnership, trust or
other form of business entity, it is duly organized, validly existing
and in good standing under the laws of the state of its organization,
has all requisite power and authority to own its property and assets
and to
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<PAGE> 20
carry on its business as it is presently being conducted and as it
proposes to carry on its business, is duly qualified and in good
standing and authorized to do business in each of the jurisdictions in
which the failure to be so qualified would have a material adverse
effect on the Purchaser.
4.2 Authorization; Approvals. Each Purchaser severally
represents and warrants that the execution and delivery of this
Agreement has been duly authorized by such Purchaser and this Agreement
is a valid and legally binding obligation of such Purchaser legally
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and
general principles of equity. Each Purchaser, if a corporation,
partnership, trust or other form of business entity, is duly qualified
to purchase and hold the Series A Convertible Preferred Stock sold
hereunder. Each Purchaser represents and warrants that the information
set forth on SCHEDULE 1 hereto regarding such Purchaser's business and
residence addresses, telephone numbers, citizenship and taxpayer
identification number is true, accurate and complete. Each Purchaser
severally represents and warrants that it has obtained, or will obtain
prior to the Closing Date, all necessary consents, authorizations,
approvals and orders required on the part of such Purchaser in
connection with the consummation of the transactions contemplated by
this Agreement.
4.3 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute a default under any
terms or provisions of (a) if a corporation, partnership, trust or
other form of business entity, the applicable charter documents of such
Purchaser; (b) any material contract, indenture or other agreement to
which the Purchaser is a party; or (c) any judgment, decree or order or
any material statute, rule or governmental regulation applicable to the
Purchaser.
4.4 Investment Representations. Each Purchaser severally
represents and warrants that it is acquiring the Series A Convertible
Preferred Stock to be purchased by it (and any Class A Common Stock
into which it may be converted) for its own account, for investment and
not with a view to, or for sale in connection with, any distribution of
such stock or any part thereof.
4.5 Investment Experience; Access to Information. Each
Purchaser severally represents and warrants that it (a) is an
"accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act (or any successor provision), (b)
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of this investment,
(c) has the ability to bear the economic risks of this investment for
an indefinite period of time, and (d) has received a copy of the
Private Placement Memorandum and any supplements thereto (collectively,
the "PLACEMENT MEMORANDUM") attached hereto as EXHIBIT D.
4.6 Absence of Registration. Each Purchaser understands that:
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<PAGE> 21
The Series A Convertible Preferred Stock to be sold
and issued hereunder and the Class A Common Stock into which
it may be converted have not been registered under the
Securities Act or any other securities laws on the basis that
the sale of such stock to the Purchaser is exempt from
registration under the Securities Act and such other
securities laws, and the Purchaser may be required to hold
such stock indefinitely unless it is subsequently registered
under the Securities Act and any other applicable securities
laws, or exemptions from such registration are available.
The Company's reliance on the exemptions referred to
in SECTION 4.6(a) above is predicated in part upon the
Purchaser's representations and warranties contained in this
ARTICLE 4.
Except as provided in that certain Registration
Rights Agreement, to be executed at the Closing, by and among
the Company and the Purchasers (the "REGISTRATION RIGHTS
AGREEMENT"), attached hereto as EXHIBIT E and as noted in
SCHEDULE 4.6 hereto, the Company is under no obligation to
file a registration statement with the Commission or any other
securities regulatory agency with respect to the Series A
Convertible Preferred Stock or the Class A Common Stock into
which it may be converted.
Rule 144 promulgated under the Securities Act or any
successor provision ("Rule 144"), which provides for certain
limited sales of unregistered securities, is not presently
available with respect to the Series A Convertible Preferred
Stock or the Class A Common Stock into which it may be
converted, and the Company is under no obligation to make Rule
144 available.
4.7 Restrictions on Transfer. Each Purchaser agrees that: (a)
it will not offer, sell, pledge, hypothecate, or otherwise dispose of
the Series A Convertible Preferred Stock or the Class A Common Stock
into which it may be converted unless such offer, sale, pledge,
hypothecation or other disposition is in accordance with the
Certificate of Designation and this Agreement and is (i) registered
under the Securities Act and any other applicable securities laws, or
(ii) in compliance with an opinion of counsel to such Purchaser,
delivered to the Company and reasonably acceptable to it, to the effect
that such offer, sale, pledge, hypothecation or other disposition
thereof does not violate the Securities Act or such other securities
laws; and (b) the certificate(s) representing the Series A Convertible
Preferred Stock (and any Class A Common Stock into which it may be
converted) shall bear a legend stating in substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE
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<PAGE> 22
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE
PROVISIONS THEREOF.
In addition, the certificates evidencing the Series A Convertible
Preferred Stock shall bear legends stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE
HEREOF, AS SET FORTH IN THE STOCK PURCHASE AGREEMENT BETWEEN
THE ISSUER AND INITIAL PURCHASER, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY
AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS
SET FORTH IN SAID STOCK PURCHASE AGREEMENT.
THE ISSUER IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR
SERIES OF CAPITAL STOCK. A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL
OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF CAPITAL
STOCK AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS (TO THE EXTENT ESTABLISHED) IS
ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE.
THE ISSUER WILL FURNISH A COPY OF SUCH STATEMENT TO ANY
SHAREHOLDER OF RECORD, WITHOUT CHARGE, UPON THE WRITTEN
REQUEST TO THE ISSUER AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
Upon request of a holder of Series A Convertible Preferred
Stock or the Class A Common Stock into which it has been converted, the
Company shall remove the legend set forth above from the certificates
evidencing such Series A Convertible Preferred Stock or Class A Common
Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the
Company, in form and substance reasonably satisfactory to the Company,
to the effect that a transfer by said holder of such Series A
Convertible Preferred Stock or Class A Common Stock will not violate
the Securities Act or any other applicable securities laws.
Notwithstanding the provisions above, no such registration or
opinion of counsel shall be necessary for a pro rata transfer by a
Purchaser which is a corporation to an
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<PAGE> 23
affiliate of such corporation, or a Purchaser which is a partnership to
a partner of such partnership or a retired partner of such partnership
who retires after the date hereof without the payment of compensation
by such partner, or to the estate of any such partner or retired
partner or the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the
transferee agrees in writing to be subject to the terms hereof to the
same extent as if such transferee were an original Purchaser hereunder,
including without limitation, the representations, warranties,
covenants and agreements contained in SECTIONS 4.1 to 4.7 hereto,
inclusive.
4.8 Transfer Instructions. Each Purchaser agrees that the
Company may place and make appropriate notations in its record books
against the transfer of the shares of Series A Convertible Preferred
Stock to be purchased by it and any Class A Common Stock into which
such shares may be converted, and may take any other actions which it
deems necessary to prevent any violations of the Securities Act or any
other securities laws by reason of the delivery of such stock or any
subsequent transaction with respect to such stock.
4.9 Economic Risk. Each Purchaser understands that it must
bear the economic risk of the investment represented by the purchase of
Series A Convertible Preferred Stock and any Class A Common Stock into
which it may be converted for an indefinite period.
4.10 Fees and Commissions. Each Purchaser represents and
warrants that it has retained no finder, broker, agent, financial
advisor or other intermediary (hereinafter collectively referred to as
"INTERMEDIARY") in connection with the transactions contemplated by
this Agreement and agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary retained by
such Purchaser and the fees and expenses of defending against such
liability or alleged liability.
5. Conditions to Closing of the Purchasers. The obligation of
each Purchaser on the Closing Date to consummate the transactions contemplated
by this Agreement shall be subject to each of the following conditions
precedent, any one or more of which may be waived by such Purchaser:
5.1 Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate on and
as of the Closing Date.
5.2 Performance. The Company shall have performed and complied
with all agreements, conditions and covenants contained herein or in
any other ancillary documents incident to the transactions contemplated
by this Agreement required to be performed or complied with by it prior
to or at the Closing.
5.3 Company Consents, etc. The Company shall have secured all
permits, consents and authorizations that shall be necessary or
required lawfully to consummate
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<PAGE> 24
this Agreement, to issue the Series A Convertible Preferred Stock to be
purchased by the Purchasers and to issue the Class A Common Stock into
which it may be converted.
5.4 Compliance Certificates. The Company shall have delivered
to each Purchaser or its representative at the Closing an Officer's
Certificate to the effect that the representations and warranties of
the Company continue to be true and accurate in all material respects
on the Closing Date, and that all conditions specified in SECTIONS 5.1
to 5.3 hereof, inclusive, have been fulfilled and that there has been
no materially adverse change in the business, affairs, prospects,
operations or condition of the Company since the Balance Sheet Date.
5.5 Government Actions. No action, suit or proceeding shall
have been instituted before any court, governmental or regulatory body
or arbitral tribunal, or instituted or threatened by any governmental
or regulatory body to restrain, modify or prevent the carrying out of
the transactions contemplated hereby or to seek damages or a discovery
order in connection with such transactions.
5.6 The Certificate of Designation. Each Purchaser shall have
received evidence that the Company shall have duly authorized and filed
the Certificate of Designation with the Secretary of State of the State
of Delaware, substantially in the form attached hereto as EXHIBIT C;
5.7 The Certificate of Incorporation. Each Purchaser shall
have received a copy of the Certificate of Incorporation of the Company
and all amendments thereto, certified by the Secretary of State of
Delaware, which shall include evidence that the Company shall have duly
authorized and filed the Certificate of Incorporation with the
Secretary of State of the State of Delaware, substantially in the form
attached hereto as EXHIBIT A;
5.8 Legal Opinion. Counsel for the Company, Winstead, Sechrest
& Minick, P.C., shall have delivered to the Purchasers a legal opinion,
dated as of the Closing Date and substantially in the form attached
hereto as EXHIBIT F;
5.9 Company Deliveries. The Company shall have delivered to
the Purchasers:
(i) copies of the resolutions of the Company's Board
of Directors authorizing and approving this Agreement and all
of the transactions and agreements contemplated hereby and
thereby, (ii) the Bylaws of the Company and (iii) the names of
the officer or officers of the Company authorized to execute
this Agreement and any and all documents, agreements and
instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in
full force and effect and unmodified as of the Closing Date;
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<PAGE> 25
a certificate of good standing for the Company from
the Secretary of State of the State of Delaware and a
certificate of existence for the Subsidiary from the State of
Texas;
a certificate of account status for the Subsidiary
from the Comptroller of the State of Texas; and
certificates from each state where the Company or the
Subsidiary is required to be qualified as a foreign
corporation showing such qualification, dated as of a date
within ten (20) days of the Closing Date; and
a Registration Rights Agreement in substantially the
form attached hereto as EXHIBIT E.
6. Conditions to Closing of Company. The obligation of the Company on
the Closing Date to consummate the transactions contemplated by this Agreement
with respect to a particular Purchaser shall be subject to the following
conditions precedent, any one or more of which may be waived by the Company:
6.1 Representations and Warranties. The representations and
warranties made by such Purchaser herein shall be true and accurate on
and as of the Closing Date.
6.2 Performance. Such Purchaser shall have performed and
complied with all agreements and conditions contained herein or in any
other ancillary documents incident to the transactions contemplated by
this Agreement required to be performed or complied with by such
Purchaser prior to or at the Closing.
6.3 Purchaser Consents, etc. Such Purchaser shall have secured
all permits, consents, waivers and authorizations that shall be
necessary or required lawfully to consummate this Agreement.
6.4 Compliance Certificates. Such Purchaser shall have
delivered to the Company at the Closing an Officer's Certificate to the
effect that the representations and warranties of such Purchaser
continue to be true and accurate in all material respects on the
Closing Date, and that all conditions specified in SECTIONS 6.1 to 6.3
hereof, inclusive, have been fulfilled.
7. Affirmative Covenants.
7.1 Financial Information. The Company will deliver to each
Purchaser for the Company and the Subsidiary on a consolidated basis:
within forty five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash
flow prepared in accordance with GAAP and certified by the
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Company's Chief Financial Officer, except such financial
statements shall not contain normal and recurring year-end
audit adjustments.
within one hundred twenty (120) days after the fiscal
year end, an annual independent certified audit from an
outside accounting firm reasonably designated by the Company;
as soon as practicable, but no later than thirty (30)
days after the beginning of each fiscal year, beginning
January 1, 2000, the Company shall provide to the Purchasers a
copy of the annual budget and plan for such year which shall
include, without limitation, plans for incurrences of
indebtedness for borrowed money and projections regarding
types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections.
7.2 Use of Proceeds. The Company shall use the proceeds from
the sale of Series A Convertible Preferred Stock for the purposes of
capital expenditures and general corporate purposes, including working
capital.
7.3 Confidentiality. Any information provided pursuant to this
Agreement shall be used by a Purchaser solely in furtherance of its
interests as an investor in the Company, and each Purchaser shall
(except as otherwise required by law) maintain the confidentiality of
all non-public information of the Company in accordance with this
SECTION 7.3. Each Purchaser will have no obligation to maintain
confidentiality of any information which (i) at the time of disclosure
or thereafter is generally available to and known by the public (other
than as a result of a disclosure directly or indirectly by a Purchaser
or the Purchaser's representatives), (ii) was available to a Purchaser
on a nonconfidential basis from a source other than the Company or its
advisors, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the Company or
otherwise prohibited from transmitting the information to such
Purchaser or the Purchaser's representatives by a contractual, legal or
fiduciary obligation, or (iii) has been independently acquired or
developed by a Purchaser without violating any of such Purchaser's
obligations under this Agreement or any other agreement such Purchaser
has with the Company or its agents.
7.4 Right of First Refusal. Except in the event of and after
the consummation of an Approved Offering (as hereinafter defined) and
with respect to dispositions to any direct or indirect parent or
subsidiary of a Purchaser who agrees to be bound by the terms of this
Agreement, no Purchaser shall be permitted to dispose of any shares of
the Series A Convertible Preferred Stock unless such shares shall have
been offered for sale in writing first to the Company and then to the
other shareholders of the Company (including the other Purchasers) pro
rata as set forth in this SECTION 7.4. In the event a shareholder
desires to transfer any Series A Convertible Preferred Stock, the
shareholder desiring to make such transfer (the "TRANSFERRING
SHAREHOLDER") shall deliver written notice (the "OFFER NOTICE") to the
Company and to all other shareholders (including the other Purchasers)
at least ninety (90) days prior to the proposed transfer. The Offer
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<PAGE> 27
Notice will disclose in reasonable detail the proposed number of shares
to be transferred, the proposed transferee and the proposed price,
terms and conditions of the transfer.
Upon receipt of the Offer Notice, the Company shall
have the option (the "COMPANY'S OPTION") for a period of
thirty (30) days to purchase or otherwise acquire all or part
of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as
the "OPTION PRICE") equal to the bona fide purchase price to
be paid by the proposed purchaser as described in the Offer
Notice (which amount shall be zero if the proposed transfer
would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current holders
of Series A Convertible Preferred Stock as to whether it will
exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after
receipt of the Offer Notice, the remaining holders of Series A
Convertible Preferred Stock shall have the option (each a
"SERIES A SHAREHOLDER'S OPTION") for a period of ten (10) days
from the earlier of (i) their receipt of written notice from
the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the
expiration of the Company's Option (the "SERIES A SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the Company does not choose
to purchase pursuant to the Company's Option, in proportion to
their respective ownership of shares of Series A Convertible
Preferred Stock which, for purposes of such determination,
shall include without duplication all outstanding options,
warrants or other rights owned by such shareholders that are
convertible into shares of Series A Convertible Preferred
Stock as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each holder of
Series A Convertible Preferred Stock shall notify in writing
all then current holders of Series A Convertible Preferred
Stock as to whether such shareholder will exercise, partially
exercise or not exercise the Series A Shareholder's Option
before the expiration of the Series A Shareholder Election
Period.
(c) For a period of ten (10) days from the earlier of
(i) the receipt by the other holders of Series A Convertible
Preferred Stock of a written notice from a holder of Series A
Convertible Preferred Stock that it does not want to exercise
its option or will only partially exercise its option, or (ii)
the expiration of the Series A Shareholder Election Period,
the other holders of Series A Convertible Preferred Stock
shall have the right (the "SERIES A SHAREHOLDER'S SECOND
OPTION") to purchase or otherwise acquire such shareholder's
portion of the shares described in the Offer Notice in
proportion to their respective ownership of shares of Series A
Convertible Preferred Stock (determined as described in
SECTION 7.4(b) above).
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<PAGE> 28
In the event that the holders of Series A Convertible
Preferred Stock do not elect to fully exercise the Series A
Shareholder's Second Option before the expiration of the
Series A Shareholder's Second Option, the remaining
shareholders shall have the option (each a "SHAREHOLDER'S
OPTION") for a period of ten (10) days from the earlier of (i)
their receipt of written notice from the holders of the Series
A Convertible Preferred Stock of their decision not to
exercise or to only partially exercise the Series A
Shareholder's Second Option, or (ii) the expiration of the
Series A Shareholder's Second Option (the "OTHER SHAREHOLDER
ELECTION PERIOD"), to purchase or otherwise acquire all or
part of the remaining shares which the holders of Series A
Convertible Preferred Stock do not choose to purchase pursuant
to the Series A Shareholder's Second Option, in proportion to
their respective ownership of shares which, for purposes of
such determination, shall include without, duplication all
outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date
of such notice from the holders of the Series A Convertible
Preferred Stock (or the expiration of the Series A
Shareholder's Second Option), for an amount equal to the
applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether
such shareholder will exercise, partially exercise or not
exercise the Shareholder's Option before the expiration of the
Other Shareholder Election Period.
For a period of ten (10) days from the earlier of (i)
the receipt by the other shareholders of a written notice from
a shareholder that it does not want to exercise its option or
will only partially exercise its option, or (ii) the
expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise
acquire such shareholder's portion of the shares described in
the Offer Notice in proportion to their respective ownership
of shares (determined as described in SECTION 7.4(d) above).
If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this SECTION
7.4, the Company shall have the final option for ten (10) days
to purchase or otherwise acquire all of the remaining shares
proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the
Company and the other shareholders do not individually or
collectively elect to purchase all of the shares being
offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election
Period (subject to the provisions of SECTION 7.4(h) below),
transfer all of the shares specified in the Offer Notice to
the transferee identified in the Offer Notice at the price and
terms stated in the Offer Notice. Any shares so transferred
thereupon shall continue to be subject to this Agreement, and
the transferee shall have the rights and obligations set forth
in this Agreement hereunder with respect to such shares. If
the Transferring Shareholder fails to consummate such transfer
within the thirty (30) day period after the expiration of the
Other Shareholder Election Period, any transfer of the shares
thereafter shall again be subject to the provisions of this
SECTION 7.4.
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<PAGE> 29
Unless otherwise agreed in writing, signed by the
person against whom such writing is sought to be enforced, the
closing of any acquisition of Series A Convertible Preferred
Stock hereunder pursuant to the Company's Option, a Series A
Shareholder's Option, or a Shareholder's Option shall take
place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such
forty-five (45) day period, then the shares that were to be
acquired shall be offered in accordance with this SECTION 7.4
as though the applicable option had not been exercised.
Notwithstanding the foregoing provisions of this
SECTION 7.4, the following shall apply in the event of any
Involuntary Transfer of Series A Convertible Preferred Stock.
An "INVOLUNTARY TRANSFER" shall mean any transfer caused by
the death of a shareholder, as well as any transfer,
proceeding or action by, through, as a consequence of, or in
which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the Series A
Convertible Preferred Stock of the Company, including, without
limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant
to a filing of a voluntary or an involuntary petition under
the United States Bankruptcy Code, or any amendments,
modifications, revisions or successor statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in
bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant
to any statute pertaining to escheat or abandoned property,
any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution
agreement, or the entry of a final court order in a divorce
proceeding from which there is no further right of appeal.
In the event of any Involuntary Transfer, the Company
shall give written notice to each shareholder upon the
occurrence, or prospective occurrence, of such Involuntary
Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective
occurrence of such Involuntary Transfer. The foregoing
provisions of this SECTION 7.4 then shall apply, except (i)
the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually
agreeable to the Company and the shareholder who made, or may
make, the Involuntary Transfer, multiplied by the percentage
of all equity interests in the Company that is then
represented by the shares that are the subject of the
Involuntary Transfer, such independent appraised value to take
into account the earnings and book value of the Company, and
(ii) the appraiser shall deliver written notice of such
valuation to the Company and to all other shareholders
promptly following his completion of such valuation, and such
written notice shall be considered the Option Notice for
purposes of this SECTION 7.4. The cost of the appraisal shall
be shared equally by the Company and the shareholder who made,
or may make, the Involuntary Transfer.
-25-
<PAGE> 30
At the closing of any purchase by the Company or any
shareholders pursuant to this SECTION 7.4(g), the involuntary
transferee shall deliver certificates representing the Series
A Convertible Preferred Stock being purchased, duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes, and such shares shall be conveyed free and clear of any
liens, claims, options, charges, encumbrances or rights of
others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall
so represent and warrant. The involuntary transferee shall
further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this SECTION 7.4(g)
shall be held to be unenforceable with respect to any
particular Involuntary Transfer of Series A Convertible
Preferred Stock, or if all of the shares subject to the
Involuntary Transfer are not purchased by the Company and/or
one or more shareholders, and if the involuntary transferee
subsequently desires to transfer such Series A Convertible
Preferred Stock, the involuntary transferee shall be deemed to
be a "Transferring Shareholder" under this SECTION 7.4 and
shall be bound by the other provisions of this Agreement.
Notwithstanding anything to the contrary contained in
this SECTION 7.4, no shareholder shall transfer any Series A
Convertible Preferred Stock at any time if such action would
constitute a violation of any federal or state securities laws
or a breach of the conditions to any exemption from
registration of the shares under any such laws or a breach of
any undertaking or agreement of such shareholder entered into
pursuant to such laws or in connection with obtaining an
exemption thereunder. Each shareholder agrees that any shares
purchased or acquired by such shareholder shall bear
appropriate legends restricting the sale or other transfer of
such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring, to the
restrictions set forth in this Agreement.
The Certificate of Incorporation shall contain
provisions similar to the foregoing provisions of SECTION 7.4
by which all of the holders of the Common Stock grant a
similar right of first refusal to purchase the shares of such
holders to the Company and the holders of the Series A
Convertible Preferred Stock, and such provisions may not be
amended without the consent or approval of the holders of a
majority of the outstanding shares of the Series A Convertible
Preferred Stock.
7.5 Sale of the Company. At any time after April 4,
2001, and before the consummation of an Approved Offering, if
a bona fide offer is made by any person (other than I 3S
Funding I, L.L.C. ("FUNDING"), Blue Ridge Investors Limited
Partnership ("BLUE RIDGE") and Spotswood Capital, LLC
("SPOTSWOOD"), or any person or entity related to or
affiliated with Funding, Blue Ridge and Spotswood), to
purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written
notice that it desires such
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<PAGE> 31
offer to be accepted, the Company shall either accept the
offer and consummate the sale on the terms and conditions of
the offer (in which case, if the transaction is a stock sale
or merger, Spotswood and Blue Ridge also shall sell all of
their equity interests in the Company on those terms and
conditions), or, subject to the last paragraph of this SECTION
7.5, the Company shall acquire all the equity interests owned
by Funding, Spotswood and Blue Ridge in the Company on the
same terms and conditions as the offer; provided, however,
that if such offer is made prior to April 4, 2003, the Company
shall have no such obligation unless the total consideration
of such offer is at least $350,000,000. If at any time Funding
approves the sale of substantially all of the assets or shares
of stock of the Company or if the transaction is a stock sale
or merger, Blue Ridge and Spotswood shall sell all of their
equity interests in the Company on the terms and conditions so
approved. If the Company accepts an offer to sell the Company
made after April 4, 2001, the Purchasers and any person that
acquires the Series A Convertible Preferred Stock shall sell
their shares of Series A Convertible Preferred Stock (and
Class A Common Stock, if the shares of Preferred Stock have
been converted) and/or vote in favor of the proposed
transaction (as the case may be) so long as the holders of the
Series A Convertible Preferred Stock shall receive for their
shares of Preferred Stock an amount in cash equal to the
aggregate Liquidation Preference (as defined in the
Certificate of Designation of the Series A Convertible
Preferred Stock) plus accrued and unpaid dividends for such
shares of Series A Convertible Preferred Stock, in preference
to any other holders of capital stock of the Company. At least
twenty (20) days prior to the consummation of any such sale,
the Company shall give the holders of the Series A Convertible
Preferred Stock written notice of the material terms of the
proposed sale. The holders of the outstanding shares of Series
A Convertible Preferred Stock shall have the right to convert
their shares into shares of Class A Common Stock prior to or
concurrently with the consummation of any such sale and
thereby be entitled to receive their pro rata share of the
proceeds of the sale that would otherwise be payable to the
holders of the Class A Common Stock (assuming for such
calculation the conversion of such shares of Series A
Convertible Preferred Stock as have exercised such right to
convert). The exercise of such right to convert by a holder of
Series A Convertible Preferred Stock shall be in lieu of any
right to receive such Liquidation Preference plus accrued and
unpaid dividends as a holder of such Series A Convertible
Preferred Stock or otherwise. In determining the total
consideration for purposes of the foregoing, any deferred
payment shall be discounted to present value at a discount
rate of eight percent (8%) per annum.
Under its agreements with Funding, the Company has the right to avoid
the required sale of the Company, as described in this SECTION 7.5, by redeeming
the outstanding shares of Class B Common Stock and Class C Common Stock held by
Funding, Blue Ridge and Spotswood. The Company acknowledges and agrees that it
may not redeem such shares without first obtaining the consent or approval of
the holders of a majority of the outstanding shares of Series A Convertible
Preferred Stock, as required by the Certificate of Designation.
-27-
<PAGE> 32
7.6 Right of Co-Sale. At any time prior to the consummation of
an Approved Offering, the Purchasers and the holders of Series A
Convertible Preferred Stock, Class B Common Stock and Class C Common
Stock shall have the right to participate pro rata to the fullest
extent of their equity interest in the Company in any sale or transfer
of stock (with each share of Series A Convertible Preferred Stock being
treated for such purposes as the number of shares of Class A Common
Stock into which it could then be converted), by any holder of shares
of Class A Common Stock to any third party.
7.7 Observers. Each Purchaser who purchases at least 531,915
shares of Series A Convertible Preferred Stock, and so long as such
Purchaser continues to beneficially own at least 531,915 shares of
Series A Convertible Preferred Stock or Common Stock (as adjusted for a
Recapitalization Event), may designate one person to serve as an
observer (an "OBSERVER"). An observer shall be entitled (i) to receive
the same notice in respect of all meetings (both regular and special)
of the Board of Directors and each committee thereof (other than the
Audit Committee and Compensation Committee) as required to be furnished
to members of the Board of Directors of such committee by law or by the
Certificate of Incorporation or the Bylaws of the Company, (ii) to
attend all meetings of the Board of Directors and each committee
thereof (other than the Audit Committee and Compensation Committee),
(iii) to receive all information and reports which are furnished to
members of the Board of Directors and each committee thereof (including
the Audit Committee and Compensation Committee) at the time so
furnished, and (iv) to participate in all discussions conducted at
meetings of the Board of Directors and each committee thereof (other
than the Audit Committee and Compensation Committee). In the event that
the directors are discussing or voting on matters that directly relate
to any business dealings between the Company and (i) any Purchaser
beneficially owning at least 531,915 shares of Series A Convertible
Preferred Stock or (ii) any other vendor that competes with a Purchaser
that has observer rights hereunder, the Board may recuse all (but not
less than all) of the Observers until such matters have been concluded.
An Observer may share any information gained from presence at such
meetings with the Purchaser that designated such Observer and such
Purchaser's employees, officers, directors, attorneys and advisors
(collectively, the "PURCHASER'S REPRESENTATIVES"), but such information
shall otherwise be kept confidential by the Observer, Purchaser and
Purchaser's Representatives to the same extent that financial
information or other confidential information with regard to the
Company is required to be kept confidential in accordance with SECTION
7.3.
7.8 Key Man Insurance. The Company has obtained and will
maintain (so long as they are officers of the Company) a "key man life
insurance policy" in the amount of $1,000,000 each on the lives of
Charles W. Price, Matthew Hutchins, Sr. and Daniel A. Gillett.
7.9 Access to Information. The Company will permit the
Purchasers to inspect at the Purchasers' expense any of the properties
or books and records of the Company, and to discuss the affairs and
condition of the Company with representatives of the Company, except
for information that (i) relates to any of the business dealings
between the Company and any of the Purchasers, (ii) relates to any
other vendor that
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<PAGE> 33
competes with any of the Purchasers, or (iii) is subject to any
obligation of the Company to maintain the confidentiality of such
information, during normal business hours and upon at least 24 hours
prior notice to the Company, but no more frequent than once each
calendar quarter.
7.10 Restricted Corporate Actions. The Company will not,
without the vote or written approval of the holders of a majority of
the outstanding Series A Convertible Preferred Stock, take or permit
the Subsidiary to take, any of the following actions:
engage in any business outside the Telecommunications
Business. For purposes of this SECTION 7.10(a) and as
otherwise used in this Agreement, "TELECOMMUNICATIONS
BUSINESS" shall mean the business of (i) transmitting, or
providing services relating to the transmission of , voice,
data or video through owned or leased transmission facilities,
(ii) constructing, creating, developing or marketing
communications-related network equipment, software and other
devices for use in a telecommunications business or (iii)
evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in
clauses (i) or (ii) above;
make any loans to any officers, directors or
affiliates of the Company in an aggregate amount exceeding
$100,000, other than commission advances and travel or
miscellaneous cash advances in the ordinary course of business
and loans to employees seeking to exercise stock options
issued pursuant to any of the Plans, the proceeds of which are
used to exercise such options;
(c) enter into any business arrangement or agreement
(other than a stock option agreement in accordance with the
Plans) with any officer, director or affiliate of the Company
or the Subsidiary on terms less favorable to the Company or
the Subsidiary than an arms-length transaction;
(d) acquire substantially all of the assets,
properties or capital stock of other persons or entities in
one or more transactions for an aggregate total consideration
consisting of an amount of cash exceeding ten percent (10%) of
the total purchase price paid to the Company for the original
issuance of all of the Series A Convertible Preferred Stock;
or
(e) issue any stock, options, warrants, or securities
convertible into the capital stock of the Company with
exercise prices, in the case of options or warrants, or issue
prices, in the case of stock or convertible securities, at
less than fair market value, as determined in good faith by
the Company's Board of Directors, as of the date of grant in
the case of options or warrants or the date of issuance in the
case of stock or securities convertible into the capital stock
of the Company. No such restriction shall apply upon the
issuance of capital stock pursuant to the exercise of options
or warrants or the conversion of convertible securities of the
Company.
-29-
<PAGE> 34
7.11 Shareholder and Director Information. At the request of
the Purchasers, the Company shall promptly deliver to the Purchasers
information regarding the security holders, officers and directors of
the Company, including, without limitation, names, addresses, types of
securities held and terms of securities held.
7.12 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock and otherwise complying with
the terms of this Agreement, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the
Series A Convertible Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the Series A Convertible
Preferred Stock or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative
body that may be required under applicable state securities laws in
connection with the issuance of shares of Common Stock upon conversion
of the Series A Convertible Preferred Stock.
7.13 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, provide in writing, upon the written
request of the Purchasers or a prospective buyer of the Series A
Convertible Preferred Stock or shares of Common Stock issued upon
conversion of the Series A Convertible Preferred Stock from the
Purchasers, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities
Act ("RULE 144A INFORMATION"). The Company's obligations under this
SECTION 7.13 shall at all times be contingent upon the Purchasers
obtaining from the prospective buyer of Series A Convertible Preferred
Stock or shares of Common Stock issued upon conversion of the Series A
Convertible Preferred Stock a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the
purchase of any Series A Convertible Preferred Stock or of Common Stock
issued upon conversion of the Series A Convertible Preferred Stock.
7.14 Sale of Series A Convertible Preferred Stock. The Company
agrees that any additional shares of Series A Convertible Preferred
Stock sold by the Company after the Closing will be sold on
substantially the same terms as set forth in this Agreement for the
Purchasers.
7.15 Termination of Covenants. The covenants set forth in
SECTIONS 7.1, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 AND
7.14 hereof shall terminate and be of no
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<PAGE> 35
further force or effect on the earlier of the consummation of the first
underwritten public offering of common stock of the Company pursuant to
a registration statement filed with the Commission under the Securities
Act with a concurrent listing on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq Stock Market, Inc. at an initial
offering price of at least $20.00 per share (as adjusted for a
Recapitalization Event) that results in gross proceeds to the Company
(before deduction of underwriting discounts and expenses of sale) of
not less than $30,000,000 (an "APPROVED OFFERING"). For purposes of
this Agreement, a "RECAPITALIZATION EVENT" means an event described
under Section 2.5 of the Certificate of Designation of the Series A
Convertible Preferred Stock.
8. Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay: (a) all the costs and expenses of the
reproduction of the Placement Memorandum, this Agreement, of all agreements and
documents referred to herein and of the certificates for the Series A
Convertible Preferred Stock and the Class A Common Stock into which it may be
converted; (b) all taxes (if any) payable with respect to this Agreement and the
issuance of the Series A Convertible Preferred Stock and the Class A Common
Stock into which it may be converted; (c) all costs of complying with the
securities or Blue Sky laws of any jurisdiction with respect to the offering or
sale of the Series A Convertible Preferred Stock and the Class A Common Stock
into which it may be converted; (d) the cost of delivering to such address as
each Purchaser shall specify the certificates for the Series A Convertible
Preferred Stock purchased by each such Purchaser and the certificates for the
Class A Common Stock into which the Series A Convertible Preferred Stock may be
converted; (e) the fees, expenses and disbursements of the Company's counsel in
connection with the Closing; and (f) the fees and expenses incurred with respect
to any amendments to this Agreement or the Certificate of Incorporation of the
Company proposed by the Company (whether or not the same become effective).
9. Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Agreement (despite any investigation at any time made by the parties hereto
or on their behalf) and any disposition of the Series A Convertible Preferred
Stock or of the Class A Common Stock issued upon conversion thereof and shall
continue to survive for a period of time expiring on the earlier of (a) the
consummation of an Approved Offering, or (b) June 30, 2001. All statements
contained in any certificate or other instrument executed and delivered by the
parties hereto or their duly authorized officers or representatives pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations hereunder, and no officer or representative of such parties
shall have personal liability for such statements unless such officer or
representative shall make such statement in a grossly negligent manner, in bad
faith, fraudulently or pursuant to willful misconduct.
10. Notices. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this SECTION 10) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
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<PAGE> 36
If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
If to the Purchasers at the address set forth on SCHEDULE 1
hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth in ARTICLE 7 hereof, the date of mailing shall be deemed to be the
delivery date. The financial statements required by ARTICLE 7 hereof may be
mailed by first-class regular mail.
11. Modifications; Waiver. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company, and (b) holders of at least 662/3 % of the
outstanding shares of the Series A Convertible Preferred Stock acting together
as a single class; provided, however, that prior to the Closing Date, this
Agreement may not be amended with respect to any Purchaser without the consent
of such Purchaser. Additionally, SECTION 9 of this Agreement may not be amended,
in any manner, without the unanimous consent of the holders of the outstanding
shares of the Series A Convertible Preferred Stock.
2. Entire Agreement. This Agreement and the Registration Rights
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties and commitments relating to the transactions
contemplated hereby, whether in writing or oral, prior to the date hereof,
except for those certain Confidentiality Agreements entered into by the
Purchasers with Donaldson, Lufkin & Jenrette on behalf of the Company.
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<PAGE> 37
13. Successors and Assigns. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in the Registration Rights
Agreement may only be transferred in accordance with Section 12 of the
Registration Rights Agreement.
14. Enforcement.
14.1 Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or
as of the date it was made, furnished or delivered, any party damaged
may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term
contained in this Agreement or the Certificate of Incorporation of the
Company (including the Certificate of Designation) or for an injunction
against the breach of any such term or in furtherance of the exercise
of any power granted in this Agreement or such Certificate (including
the Certificate of Designation), or to enforce any other legal or
equitable right of such party or to take any one or more of such
actions. The prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to this
Agreement or the Certificate of Incorporation (including the
Certificate of Designation) of the Company, including without
limitation reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses
of appeals.
14.2 Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any default shall
be a waiver of any future or subsequent default. The failure or delay
in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right shall not exhaust the same or constitute a waiver of
any other right provided herein.
15. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
16. Governing Law and Severability. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas
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<PAGE> 38
County, Texas. In the event any provision of this Agreement or the application
of any such provision to any party shall be held by a court of competent
jurisdiction to be contrary to law, the remaining provisions of this Agreement
shall remain in full force and effect.
17. Headings. The descriptive headings of the Sections hereof and the
Schedules and Exhibits hereto are inserted for convenience only and do not
constitute a part of this Agreement.
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<PAGE> 39
This Agreement is hereby executed as of the date first above written.
THE COMPANY
BROADBANDNOW, INC.
By:
--------------------------------------
Matthew Hutchins, Sr.,
President
[PURCHASER SIGNATURE ON FOLLOWING PAGE]
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<PAGE> 40
THE PURCHASER:
LIBERTY BBANDNOW HOLDINGS, LLC
BY: LIBERTY BBANDNOW, INC.,
Its sole member
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
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<PAGE> 41
EXHIBIT A
CERTIFICATE OF INCORPORATION
<PAGE> 42
EXHIBIT B
BYLAWS
<PAGE> 43
EXHIBIT C
FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE RIGHTS FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK
<PAGE> 44
EXHIBIT D
PLACEMENT MEMORANDUM
<PAGE> 45
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 46
EXHIBIT F
FORM OF OPINION OF WINSTEAD SECHREST & MINICK, P.C.
<PAGE> 47
SCHEDULE I
THE PURCHASERS
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible Aggregate
Preferred Purchase Copy of Notices
Name of Purchasers Notice Address Stock Price Must be sent to
- ------------------------ ------------------------------------- ------------ ----------- --------------------------
<S> <C> <C> <C> <C>
Liberty BBandnow Holdings, 9197 S. Peoria St. 1,063,829 $20,000,000 Sherman & Howard L.L.C.
LLC Englewood, CO 80112 3000 First Interstate Tower, North
Attn: General Counsel 633 Seventeenth Street
Denver, Colorado 80202
Attn: Peggy Knight, Esq.
</TABLE>
<PAGE> 1
EXHIBIT 10.41
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES
NOT VIOLATE THE PROVISIONS THEREOF.
THIS WARRANT ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF,
AS SET FORTH IN (1) THE SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER AND
INITIAL PURCHASER, AND (2) THE CERTIFICATE OF INCORPORATION OF THE
COMPANY, A COPY OF WHICH AGREEMENT AND CERTIFICATE MAY BE OBTAINED FROM
THE COMPANY. NO TRANSFER OF SUCH WARRANT WILL BE MADE ON THE BOOKS OF
THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS
OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY
THE RESTRICTIONS SET FORTH IN SAID SUBSCRIPTION AGREEMENT AND
CERTIFICATE OF INCORPORATION.
STOCK PURCHASE WARRANT
Date of Issuance: January 6, 2000 Certificate No. W-1
For value received, BroadbandNOW, Inc., a Delaware corporation
(the "Company"), hereby grants to MARCUS & PARTNERS, L.P., a Delaware limited
partnership ("Marcus & Partners"), or its transferees and assigns, the right to
purchase from the Company a total of 300,000 Warrant Shares (as defined herein)
at a price per share of $18.80 (the "Initial Exercise Price"). This Warrant is
the warrant (the "Warrant") issued pursuant to the terms of the Subscription
Agreement dated as of January 6, 2000 between the Company and Marcus & Partners.
The Initial Exercise Price and the number of Warrant Shares (and the amount and
kind of other securities) for which this Warrant is exercisable shall be subject
to adjustment as provided herein. Certain capitalized terms used herein are
defined in Section 3 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
<PAGE> 2
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised at any time, in whole or in part, after the date of issuance of
this Warrant and before 5:00 p.m., Dallas, Texas time, on the fifth anniversary
of date of issuance of this Warrant or, if such day is not a Business Day, on
the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when all of
the following items have been delivered to the Company (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II attached hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check or wire transfer payable to the Company
in an amount equal to the product of the Exercise Price (as such term is defined
in Section 2) multiplied by the number of Warrant Shares being purchased upon
such exercise (the "Aggregate Exercise Price"), (ii) the surrender to the
Company of securities of the Company or its subsidiaries having a value equal to
the Aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise (which value in the case of debt securities shall be the principal
amount thereof and in the case of shares of Common Stock shall be the Fair
Market Value thereof), or (iii) the delivery of a notice to the Company that the
Purchaser is exercising the Warrant by authorizing the Company to reduce the
number of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon exercise of
this Warrant shall be delivered by the Company to the Purchaser within ten days
after the date of the Exercise Time together with any cash payable in lieu of a
fraction of a share pursuant to the provisions of Section 11 hereof. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such ten-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the Registered
Holder of such Warrant Shares at the Exercise Time.
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<PAGE> 3
(iv) The issuance of certificates for Warrant Shares upon exercise
of this Warrant shall be made without charge to the Registered Holder or the
Purchaser for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such exercise and the related issuance of Warrant
Shares; provided, that the Company shall not be required to pay any taxes in
respect of the Warrant or Warrant Shares, with respect to any transfer of the
Warrant, which taxes shall be paid by the transferee prior to the issuance of
such Warrant Shares.
(v) The Company shall not close its books against the transfer of
this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
(vi) The Company shall assist and cooperate with the Registered
Holder or any Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant. The Company may in good faith suspend exercise of the Warrant during
the period reasonably necessary to obtain such approvals.
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a public offering
or a sale of the Company (pursuant to a merger, sale of stock, or otherwise),
such exercise may at the election of the Registered Holder be conditioned upon
the consummation of such transaction, in which case such exercise shall not be
deemed to be effective until immediately prior to the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued Class A Common Stock solely for the purpose
of issuance upon the exercise of this Warrant, the maximum number of Warrant
Shares issuable upon the exercise of this Warrant. All Warrant Shares which are
so issuable shall, when issued and upon the payment of the applicable Exercise
Price, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges except those created by actions of the Registered
Holder hereof. The Company shall take all such actions as may be necessary to
ensure that all such Warrant Shares may be so issued without violation by the
Company of any applicable law or governmental regulation or any requirements of
any domestic securities exchange upon which shares of Common Stock or other
securities constituting Warrant Shares may be listed (except for official notice
of issuance which shall be immediately delivered by the Company upon each such
issuance). The Company will use its best efforts to cause the Warrant Shares,
immediately upon such exercise, to be listed on any domestic securities exchange
upon which shares of Class A Common Stock or other securities constituting
Warrant Shares are listed, if any, at the time of such exercise.
(ix) The Company shall not, and shall not permit its subsidiaries
to, directly or indirectly, by any action (including, without limitation,
reincorporation in a jurisdiction other than Delaware, amending its Certificate
of Incorporation or through any Organic Change (as defined in Section 2D),
issuance or sale of securities or any other voluntary action) avoid or seek to
avoid the observance or performance of any of terms of
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<PAGE> 4
this Warrant or impair or diminish its value (except for any action which
ratably affects all Warrant Shares and shares of Common Stock), but shall at all
times in good faith assist in the carrying out of all such terms of this
Warrant. Without limiting the generality of the foregoing, the Company shall (a)
use its reasonable best efforts to obtain all such authorizations, exemptions,
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable the Company to perform its obligations under this
Warrant, and (b) not undertake any reverse stock split, combination,
reorganization, or other reclassification of its capital stock which would have
the effect of making this Warrant exercisable for less than one share of Class A
Common Stock.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth as Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued, subject to the transfer restrictions set forth
in Section 5.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Initial
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2 (as so adjusted, the "Exercise Price"), and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be subject to adjustment
from time to time, each as provided in this Section 2; provided, however, that
there shall be no adjustment to the Exercise Price or to the number of Warrant
Shares acquirable upon exercise of the Warrant, as provided in this Section 2
(an "Adjustment"), unless and until such Adjustment together with any previous
Adjustments to the Exercise Price or to the number of Warrant Shares so
acquirable which would otherwise have resulted in an Adjustment were it not for
this proviso, would require an increase or decrease of at least 1% of the total
number of Warrant Shares so acquirable at the time of such Adjustment, in which
event such Adjustment and all such previous Adjustments shall immediately occur.
2A. Adjustment for Certain Dividends and Distributions in Consideration
other than Securities of the Company. In the event that the Company at any time
or from time to time after the date hereof declares or makes a dividend or other
distribution with respect to the Class A Common Stock payable in consideration
other than additional shares of Class A Common Stock or other securities of the
Company, then in each such event the Exercise Price shall be reduced to equal
the amount determined by multiplying the Exercise Price in effect immediately
prior to such dividend or distribution by a fraction, the numerator of which
will be the Fair Market Value of the Class A Common Stock immediately after such
dividend or distribution and the denominator of which will be the Fair Market
Value of the Class A Common Stock immediately before such dividend or
distribution. Furthermore, upon each such adjustment to the Exercise Price
pursuant to this Section 2A, the number of Warrant
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<PAGE> 5
Shares acquirable upon the exercise of this Warrant shall be adjusted to equal
the number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
2B. Adjustment for Dividends and Distributions in Securities other than
Class A Common Stock. In the event the Company at any time or from time to time
after the date hereof declares or makes a dividend or other distribution with
respect to the Class A Common Stock payable in securities of the Company other
than additional shares of Class A Common Stock, then in each such event
provision shall be made so that the Registered Holders of Warrants shall receive
upon exercise thereof, in addition to the number of shares of Class A Common
Stock receivable thereupon, the amount of securities of the Company that they
would have received had their Warrants been exercised prior to the effective
date of the issuance of such other securities.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization, or
otherwise) the Class A Common Stock into a greater number of shares or pays a
dividend or makes a distribution to holders of the Class A Common Stock in the
form of shares of Class A Common Stock, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares obtainable upon exercise of this Warrant shall be proportionately
increased. Subject to clause (b) of Section 1B(ix), if the Company at any time
combines (by reverse stock split or otherwise) the Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any reincorporation, recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets or other transaction which is effected
in such a way that holders of the Class A Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities, or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change". Prior to the consummation of any Organic Change, the Company
shall make appropriate provision to ensure that each Registered Holder of
Warrants shall thereafter have the right to acquire and receive upon exercise
thereof, in lieu of or in addition to (as the case may be) the Warrant Shares
immediately theretofore acquirable and receivable upon exercise of such
Registered Holder's Warrants, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of Warrant
Shares immediately theretofore acquirable and receivable upon exercise of such
Registered Holder's Warrants had such Organic Change not taken place. In any
such case, the Company shall make appropriate provision with respect to such
Registered Holder's rights and interests to ensure that the provisions hereof
(including this Section 2) shall thereafter be applicable to the Warrants. The
Company shall not effect any such Organic Change unless, prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from
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<PAGE> 6
such Organic Change (including a purchaser of all or substantially all the
Company's assets) assumes by written instrument the obligation to deliver to
each Registered Holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Registered Holder may be
entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate and equitable adjustment in the Exercise Price and the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered Holder
at least thirty (30) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon
the Class A Common Stock, (B) with respect to any pro rata subscription offer to
holders of Class A Common Stock, or (C) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holder at least thirty (30) days prior to the date on which any Organic Change,
dissolution, or liquidation shall take place.
2G. Class B Common Stock and Class C Common Stock. The Company shall
not issue, or grant the right to purchase, from and after the date of the
issuance of this Warrant, (i) any shares of Class B Common Stock or Class C
Common Stock, (ii) any securities convertible into shares of Class B Common
Stock or Class C Common Stock or (iii) any other form of common equity with a
liquidation preference senior to the Class A Common Stock, except such issuances
or grants made prior to the date hereof.
SECTION 3. Definitions. The following terms have the meanings set forth
below:
"Business Day" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of Texas or is a
day on which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Class A Common Stock" means the Company's Class A Common
Stock, $0.001 par value. For purposes of Section 2 of this Warrant, the
definition of "Class A
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<PAGE> 7
Common Stock" shall include any other common stock of the Company with the
exception of the Class B Common Stock and Class C Common Stock.
"Class B Common Stock" means the Company's Class B Common
Stock, $0.001 par value.
"Class C Common Stock" means the Company's Class C Common
Stock, $0.001 par value.
"Common Stock" means, collectively, the Class A Common Stock,
the Class B Common Stock and the Class C Common Stock, and any other class of
stock representing common equity of the Company.
"Fair Market Value" means (i) the average of the closing sales
prices of the Class A Common Stock on all domestic securities exchanges on which
the Class A Common Stock is listed, or (ii) 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 such exchanges at the end of such day, or (iii) if on any day the Class A
Common Stock is not so listed, the sales price for the Class A Common Stock as
of 4:00 P.M., Dallas, Texas time, as reported on the Nasdaq National Market, or
(iv) if the Class A Common Stock is not reported on the Nasdaq National Market,
the average of the representative bid and asked quotations for the Class A
Common Stock as of 4:00 P.M., Dallas, Texas time, as reported on the Nasdaq
interdealer quotation system, or any similar successor organization, in each
such case averaged over a period of twenty-one (21) trading days consisting of
the day as of which "Fair Market Value" is being determined and the 20
consecutive trading days prior to such day. Notwithstanding the foregoing, if at
any time of determination either (x) the Class A Common Stock is not registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and
not listed on a national securities exchange or authorized for quotation in the
Nasdaq system, or (y) less than 25% of the outstanding Class A Common Stock is
held by the public free of transfer restrictions under the Securities Act of
1933, as amended, then Fair Market Value shall mean the price that would be paid
per share for the entire common equity interest in the Company in an orderly
sale transaction between a willing buyer and a willing seller, taking into
account the appropriate lack of liquidity of the Company's securities, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale. Fair Market Value shall be determined by the Company's
Board of Directors in its good faith judgment. Notwithstanding the foregoing, a
majority of the Required Holders shall have the right to require that an
independent investment banking firm mutually acceptable to the Company and the
Required Holders determine Fair Market Value, which firm shall submit to the
Company and the Warrant holders a written report setting forth such
determination. The expenses of such firm will be borne by the Company, and the
determination of such firm will be final and binding upon all parties.
"Permitted Issuance" means any issuance by the Company of
shares of Class A Common Stock or options to purchase Class A Common Stock (a)
on or prior to the date hereof; (b) upon exercise of this Warrant; (c) upon the
conversion of any
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Preferred Stock, Class B Common Stock or Class C Common Stock issued on or prior
to the date hereof; (d) pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended; and (e) to employees of
the Company pursuant to employee stock purchase or stock option plans adopted or
to be adopted by the Company for key employees and prior stock option grants;
provided, that, the aggregate number of shares (and underlying shares of
options) of Class A Common Stock issued pursuant to this clause (e) shall not
exceed 6,000,000 (as adjusted to provide for any dividends, stock distributions,
splits, combinations or recapitalizations).
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization or
government or department or agency thereof.
"Preferred Stock" means the Company's Series A Convertible
Preferred Stock.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to the provisions of
Section 10.
"Required Holders" means the holders of a majority of the
purchase rights represented by this Warrant as originally issued which remain
outstanding and unexercised.
"Warrant Shares" means shares of the Company's Class A Common
Stock issuable upon exercise of the Warrant; provided, that if the securities
issuable upon exercise of the Warrant are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term "Warrant Shares" shall mean shares of the security issuable upon exercise
of the Warrant if such security is issuable in shares, or shall mean the
equivalent units in which such security is issuable if such security is not
issuable in shares.
SECTION 4. No Voting Rights, Limitations of Liability. This
Warrant shall not entitle the Registered Holder hereof to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Registered Holder to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Registered
Holder shall give rise to any liability of such Registered Holder for the
Exercise Price of Warrant Shares acquirable by exercise hereof or as a
stockholder of the Company.
SECTION 5. Transferability. This Warrant and all rights
hereunder are transferable in whole without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
SECTION 6. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent
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such portion of such rights as is designated by the Registered Holder at the
time of such surrender. At the request of the Registered Holder (pursuant to a
transfer of Warrants or otherwise), this Warrant may be exchanged for one or
more Warrants to purchase Common Stock. The date the Company initially issues
this Warrant shall be deemed to be the date of issuance hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
SECTION 7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction, or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft, or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided, that if the Registered Holder is a financial institution or
other institutional investor its own Agreement shall be satisfactory), or, in
the case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the same rights represented by such lost,
stolen, destroyed, or mutilated certificate and dated the date of such lost,
stolen, destroyed, or mutilated certificate.
SECTION 8. Notices. Except as otherwise expressly provided
herein, all notices and deliveries referred to in this Warrant shall be in
writing, shall be delivered personally, sent by registered or certified mail,
return receipt requested and postage prepaid or sent via nationally recognized
overnight courier or via facsimile, and shall be deemed to have been given when
so delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices, and (ii) to a Registered
Holder, at such Registered Holder's address as it appears in the records of the
Company (unless otherwise indicated by any such Registered Holder).
SECTION 9. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Required Holders.
SECTION 10. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of the Warrant. The Company may deem and treat the Registered Holder
as the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 11. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
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SECTION 12. Descriptive Headings, Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officer to be dated as of the date
hereof.
BROADBANDNOW, INC.
By: /s/ MATTHEW HUTCHINS, SR.
-----------------------------------
Name: Matthew Hutchins
---------------------------------
Title: President & CEO
--------------------------------
Attest:
/s/ CHARLES R. GREGG, JR.
- ---------------------------
Name: Charles R. Gregg, Jr.
<PAGE> 12
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-___), hereby agrees to subscribe for the
purchase of _____ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
----------------------------------
Address
------------------------------------
Exhibit I, Page 1
<PAGE> 13
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, ___________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-____) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
<S> <C> <C>
</TABLE>
Dated: Signature
---------------------------
---------------------------
Witness
---------------------------
Exhibit II, Page 1
<PAGE> 1
EXHIBIT 10.42
SUBSCRIPTION AGREEMENT
dated as of January 6, 2000
between
MARCUS & PARTNERS, L.P.
and
BROADBANDNOW, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
SUBSCRIPTION FOR WARRANTs
SECTION 2.1. Subscription for Warrant ...................................................................2
ARTICLE III.
PURCHASE OF WARRANTS
SECTION 3.1. Purchase and Issuance ......................................................................2
SECTION 3.2. Restrictions on Transfer ...................................................................2
SECTION 3.3. Legend .....................................................................................2
ARTICLE IV.
ACKNOWLEDGMENTS OF SUBSCRIBER
SECTION 4.1. Residence ..................................................................................3
SECTION 4.2. Accredited Investor ........................................................................3
SECTION 4.3. Exemption ..................................................................................3
SECTION 4.4. No Registration ............................................................................3
SECTION 4.5. Illiquidity ................................................................................3
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
SECTION 5.1. Organization ...............................................................................4
SECTION 5.2. Authority ..................................................................................4
SECTION 5.3. No Consents; No Violations .................................................................4
SECTION 5.4. No Litigation ..............................................................................4
SECTION 5.5. No Broker ..................................................................................5
SECTION 5.6. Solvency of Subscriber .....................................................................5
SECTION 5.7. Access to Information ......................................................................5
SECTION 5.8. Accredited Investor ........................................................................5
SECTION 5.9. Investment Intent ..........................................................................5
SECTION 5.10. No Recommendation ..........................................................................6
SECTION 5.11. Independent Judgment .......................................................................6
SECTION 5.12. No General Solicitation ....................................................................6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF COMPANY
SECTION 6.1. Organization ...............................................................................6
SECTION 6.2. Authority ..................................................................................6
SECTION 6.3. No Consents; No Violations; Waiver of Preemptive Rights ....................................6
SECTION 6.4. No Litigation ..............................................................................7
SECTION 6.5. No Broker ..................................................................................7
SECTION 6.6. Title to Warrant ...........................................................................7
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 7.1. Survival ...................................................................................8
SECTION 7.2. Indemnification by Subscriber ..............................................................8
SECTION 7.3. Indemnification by the Company .............................................................8
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. Amendment and Modification .................................................................8
SECTION 8.2. Waiver of Compliance; Consents .............................................................8
SECTION 8.3. Assignment .................................................................................8
SECTION 8.4. Expenses ...................................................................................9
SECTION 8.5. Governing Law ..............................................................................9
SECTION 8.6. Counterparts ...............................................................................9
SECTION 8.7. Notices ....................................................................................9
SECTION 8.8. Headings ..................................................................................10
SECTION 8.9. Entire Agreement ..........................................................................10
SECTION 8.10. Severability ..............................................................................10
SECTION 8.11. Further Assurances ........................................................................10
</TABLE>
ii
<PAGE> 4
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of January 6,
2000, is by and between the subscriber designated on the signature page hereof
(the "SUBSCRIBER"), and BroadbandNOW, Inc., a Delaware corporation with an
address at 1440 Corporate Drive, Irving, Texas 75038 (the "COMPANY").
RECITALS
As of the date hereof, the Subscriber wishes to subscribe for and to
purchase from the Company a Warrant (the "WARRANT") to purchase 300,000 shares
of Class A Common Stock, par value $.001 per share, of the Company (the "COMMON
STOCK") and the Company wishes to accept such subscription and to issue the
Warrant to the Subscriber, all pursuant to the terms and conditions hereinafter
set forth.
AGREEMENT
In consideration of the foregoing and the mutual representations,
warranties, covenants and agreements contained herein, the Subscriber and the
Company, intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
The following capitalized terms used in this Agreement shall have the
meanings (such definitions to be equally applicable to both the singular and
plural forms of the terms defined) set forth in this Article I.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly is controlling, controlled or under common control with
such Person.
"AGREEMENT" or "THIS AGREEMENT" means this Subscription Agreement,
including all Schedules and Exhibits hereto.
"DOLLAR" and "$" means the lawful money of the United States of
America.
"LIEN" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever, other than one created or incurred by the
Company or its agents.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
<PAGE> 5
ARTICLE II.
SUBSCRIPTION FOR WARRANTS
SECTION 2.1. SUBSCRIPTION FOR WARRANT. Subject to the terms and
conditions of this Agreement, the Subscriber hereby irrevocably subscribes for
and agrees to purchase the Warrant from the Company at a purchase price set
forth opposite Subscriber's name on Schedule A hereto (the "PURCHASE PRICE"),
and the Company hereby accepts such subscription and agrees to sell the Warrants
to the Subscriber on the date hereof upon receipt of the Purchase Price in
accordance with Section 3.1.
ARTICLE III.
PURCHASE OF WARRANTS
SECTION 3.1. PURCHASE AND ISSUANCE. Upon payment by the Subscriber of
the Purchase Price by wire transfer to the account identified by the Company,
the Company shall issue, sell and deliver to the Subscriber, and the Subscriber
shall purchase and accept, a certificate evidencing the Warrant, substantially
in the form of Exhibit A hereto, in the name of the Subscriber.
SECTION 3.2. RESTRICTIONS ON TRANSFER. The Warrant may not be offered
for sale, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of, except (a) pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), or in a
transaction that is exempt from registration under the Securities Act or for
which such registration is otherwise not required, (b) pursuant to an effective
registration statement under any applicable state act or in a transaction that
is exempt from registration under such state acts or for which such registration
otherwise is not required and (c) in accordance with the transfer restrictions
set forth in Section 5 of the Warrant.
SECTION 3.3. LEGEND. Each certificate representing the Warrant shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES
NOT VIOLATE THE PROVISIONS THEREOF.
THIS WARRANT ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF,
AS SET FORTH IN (1) THE SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER AND
THE SUBSCRIBER AND (2) THE CERTIFICATE OF INCORPORATION OF THE COMPANY,
A COPY OF WHICH
2
<PAGE> 6
AGREEMENT AND CERTIFICATE MAY BE OBTAINED FROM THE COMPANY. NO TRANSFER
OF SUCH WARRANT WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS
ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT
AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS
SET FORTH IN SAID SUBSCRIPTION AGREEMENT AND CERTIFICATE OF
INCORPORATION.
ARTICLE IV.
ACKNOWLEDGMENTS OF SUBSCRIBER
The Subscriber hereby acknowledges as follows:
SECTION 4.1. RESIDENCE. If the Subscriber is a corporation,
partnership, trust or other entity, it has its principal place of business as
set forth on Schedule A, and if the Subscriber is an individual, he or she is at
least 21 years of age and the address set forth on Schedule A is the
Subscriber's true and correct address and residence.
SECTION 4.2. ACCREDITED INVESTOR. In order to purchase the Warrant, the
Subscriber must satisfy one of the criteria for an "accredited investor" as set
forth in Section 5.8 hereof, and the Company shall rely upon representations and
warranties made by the Subscriber herein in determining whether the Subscriber
is an accredited investor.
SECTION 4.3. EXEMPTION. The Subscriber's right to purchase the Warrant
hereunder is expressly conditioned upon the exemption from qualification of the
offer and sale of the Warrant from applicable federal and state securities (or
"blue sky") laws.
SECTION 4.4. NO REGISTRATION. Based upon the acknowledgments,
representations, warranties and agreements made by the Subscriber herein, the
Company (i) has determined that one or more of the exemptions from the
registration provisions of the Securities Act and applicable state securities
laws are applicable to the offer and sale of the Warrant, and (ii) has not
registered the Warrant under the Securities Act or state securities laws by
reason of such exemption(s).
SECTION 4.5. ILLIQUIDITY. There is no public market for the Warrant, no
such market may develop for the Warrant, and even if a public market develops
for such Warrant, Rule 144 promulgated under the Securities Act requires, among
other conditions, a one-year holding period prior to the resale (in limited
amounts) of securities acquired in a non-public offering without having to
satisfy the registration requirements of the Securities Act.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber hereby represents and warrants to the Company that as of
the date hereof and as of the Subscription Date:
3
<PAGE> 7
SECTION 5.1. ORGANIZATION. The Subscriber (if a Person that is not an
individual) is an entity validly existing and in good standing under the laws of
its jurisdiction of organization.
SECTION 5.2. AUTHORITY. The Subscriber has the power, authority and
capacity to execute and deliver this Agreement and to perform the Subscriber's
obligations hereunder. The execution, delivery and performance by the Subscriber
of this Agreement have been duly authorized by all necessary action; and this
Agreement has been duly executed and delivered by the Subscriber and is the
legal, valid and binding obligation of the Subscriber enforceable against the
Subscriber in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, receivership, conservatorship,
reorganization, liquidation, moratorium or similar events affecting the
Subscriber or the Subscriber's assets, or by general principles of equity.
SECTION 5.3. NO CONSENTS; NO VIOLATIONS.
(a) No authorization, approval or other action by, and no notice to or
filing with, any governmental, regulatory or legal authority or any other Person
is required for the due execution, delivery and performance by the Subscriber of
this Agreement or the consummation of the transactions contemplated hereby other
than such as has been obtained, given, effected or taken prior to the date
hereof.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not result
in any contravention of (i) any applicable law, rule or regulation of any
federal, state or local governmental or regulatory authority, (ii) any order,
writ, injunction, judgment, decree or award of any court, arbitrator, or
government or regulatory authority to which the Subscriber or any of the
Subscriber's properties are subject or (iii) any mortgage, contract, agreement,
deed of trust, license, lease or other instrument, arrangement, commitment,
obligation, understanding or restriction of any kind to which the Subscriber is
a party or by which any of the Subscriber's properties are bound.
SECTION 5.4. NO LITIGATION. There is no pending or, to the best
knowledge of the Subscriber, threatened action or proceeding before any court,
governmental agency or arbitrator by or against, or involving the Subscriber or
the Subscriber's Affiliates or any of the Subscriber's property that questions
or challenges the validity or enforceability of this Agreement or any action
taken or to be taken by the Subscriber pursuant to this Agreement or in
connection with the transactions contemplated hereby.
SECTION 5.5. NO BROKER. The Subscriber is not obligated to pay, and has
not retained any broker or finder or other Person that is entitled to, any
broker's or finder's fee or other commission based upon the consummation of the
transactions contemplated by this Agreement or any agreement contemplated
hereby.
SECTION 5.6. SOLVENCY OF SUBSCRIBER. After giving effect to the
transactions contemplated by this Agreement, the Subscriber shall be solvent and
shall be able to pay the
4
<PAGE> 8
Subscriber's anticipated liabilities as and when they become due. The payment of
the Purchase Price is being made in good faith and without any intent to hinder,
delay or defraud any of the creditors of the Subscriber.
SECTION 5.7. ACCESS TO INFORMATION. The Subscriber has reviewed
information relating to the Company's business that the Company has provided to
the Subscriber and has had an opportunity to receive and review all other
documents and information that the Subscriber considers relevant or material to
the Subscriber's subscription for and purchase of the Warrant and to ask
questions of and receive satisfactory answers from the Company, or a person or
persons acting on behalf of the Company, concerning the Company, its business
and the terms and conditions of the purchase of the Warrant, and all such
questions have been answered to the full satisfaction of the Subscriber. The
Subscriber has been afforded full access to all documents, books and records of
the Company.
SECTION 5.8. ACCREDITED INVESTOR. The Subscriber acknowledges that the
Subscriber has such knowledge and experience in investment, financial and
business matters (including, but not limited to, making investments in unlisted
and unregistered securities) that the Subscriber is capable of evaluating the
merits and risks of purchasing the Warrant. The Subscriber is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act by
virtue of being at least one of the following: (a) a corporation, or a
partnership or other entity not formed for the specific purpose of acquiring the
Warrant, in either case with total assets in excess of $5,000,000, (b) an
individual whose individual net worth, or joint net assets with such
individual's spouse, at the time of purchase exceeds $1,000,000 or (c) an entity
all of whose equity owners are described in (a) and/or (b).
SECTION 5.9. INVESTMENT INTENT. The Subscriber is purchasing the
Warrant for investment, for the Subscriber's own account, and with no present
intention of reselling, directly or indirectly, participating in any
distribution of or otherwise disposing of the Warrant. The Subscriber shall be
the sole beneficial owner of the Warrant at the time of the issuance. The
Subscriber understands that no disposition may be made of the Warrant except as
provided in Section 3.2 of this Agreement, and that the Subscriber must bear the
economic risk of purchasing the Warrant for an indefinite period of time. The
Subscriber would be able to sustain a total or partial loss of the Subscriber's
investment in the Warrant should such loss occur.
SECTION 5.10. NO RECOMMENDATION. The Subscriber acknowledges that no
federal or state agency has made any finding or determination relating to the
fairness for investment in the Warrant and no federal or state agency has
recommended or endorsed the Warrant.
SECTION 5.11. INDEPENDENT JUDGMENT. The Subscriber is not purchasing
the Warrant based upon any representation, oral or written, by any Person with
respect to the future value of, or income from, the Warrant, but rather upon an
independent examination and judgment as to the prospects of the Company.
SECTION 5.12. NO GENERAL SOLICITATION. The Warrant was not offered to
the Subscriber by means of general solicitation, publicly disseminated
advertisements or sales
5
<PAGE> 9
literature or a seminar or meeting whose attendees had been invited by general
solicitation or publicly disseminated advertisements.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants that as of the date hereof
and as of the Subscription Date:
SECTION 6.1. ORGANIZATION. The Company is a corporation validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to enter into the transactions contemplated by
this Agreement.
SECTION 6.2. AUTHORITY. The Company has the power and authority to
carry on its business as now conducted, to own or hold under lease its
properties, and to execute and deliver this Agreement, and to perform its
obligations hereunder. The execution, delivery and performance by the Company of
this Agreement has been duly authorized by all necessary action; and this
Agreement has been duly executed and delivered by the Company and is the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, receivership, conservatorship, reorganization,
liquidation, moratorium or similar events affecting the Company or its assets,
or by general principles of equity.
SECTION 6.3. NO CONSENTS; NO VIOLATIONS; WAIVER OF PREEMPTIVE RIGHTS.
(a) No authorization, approval or other action by, and no notice or
filing with, any governmental, regulatory or legal authority or any other Person
is required for the due execution, delivery and performance by the Company of
this Agreement or the consummation of the transactions contemplated hereby other
than such as has been obtained, given, effected or taken prior to the date
hereof. Subject to the accuracy of the acknowledgments, representations and
agreements made by the Subscriber herein, no registration under the Securities
Act or any applicable state securities laws is required for the sale of the
Warrant to Subscriber in accordance with the provisions hereof.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not result
in any contravention of (i) the certificate of incorporation or the bylaws of
the Company, (ii) any applicable law, rule or regulation of any federal, state
or local governmental or regulatory authority, (iii) any order, writ,
injunction, judgment, decree or award of any court, arbitrator, or governmental
or regulatory authority to which the Company or any of its properties are
subject or (iv) any mortgage, contract, agreement, deed of trust, license, lease
or other instrument, arrangement, commitment, obligation, understanding or
restriction of any kind to which the Company is a party or by which any of its
properties are bound.
6
<PAGE> 10
(c) The preemptive rights granted to the holders of the Company's
Series A Preferred Stock (the "PREFERRED STOCK") as set forth in Section 2.3 of
the Certificate of Designations regarding the Preferred Stock have been waived
or shall have been waived prior to issuance of the Warrant in accordance with
such Certificate of Designations with regard to the issuance of the Warrant and
the Common Stock issuable upon the exercise thereof. The Warrant and the Common
Stock issuable upon the exercise thereof will not be issued in contravention of
any other preemptive rights.
SECTION 6.4. NO LITIGATION. There is no pending or, to the best
knowledge of the Company, threatened action or proceeding before any court,
governmental agency or arbitrator by, against or involving the Company or its
Affiliates or any of its property, or any of its stockholders, managers or
employees that questions or challenges the validity or enforceability of this
Agreement or any action taken or to be taken by the Company pursuant to this
Agreement or in connection with the transactions contemplated hereby.
SECTION 6.5. NO BROKER. The Company is not obligated to pay, and has
not retained any broker or finder or other Person that is entitled to, any
broker's or finder's fee or other commission based upon the consummation of the
transaction contemplated by this Agreement or any other agreement contemplated
hereby.
SECTION 6.6. TITLE TO WARRANT. Upon the payment of the Purchase Price
to the Company and the issuance by the Company of the Warrant, each in
accordance with the terms of this Agreement, and upon delivery thereof the
Subscriber shall acquire good and indefeasible title to the Warrant, free and
clear of any and all liens, claims or encumbrances of any kind, other than
liens, claims or encumbrances created by or through the Subscriber.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 7.1. SURVIVAL. The representations and warranties of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement.
SECTION 7.2. INDEMNIFICATION BY SUBSCRIBER. The Subscriber shall
indemnify and hold harmless the Company from and against any and all claims,
losses, liabilities and damages, including, without limitation, amounts paid in
settlement, reasonable costs of investigation and reasonable fees and
disbursements of counsel, arising out of or resulting from the inaccuracy of any
Subscriber representation or warranty or the breach by Subscriber of any
covenant or agreement contained herein or in any instrument or certificate
delivered pursuant hereto.
SECTION 7.3. INDEMNIFICATION BY THE COMPANY. The Company shall
indemnify and hold harmless the Subscriber from and against any and all claims,
losses, liabilities and damages, including, without limitation, amounts paid in
settlement, reasonable costs of investigation and reasonable fees and
disbursements of counsel, arising out of or resulting from the inaccuracy of any
Company representation or warranty or the breach by Company of any covenant or
agreement contained herein or in any instrument or certificate delivered
pursuant hereto.
7
<PAGE> 11
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties hereto.
SECTION 8.2. WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party
hereto to comply with any obligation, covenant, agreement or condition herein
may be waived by the other party hereto; provided, however, that any such waiver
may be made only by a written instrument signed by the party hereto granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 8.2, with appropriate
notice in accordance with Section 8.7 of this Agreement.
SECTION 8.3. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon the parties hereto and their respective successors
and permitted assigns. Any party hereto may assign any of such party's rights
hereunder, but no such assignment shall relieve such party of such party's
liability for such party's obligations hereunder, provided that any assignee of
the Subscriber's rights hereunder shall at the time of such assignment be a
transferee of the Warrant in accordance with Article 3, and at the time of the
exercise of any rights hereunder shall be the record holder of such Warrant.
Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any Person, other than the parties hereto and any
successors and permitted assigns, any rights, remedy or claim under or by reason
of this Agreement or any provision herein contained.
SECTION 8.4. EXPENSES. All fees and expenses (including all fees of
counsel and accountants) incurred by any party in connection with the
negotiation and execution of this Agreement shall be borne by the party who
incurred them; provided, however, that certain expenses shall be payable in
accordance with Section 2 of that letter agreement, dated December 21, 1999,
between Subscriber and the Company.
SECTION 8.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without regard
to its conflicts of law doctrines).
SECTION 8.6. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
SECTION 8.7. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand, mailed by registered or certified mail (return receipt requested) or sent
by a nationally recognized overnight delivery
8
<PAGE> 12
service to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
If to the Subscriber to the addresses set forth on Schedule A hereto.
If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins
with a copy to (such copy not to constitute notice):
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Attn: Mark Zvonkovic, Esq.
SECTION 8.8. HEADINGS. The article and section headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties hereto with respect to such subject matter.
SECTION 8.10. SEVERABILITY. If any one or more provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
SECTION 8.11. FURTHER ASSURANCES. Each party to this Agreement shall
execute such documents or instruments and take such other action as the other
party hereto may reasonably request after the date hereof in order to effectuate
the transactions contemplated hereby.
[SIGNATURE PAGES FOLLOW]
9
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MARCUS & PARTNERS, L.P.
By: Marcus & Partners Holdings, L.L.C.
By:
-----------------------------------
Name: Jeffrey A. Marcus
Title: Manager
BROADBANDNOW, INC.
By:
------------------------------------------
Name: Matthew Hutchins
Title: President
<PAGE> 14
SCHEDULE A
Subscriber: Marcus & Partners, L.P.
Purchase Price: $175,000
Notices: Marcus & Partners, L.P.
300 Crescent Court, Suite 800
Dallas, Texas 75201
Attention: Jeffrey A. Marcus
with copies to:
Weil Gotschal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Michael A. Suslaw
<PAGE> 15
EXHIBIT A
FORM OF WARRANT
<PAGE> 1
EXHIBIT 10.43
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of this 6th day of January 2000, by and among BroadbandNOW, Inc., a Delaware
corporation (the "Company") and Marcus & Partners, L.P., a Delaware limited
partnership (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchaser and the Company are parties to that
certain Subscription Agreement, dated as of January 6, 2000, whereby the
Purchaser shall purchase, and the Company shall issue and sell, a Warrant to
purchase 300,000 shares of Class A Common Stock, par value $0.001 per share, of
the Company (the "Warrant"); and
WHEREAS, in connection with the purchase of such Warrant, the
Company desires to grant to the Purchaser certain registration rights.
NOW, THEREFORE, in consideration of the premises herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "Commission" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act.
(b) "Common Stock" shall mean the Company's Class A Common
Stock, par value $0.001 per share, as authorized on the date of this Agreement
or class of common stock issued in exchange therefor.
(c) "Conversion Shares" shall mean the shares of Common Stock
issued or issuable upon the exercise of the Warrant.
(d) "Exchange Act" shall mean 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.
(e) "Forms S-1, S-2, S-3 and S-4" shall mean the forms so
designated, promulgated by the Commission for registration of securities under
the Securities Act, and any forms succeeding to the functions of such forms,
whether or not bearing the same designation.
(f) "Initial Public Offering" shall mean the initial
underwritten offering by the Company for its own account of Common Stock under
the Securities Act.
(g) "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust, an estate,
an unincorporated organization, a government or any agency or political
subdivision thereof.
<PAGE> 2
(h) "Preferred Stock" shall mean the Company's Series A
Convertible Preferred Stock as designated in its Certificate of Designation.
(i) "Preferred Rights Agreements" shall mean the First Amended
and Restated Registration Rights Agreement dated January 25, 2000 between the
Company and the holders of Preferred Stock.
(j) "Register," "registered" and "registration" refers to a
registration effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
(k) "Registrable Securities" shall mean (i) Conversion Shares
held by (x) the Purchaser, (y) a permitted purchaser of the Warrant pursuant to
its terms, or (z) a Person to whom registration rights have been properly
transferred and (ii) all shares of Common Stock issued b the Company in respect
of the Warrant.
(l) "Required Demand Amount" shall mean at least 250,000
shares of the Registrable Securities then outstanding with respect to the
registration effected pursuant to Section 2.
(m) "Securities Act" shall mean 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.
2. REQUIRED REGISTRATION.
(a) Subject to the provisions of Section 4 hereof, the
Purchaser may request the Company in writing to effect under the Securities Act
a registration, stating the number of shares of Registrable Securities to be
disposed of by such Purchaser and the intended method of disposition; provided,
however, that the number of shares requested to be registered by the Purchaser
is at least the Required Demand Amount and the Company can effect such
registration on Form S-3.
(b) Subject to the limitations set forth in Section 4 hereof,
the Company will use commercially reasonable efforts to effect the registration
under the Securities Act of all shares of Registrable Securities specified in
the request of the Purchaser; provided, however, that the number of shares
requested to be registered by the Purchaser is at least the Required Demand
Amount and the Company can effect such registration on Form S-3.
3. REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Agreement to use commercially reasonable efforts to effect
promptly the registration of shares of Registrable Securities, the Company will
use commercially reasonable efforts to:
(a) prepare and file with the Commission (i) a registration
statement on Form S-3 with respect to such Registrable Securities, if the
Company meets such eligibility requirements; provided, however, if for any
reason, the Company does not qualify for Form S-3 within 18 months of
registration of the Company's Common Stock under the Exchange Act, then Company
shall file a registration statement on Form S-1 or, if eligible, Form S-2 and
(ii) such
2
<PAGE> 3
amendments and post-effective amendments to the registration statement as may be
necessary to keep the registration statement effective for the period necessary
to complete the proposed distribution; 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 to comply fully with the
applicable provisions of Rules 424 and 430A under the Securities Act in a timely
manner; and comply with the provisions of the Securities Act 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;
(b) keep such registration statement continuously effective
for the period necessary to complete the proposed distribution but for no longer
than one hundred eighty (180) days subsequent to the effective date of such
registration; upon the occurrence of any event that would cause the registration
statement or the prospectus contained therein to contain a material misstatement
or omission, the Company shall use commercially reasonable efforts to file as
promptly as practicable an appropriate amendment to such registration statement
correcting any such misstatement or omission;
(c) advise the underwriter(s), if any, and selling Purchaser
promptly and, if requested by such Persons, to confirm such advice in writing,
(i) when the prospectus or any prospectus supplement or post-effective amendment
has been filed, and, with respect to the registration statement or any
post-effective amendment thereto, when the same has become effective, (ii) of
any request by the Commission for amendments to the registration statement or
amendments or supplements to the prospectus or for additional information
relating thereto, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement under the Securities
Act or of the suspension by any state securities commission of the qualification
of the Registrable Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, and (iv) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the registration statement, the prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the registration statement or the prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the registration statement or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Registrable
Securities under state securities or blue sky laws, the Company shall use
commercially reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(d) furnish to the selling Purchaser and each of the
underwriter(s), if any, before filing with the Commission, copies of the
registration statement or any prospectus included therein or any amendments or
supplements to any such registration statement or prospectus, and the Company
will not file the registration statement or prospectus or any amendment or
supplement to any registration statement or prospectus to which the selling
Purchaser of Registrable Securities covered by such registration statement or
the underwriter(s), if any, shall reasonably object within three (3) business
days after the receipt thereof;
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(e) if requested by the selling Purchaser or the
underwriter(s), if any, incorporate in the registration statement or prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Purchaser and underwriter(s), if any, may reasonably
request to have included therein, information with respect to the number of
Registrable Securities being sold to such underwriter(s), the purchase price
being paid therefor and any other terms of the 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
the Company is notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(f) furnish to the selling Purchaser and each of the
underwriter(s), if any, without charge, at least one copy of the registration
statement, as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(g) deliver to the selling Purchaser and each of the
underwriter(s), if any, without charge, as many copies of the prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons reasonably may request; the Company hereby consents to the use
of the prospectus and any amendment or supplement thereto by the selling
Purchaser and each of the underwriter(s), if any, in connection with the
offering and the sale of the Registrable Securities covered by the prospectus or
any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities,
the Company shall register or qualify the Registrable Securities under the
securities or blue sky laws of such jurisdictions as the selling Purchaser or
underwriter(s), if any, may reasonably request and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the registration
statement; provided, however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the registration
statement, in any jurisdiction where it is not now so subject;
(i) cooperate with the selling Purchaser and the
underwriter(s), 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 selling Purchaser or the
underwriter(s), if any, may reasonably request prior to any sale of Registrable
Securities made by such underwriter(s);
(j) if any fact or event contemplated by clause (c)(iv) above
shall exist or have occurred, prepare a supplement or post-effective amendment
to the registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
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(k) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. ("NASD") and in the
performance of any due diligence investigation by any underwriter (including any
"qualified independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD;
(l) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission, and make
generally available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of the Securities Act
and Rule 158 thereunder (which need not be audited) for the twelve-month period
(i) commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm or best efforts underwritten offering or (ii)
if not sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date of the
registration statement;
(m) enter into such customary agreements (including an
underwriting agreement in customary form with provisions as may be reasonably
required by the managing underwriter, if any, in order to expedite or facilitate
the disposition of such Registrable Securities);
(n) make available for inspection by the selling Purchaser of
Registrable Securities included in such registration statement, 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 relevant 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 reasonably requested
by any such Inspector in connection with such registration statement; provided
that 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 material misstatement or omission in the registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction; provided, further, each Holder of
Registrable Securities and Inspector agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at its expense, to undertake
appropriate action and to prevent disclosure of the Records deemed confidential;
(o) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the selling Purchaser
may reasonably request; and
(p) the Company will give the selling Purchaser of Registrable
Securities registered under such registration statement, the underwriter, if
any, and one counsel or firm of counsel and one accountant or firm of
accountants representing the selling Purchaser, 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
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<PAGE> 6
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 selling Purchaser's and such underwriters' respective
counsel to conduct a reasonable investigation within the meaning of the
Securities Act.
4. LIMITATIONS ON REQUIRED REGISTRATIONS.
(a) The Company shall not be required to effect more than one
registration pursuant to Section 2 hereof.
(b) The Company may not cause any other registration of
Securities for sale for its own account (other than a registration effected
solely to implement an employee benefit or incentive plan or securities for a
transaction on a Form S-4) to be initiated after a registration requested
pursuant to Section 2 hereof and to become effective less than ninety (90) days
after the effective date of any registration requested pursuant to Section 2
hereof.
(c) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting pursuant to
this Agreement or other agreements with the Company, or shares offered by the
Company may be included in the registration. Notwithstanding the provisions of
Sections 2(b) and 4(b) hereof, if the underwriter determines that (i) marketing
factors require a limitation of the total number of shares to be underwritten,
or (ii) the offering price per share would be reduced by the inclusion of the
shares in the underwriting, then the number of shares to be included in the
registration and underwriting shall be reduced in whole or in part by the
underwriter so long as such limitation is applied on a pro rata basis with
respect to all shares proposed or requested to be registered in the
underwriting. No stock excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
the Company disapproves of any such underwriting, the Company may elect to
withdraw its shares therefrom by written notice to the Purchaser and the
underwriter. The securities so withdrawn from such underwriting shall also be
withdrawn from such registration.
(d) If at the time of any request to register Registrable
Securities pursuant to Section 2 hereof, the Company is engaged, or has fixed
plans to engage within ninety (90) days of the time of the request in a
registered public offering, then the Company may at its option direct that such
request be delayed for a period not in excess of six months from the effective
date of such offering.
(e) The Company shall not be required to effect a registration
pursuant to Section 2 hereof until the earlier to occur of: (i) 18 months after
an Initial Public Offering if the Company obtains the requisite approval of the
holders of the Preferred Stock for such registration, or (ii) ninety (90) days
after a public offering for the account of the holders of Common Stock issued or
issuable to such holders of the Company's Preferred Stock (the "Preferred
Offering"). If a Preferred Offering has not occurred within 18 months after an
Initial Public Offering, the Company agrees to use its best efforts to obtain
the consent referred to in clause (i) in the previous sentence.
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5. INCIDENTAL REGISTRATION. At any time, (i) commencing one hundred
eighty (180) days after an Approved Offering (as defined in the Preferred Rights
Agreement) or (ii) subject to the Preferred Rights Agreement, if the Company
proposes to register any of its shares of Common Stock under the Securities Act
(other than a registration effected solely to implement an employee benefit or
incentive plan or securities for a transaction on a Form S-4) for its own
account or in a Preferred Offering, it will each such time give written notice
to Purchaser of its intention so to do. Upon the written request of Purchaser
given within 10 days after receipt of any such notice (stating the number of
shares of Registrable Securities to be disposed of by Purchaser), the Company
will use commercially reasonable efforts to cause all shares of Registrable
Securities to be sold to be registered under the Securities Act so as to permit
the disposition on the same terms and conditions as the shares of Common Stock
otherwise being sold through underwriters under such registration by such
holders of the shares so registered, subject, however, to the limitations set
forth in the Preferred Rights Agreement and Section 6 hereof.
6. LIMITATIONS ON INCIDENTAL REGISTRATION. Notwithstanding any
provision of Section 5 hereof, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may exclude or otherwise limit the number of shares of Registrable
Securities to be included in the registration and underwriting. The Company
shall so advise the Purchaser, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
reduced in whole or in part by the underwriter. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If Purchaser disapproves of
any such underwriting, such Purchaser may elect to withdraw therefrom by written
notice to the Company and the underwriter. The Registrable Securities and/or
other securities so withdrawn from such underwriting shall also be withdrawn
from such registration.
7. DESIGNATION OF UNDERWRITER. The Company shall have the right to
designate the managing underwriter in any underwritten offering.
8. COOPERATION BY PURCHASER.
(a) Purchaser will furnish to the Company such information as
the Company may reasonably require from Purchaser in connection with the
registration statement (and the prospectus included therein).
(b) Purchaser will not (until further notice) effect sales
thereof after receipt of telegraphic or written notice form the Company to
suspend sales to permit the Company to correct or update a registration
statement or prospectus; but the obligations of the Company with respect to
maintaining any registration statement current and effective shall be extended
by a period of days equal to the period such suspension is in effect unless (i)
such extension would result in the Company's inability to use the financial
statements in the registration statement initially filed pursuant to the
Purchaser's request and (ii) such correction or update did not result from the
Company's acts or failures to act. At the end of the period during which the
Company is obligated to keep the registration statement current and effective as
described in Section 3(b) hereof (and any extensions thereof required by the
preceding sentence), Purchaser shall discontinue sales of shares pursuant to
such registration statement upon receipt of notice from the
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<PAGE> 8
Company of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and Purchaser shall notify the
Company of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
(c) Purchaser agrees to provide the Company with written
assurances that all sales of Registrable Securities made in connection with a
registration that is not underwritten were made in compliance with all
applicable securities laws, including, without limitation, the prospectus
delivery requirements of Section 5 of the Securities Act or any successor
provision and the restrictions of Rules 10b-2, 10b-6 and 10b-7 of the Exchange
Act or any successor provisions.
9. EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration pursuant to this Agreement including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company and expenses of
certified independent public accountants of the Company, shall be borne by the
Company, except that (a) all expenses, fees and disbursements of any counsel
retained by Purchaser and all underwriting discounts and commissions
attributable to Registrable Securities being sold by Purchaser shall be borne by
Purchaser and (b) the Company shall not be required to pay for any expenses of
the registration proceeding begun pursuant to Section 2 hereof if such
registration request is subsequently withdrawn at the request of Purchaser,
unless Purchaser agrees to forfeit its rights to a demand registration pursuant
to Section 2 hereof. Notwithstanding the foregoing, in the case of the
registration requests in which the Company has agreed to pay the Purchasers'
expenses pursuant to this Section 9, the Company will pay up to $10,000 per
registration request, for expenses, fees and disbursements for legal counsel for
the Purchaser.
10. INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
the Purchaser requesting or joining in a registration, each agent, officer,
member and partner and director of such Purchaser, each Person controlling
(within the meaning of Section 15 of the Securities Act or any successor
provision) such Purchaser and each underwriter and selling broker of the
securities so registered (collectively, "Indemnitees") against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document incident
to any registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances in which
they were made, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such
Indemnitee for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability is
caused by any untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with written information furnished to the
Company by an instrument duly executed
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by such Indemnitees and stated to be specifically for use therein and except
that the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the amended prospectus filed
with the Commission pursuant to Rule 424(b) or any successor provision (the
"Final Prospectus"), such indemnity agreement shall not inure to the benefit of
any underwriter, or any Indemnitee if there is no underwriter, if a copy of the
Final Prospectus was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act, provided further, that this indemnity shall not be deemed
to relieve any underwriter of any of its due diligence obligations; provided,
further, that the indemnity agreement contained in this Section 10(a) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each Purchaser requesting
or joining in a registration and each underwriter of the securities so
registered will indemnify the Company and its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or any successor provision and their respective successors
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement of a material fact
contained in any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances in which they were made and
will reimburse the Company and each other person indemnified pursuant to this
Section 10(b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this Section 10(b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon and in conformity with written information (including, without limitation,
written negative responses to inquiries) furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specifically for use in such prospectus, offering circular or other document (or
related registration statement, notification or the like) or any amendment or
supplement thereto provided that the indemnity agreement contained in this
Section 10(b) shall not apply to amounts paid in settlement of any such claim,
loss, damage, liability or action if such settlement is effected without the
consent of the Purchaser or underwriter, as the case may be, which consent shall
not be unreasonably withheld.
(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such indemnified party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense at such party's expense, and provided
further that the omission by any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 10
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except to the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged solely as a result
of the failure to give notice. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement 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) If for any reason the indemnification provided for in the
preceding subsections (a) and (b) of this Section 10 is unavailable to an
indemnified party or insufficient to hold it harmless as contemplated by such
preceding subsections, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such
unavailability or insufficiency in proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that Purchaser shall not be required to contribute in any amount
greater than the dollar amount of the proceeds received by Purchaser with
respect to the sale of any Common Stock. 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 reimbursement required by this Section 10 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(f) The obligation of the Company under this Section 10 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, or otherwise.
11. RIGHTS WHICH MAY BE GRANTED TO SUBSEQUENT INVESTORS. The Company
may grant to subsequent investors in the Company rights of incidental
registration (such as those provided in Section 2 and 5 hereof). Such rights may
be granted with respect to (i) registrations actually requested by Purchaser
pursuant to Section 2 hereof, but only in respect of that portion of any such
registration as remains after inclusion of all Registrable Securities requested
by Purchaser and (ii) registrations initiated by the Company.
12. ASSIGNMENT OF REGISTRATION RIGHTS. Except as otherwise provided
below, neither party may assign any of its rights and obligations of the parties
hereunder without the prior written consent of the other party:
(a) Purchaser may assign this Agreement and all its rights and
obligations to a transferee who executes a counterpart of this Agreement and
agrees to be bound by the agreements, representations and warranties herein and
such permitted transferee shall be substituted for Purchaser in the Agreement;
but only to a transferee who shall acquire the Warrant or all shares of
Registrable Securities initially issuable under the Warrant and in compliance
with applicable securities laws and the terms of the Warrant; or
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(b) either party may assign this Agreement and all its rights
and obligations under this Agreement to the assignee of all or substantially all
of the assets of such party including an acquisition through merger, provided
that such party shall in no event be released from its obligations hereunder
without the prior written consent of the other party.
Notwithstanding any provision of this Section 12, the registration
rights granted to the Purchaser under this Agreement may not be assigned to any
Person which, in the Company's reasonable judgment, is a competitor of the
Company.
13. "STAND-OFF" AGREEMENT. In consideration for the Company performing
its obligations under this Agreement, Purchaser agrees to enter into an
agreement providing that for a period of time (not to exceed one hundred eighty
(180) days) from the effective date of any registration (other than a
registration effected solely to implement an employee benefit or incentive plan)
of Common Stock (or derivatives thereof) of the Company (upon request of the
Company or of the underwriters managing the underwritten offering covered by
such registration), such Purchaser shall not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities, other than shares of Registrable Securities included in the
registration, without the prior written consent of the Company or such
underwriters, as the case may be; provided, however, such Purchaser shall not be
obligated to enter into such agreement unless all executive officers and
directors of the Company shall have entered into similar agreements.
14. DELAY OF REGISTRATION. The Purchaser shall have no right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
15. TERMINATION OF REGISTRATION RIGHTS. Unless the registration rights
granted in this Agreement are terminated earlier, the registration rights shall
terminate on the earlier of:
(a) June 2, 2006; or
(b) with respect to Purchaser, or permissible transferee or
assignee of such rights, at such time when such Purchaser or transferee or
assignee owns less than the number of shares of Registrable Securities that
could be sold within a single three-month period pursuant to Rule 144.
16. RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of the Exchange Act, the Company will file with the
Commission such information as the Commission may require to make available Rule
144 under the Securities Act (or any successor exemptive rule).
17. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 17) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
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(a) If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President and CEO
with a copy which shall not constitute notice to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036-4003
Attn: Mark Zvonkovic
(b) If to the Purchaser:
Marcus & Partners, L.P.
300 Crescent Court
Suite 800
Dallas, Texas 75201
Attn: Jeffrey A. Marcus
with a copy which shall not constitute notice to:
Weil Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attn: Michael A. Saslaw
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties.
18. MODIFICATIONS; WAIVER. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company and (b) Purchaser.
19. REPLACEMENT AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the registration rights contemplated hereby,
and supersede all negotiations, agreements, representations, warranties and
commitments relating to the registration rights contemplated hereby, whether in
writing or oral, prior to the date hereof.
20. SUCCESSORS AND ASSIGNS. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors
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and assigns of the parties hereto, except that the rights set forth in this
Agreement may only be transferred in accordance with Section 12 hereof.
21. ENFORCEMENT.
(a) Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation or
warranty made by or on behalf of such party in this Agreement or in any
certificate, report or other instrument delivered under or pursuant to any term
hereof shall be untrue or misleading in any material respect as of the date of
this Agreement or as of the date it was made, furnished or delivered, any party
damaged may proceed to protect and enforce its rights by suit in equity or
action at law, whether for the specific performance of any term contained in
this Agreement or for an injunction against the breach of any such term or in
furtherance of the exercise of any power granted in this Agreement, or to
enforce any other legal or equitable right of such party or to take any one or
more of such actions. The prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available at law or in equity. No
express or implied waiver of any default shall be a waiver of any future or
subsequent default. The failure or delay in exercising any rights granted
hereunder shall not constitute a waiver of any such right and any single or
partial exercise of any particular right shall not exhaust the same or
constitute a waiver of any other right provided herein.
22. EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
23. GOVERNING LAW AND SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas County, Texas. In the
event any provision of this Agreement or the application of any such provision
to any party shall be held by a court of competent jurisdiction to be contrary
to law, the remaining provisions of this Agreement shall remain in full force
and effect.
24. HEADINGS. The descriptive headings of the Sections hereof and the
Schedules hereto are inserted for convenience only and do not constitute a part
of this Agreement.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MARCUS & PARTNERS, L.P.
By: Marcus & Partners Holdings, L.L.C.
By:
-------------------------------------
Name: Jeffrey A. Marcus
Title: Manager
BROADBANDNOW, INC.
By:
------------------------------------------
Name: Matthew Hutchins
Title: President
<PAGE> 1
EXHIBIT 10.44A
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES
NOT VIOLATE THE PROVISIONS THEREOF.
THIS WARRANT ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF,
AS SET FORTH IN (1) THE SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER AND
INITIAL PURCHASER, AND (2) THE CERTIFICATE OF INCORPORATION OF THE
COMPANY, A COPY OF WHICH AGREEMENT AND CERTIFICATE MAY BE OBTAINED FROM
THE COMPANY. NO TRANSFER OF SUCH WARRANT WILL BE MADE ON THE BOOKS OF
THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS
OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY
THE RESTRICTIONS SET FORTH IN SAID SUBSCRIPTION AGREEMENT AND
CERTIFICATE OF INCORPORATION.
STOCK PURCHASE WARRANT
Date of Issuance: February 3, 2000 Certificate No. W-2
For value received, BroadbandNOW, Inc., a Delaware corporation
(the "Company"), hereby grants to DOTCOM Limited Partnership ("DOTCOM"), or its
transferees and assigns, the right to purchase from the Company a total of
100,000 Warrant Shares (as defined herein) at a price per share of $18.80 (the
"Initial Exercise Price"). This Warrant is the warrant (the "Warrant") issued
pursuant to the terms of the Subscription Agreement dated as of February 3, 2000
between the Company and DOTCOM. The Initial Exercise Price and the number of
Warrant Shares (and the amount and kind of other securities) for which this
Warrant is exercisable shall be subject to adjustment as provided herein.
Certain capitalized terms used herein are defined in Section 3 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, at any time, in whole or in part, after the date of
issuance of this Warrant and before 5:00 p.m., Dallas, Texas time, on the fifth
anniversary of date of issuance of this Warrant or, if such day is not a
Business Day, on the next preceding Business Day.
<PAGE> 2
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised
when all of the following items have been delivered to the Company (the
"Exercise Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II attached hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check or wire transfer payable to
the Company in an amount equal to the product of the Exercise Price (as such
term is defined in Section 2) multiplied by the number of Warrant Shares being
purchased upon such exercise (the "Aggregate Exercise Price"), (ii) the
surrender to the Company of securities of the Company or its subsidiaries having
a value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt securities shall
be the principal amount thereof and in the case of shares of Common Stock shall
be the Fair Market Value thereof), or (iii) the delivery of a notice to the
Company that the Purchaser is exercising the Warrant by authorizing the Company
to reduce the number of Warrant Shares subject to the Warrant by the number of
shares having an aggregate Fair Market Value equal to the Aggregate Exercise
Price.
(ii) Certificates for Warrant Shares purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within ten days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to the provisions of Section
11 hereof. Unless this Warrant has expired or all of the purchase rights
represented hereby have been exercised, the Company shall prepare a new Warrant,
substantially identical hereto, representing the rights formerly represented by
this Warrant which have not expired or been exercised and shall, within such
ten-day period, deliver such new Warrant to the Person designated for delivery
in the Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any
taxes in respect of the Warrant or Warrant Shares, with respect to any transfer
of the Warrant, which taxes shall be paid by the transferee prior to the
issuance of such Warrant Shares.
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<PAGE> 3
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant.
(vi) The Company shall assist and cooperate with the
Registered Holder or any Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant. The Company may in good faith suspend exercise of the Warrant
during the period reasonably necessary to obtain such approvals.
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock,
or otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Class A Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges except those created by actions of the
Registered Holder hereof. The Company shall take all such actions as may be
necessary to ensure that all such Warrant Shares may be so issued without
violation by the Company of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock or other securities constituting Warrant Shares may be listed (except for
official notice of issuance which shall be immediately delivered by the Company
upon each such issuance). The Company will use its best efforts to cause the
Warrant Shares, immediately upon such exercise, to be listed on any domestic
securities exchange upon which shares of Class A Common Stock or other
securities constituting Warrant Shares are listed, if any, at the time of such
exercise.
(ix) The Company shall not, and shall not permit its
subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change (as defined in
Section 2D), issuance or sale of securities or any other voluntary action) avoid
or seek to avoid the observance or performance of any of terms of this Warrant
or impair or diminish its value (except for any action which ratably affects all
Warrant Shares and shares of Common Stock), but shall at all times in good faith
assist in the carrying out of all such terms of this Warrant. Without limiting
the generality of the foregoing, the Company shall (a) use its reasonable best
efforts to obtain all such authorizations, exemptions, or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant, and (b) not undertake
any reverse stock split, combination, reorganization, or other reclassification
of its capital stock which would have the effect of making this Warrant
exercisable for less than one share of Class A Common Stock.
3
<PAGE> 4
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth as Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued, subject to the transfer restrictions set forth
in Section 5.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2;
provided, however, that there shall be no adjustment to the Exercise Price or to
the number of Warrant Shares acquirable upon exercise of the Warrant, as
provided in this Section 2 (an "Adjustment"), unless and until such Adjustment
together with any previous Adjustments to the Exercise Price or to the number of
Warrant Shares so acquirable which would otherwise have resulted in an
Adjustment were it not for this proviso, would require an increase or decrease
of at least 1% of the total number of Warrant Shares so acquirable at the time
of such Adjustment, in which event such Adjustment and all such previous
Adjustments shall immediately occur.
4
<PAGE> 5
2A. Adjustment for Certain Dividends and Distributions in
Consideration other than Securities of the Company. In the event that the
Company at any time or from time to time after the date hereof declares or makes
a dividend or other distribution with respect to the Class A Common Stock
payable in consideration other than additional shares of Class A Common Stock or
other securities of the Company, then in each such event the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such dividend or distribution by a
fraction, the numerator of which will be the Fair Market Value of the Class A
Common Stock immediately after such dividend or distribution and the denominator
of which will be the Fair Market Value of the Class A Common Stock immediately
before such dividend or distribution. Furthermore, upon each such adjustment to
the Exercise Price pursuant to this Section 2A, the number of Warrant Shares
acquirable upon the exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
2B. Adjustment for Dividends and Distributions in Securities
other than Class A Common Stock. In the event the Company at any time or from
time to time after the date hereof declares or makes a dividend or other
distribution with respect to the Class A Common Stock payable in securities of
the Company other than additional shares of Class A Common Stock, then in each
such event provision shall be made so that the Registered Holders of Warrants
shall receive upon exercise thereof, in addition to the number of shares of
Class A Common Stock receivable thereupon, the amount of securities of the
Company that they would have received had their Warrants been exercised prior to
the effective date of the issuance of such other securities.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization, or
otherwise) the Class A Common Stock into a greater number of shares or pays a
dividend or makes a distribution to holders of the Class A Common Stock in the
form of shares of Class A Common Stock, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares obtainable upon exercise of this Warrant shall be proportionately
increased. Subject to clause (b) of Section 1B(ix), if the Company at any time
combines (by reverse stock split or otherwise) the Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any reincorporation, recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets or other transaction which is effected
in such a way that holders of the Class A Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities, or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change". Prior to the consummation of any Organic Change, the Company
shall make appropriate provision to ensure that each Registered Holder of
Warrants shall thereafter have the right to acquire and receive upon exercise
thereof, in lieu of or in addition to (as the case may be) the Warrant Shares
immediately theretofore acquirable and receivable upon exercise of such
Registered Holder's
5
<PAGE> 6
Warrants, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to ensure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants. The Company shall not effect any
such Organic Change unless, prior to the consummation thereof, the successor
entity (if other than the Company) resulting from such Organic Change (including
a purchaser of all or substantially all the Company's assets) assumes by written
instrument the obligation to deliver to each Registered Holder of Warrants such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Registered Holder may be entitled to acquire upon exercise of
Warrants.
2E. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features
but excluding any Permitted Issuance), then the Company's Board of Directors
shall make an appropriate and equitable adjustment in the Exercise Price and the
number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price,
the Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least thirty (30) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Class A Common Stock, (B) with respect to any pro rata
subscription offer to holders of Class A Common Stock, or (C) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least thirty (30) days prior to the date on which any
Organic Change, dissolution, or liquidation shall take place.
2G. Class B Common Stock and Class C Common Stock. The Company
shall not issue, or grant the right to purchase, from and after the date of the
issuance of this Warrant, (i) any shares of Class B Common Stock or Class C
Common Stock, (ii) any securities convertible into shares of Class B Common
Stock or Class C Common Stock or (iii) any other form of common equity with a
liquidation preference senior to the Class A Common Stock, except such issuances
or grants made prior to the date hereof.
6
<PAGE> 7
SECTION 3. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of Texas or is a
day on which banking institutions located in such state are authorized or
required by law or other governmental action to close.
"Class A Common Stock" means the Company's Class A Common
Stock, $0.001 par value. For purposes of Section 2 of this Warrant, the
definition of "Class A Common Stock" shall include any other common stock of the
Company with the exception of the Class B Common Stock and Class C Common Stock.
"Class B Common Stock" means the Company's Class B Common
Stock, $0.001 par value.
"Class C Common Stock" means the Company's Class C Common
Stock, $0.001 par value.
"Common Stock" means, collectively, the Class A Common Stock,
the Class B Common Stock and the Class C Common Stock, and any other class of
stock representing common equity of the Company.
"Fair Market Value" means (i) the average of the closing sales
prices of the Class A Common Stock on all domestic securities exchanges on which
the Class A Common Stock is listed, or (ii) 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 such exchanges at the end of such day, or (iii) if on any day the Class A
Common Stock is not so listed, the sales price for the Class A Common Stock as
of 4:00 P.M., Dallas, Texas time, as reported on the Nasdaq National Market, or
(iv) if the Class A Common Stock is not reported on the Nasdaq National Market,
the average of the representative bid and asked quotations for the Class A
Common Stock as of 4:00 P.M., Dallas, Texas time, as reported on the Nasdaq
interdealer quotation system, or any similar successor organization, in each
such case averaged over a period of twenty-one (21) trading days consisting of
the day as of which "Fair Market Value" is being determined and the 20
consecutive trading days prior to such day. Notwithstanding the foregoing, if at
any time of determination either (x) the Class A Common Stock is not registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and
not listed on a national securities exchange or authorized for quotation in the
Nasdaq system, or (y) less than 25% of the outstanding Class A Common Stock is
held by the public free of transfer restrictions under the Securities Act of
1933, as amended, then Fair Market Value shall mean the price that would be paid
per share for the entire common equity interest in the Company in an orderly
sale transaction between a willing buyer and a willing seller, taking into
account the appropriate lack of liquidity of the Company's securities, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale. Fair Market Value shall be determined by the Company's
Board of Directors in its good faith judgment. Notwithstanding the foregoing, a
majority of the Required Holders shall have the right to require that an
independent investment banking firm mutually acceptable to the Company and the
Required Holders determine Fair
7
<PAGE> 8
Market Value, which firm shall submit to the Company and the Warrant holders a
written report setting forth such determination. The expenses of such firm will
be borne by the Company, and the determination of such firm will be final and
binding upon all parties.
"Permitted Issuance" means any issuance by the Company of
shares of Class A Common Stock or options to purchase Class A Common Stock (a)
on or prior to the date hereof; (b) upon exercise of this Warrant; (c) upon the
conversion of any Preferred Stock, Class B Common Stock or Class C Common Stock
issued on or prior to the date hereof; (d) pursuant to an underwritten offering
of Common Stock registered under the Securities Act of 1933, as amended; and (e)
to employees of the Company pursuant to employee stock purchase or stock option
plans adopted or to be adopted by the Company for key employees and prior stock
option grants; provided, that, the aggregate number of shares (and underlying
shares of options) of Class A Common Stock issued pursuant to this clause (e)
shall not exceed 6,000,000 (as adjusted to provide for any dividends, stock
distributions, splits, combinations or recapitalizations).
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization or
government or department or agency thereof.
"Preferred Stock" means the Company's Series A Convertible
Preferred Stock.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to the provisions of
Section 10.
"Required Holders" means the holders of a majority of the
purchase rights represented by this Warrant as originally issued which remain
outstanding and unexercised.
"Warrant Shares" means shares of the Company's Class A Common
Stock issuable upon exercise of the Warrant; provided, that if the securities
issuable upon exercise of the Warrant are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term "Warrant Shares" shall mean shares of the security issuable upon exercise
of the Warrant if such security is issuable in shares, or shall mean the
equivalent units in which such security is issuable if such security is not
issuable in shares.
SECTION 4. No Voting Rights, Limitations of Liability. This
Warrant shall not entitle the Registered Holder hereof to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Registered Holder to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Registered
Holder shall give rise to any liability of such Registered Holder for the
Exercise Price of Warrant Shares acquirable by exercise hereof or as a
stockholder of the Company.
SECTION 5. Transferability. This Warrant and all rights
hereunder are transferable in whole without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
SECTION 6. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the
8
<PAGE> 9
Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants shall represent such
portion of such rights as is designated by the Registered Holder at the time of
such surrender. At the request of the Registered Holder (pursuant to a transfer
of Warrants or otherwise), this Warrant may be exchanged for one or more
Warrants to purchase Common Stock. The date the Company initially issues this
Warrant shall be deemed to be the date of issuance hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
SECTION 7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction, or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft, or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided, that if the Registered Holder is a financial institution or
other institutional investor its own Agreement shall be satisfactory), or, in
the case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the same rights represented by such lost,
stolen, destroyed, or mutilated certificate and dated the date of such lost,
stolen, destroyed, or mutilated certificate.
SECTION 8. Notices. Except as otherwise expressly provided
herein, all notices and deliveries referred to in this Warrant shall be in
writing, shall be delivered personally, sent by registered or certified mail,
return receipt requested and postage prepaid or sent via nationally recognized
overnight courier or via facsimile, and shall be deemed to have been given when
so delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices, and (ii) to a Registered
Holder, at such Registered Holder's address as it appears in the records of the
Company (unless otherwise indicated by any such Registered Holder).
SECTION 9. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Required Holders.
SECTION 10. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of the Warrant. The Company may deem and treat the Registered Holder
as the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 11. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
9
<PAGE> 10
SECTION 12. Descriptive Headings, Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officer to be dated as of the date
hereof.
BROADBANDNOW, INC.
By:
--------------------------------------
Name:
Title:
Attest:
- ----------------------------------
Name:
11
<PAGE> 12
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-___), hereby agrees to subscribe for the
purchase of _____ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
--------------------------------
Address
----------------------------------
Exhibit I, Page 1
<PAGE> 13
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, ___________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-____) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature
--------------------------------
--------------------------------
Witness
--------------------------------
Exhibit II, Page 1
<PAGE> 14
EXHIBIT 10.44B
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES
NOT VIOLATE THE PROVISIONS THEREOF.
THIS WARRANT ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF,
AS SET FORTH IN (1) THE SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER AND
INITIAL PURCHASER, AND (2) THE CERTIFICATE OF INCORPORATION OF THE
COMPANY, A COPY OF WHICH AGREEMENT AND CERTIFICATE MAY BE OBTAINED FROM
THE COMPANY. NO TRANSFER OF SUCH WARRANT WILL BE MADE ON THE BOOKS OF
THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS
OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY
THE RESTRICTIONS SET FORTH IN SAID SUBSCRIPTION AGREEMENT AND
CERTIFICATE OF INCORPORATION.
STOCK PURCHASE WARRANT
Date of Issuance: February 3, 2000 Certificate No. W-3
For value received, BroadbandNOW, Inc., a Delaware corporation (the
"Company"), hereby grants to DOTCOM Limited Partnership ("DOTCOM"), or its
transferees and assigns, the right to purchase from the Company a total of
50,000 Warrant Shares (as defined herein) at a price per share of $18.80 (the
"Initial Exercise Price"). This Warrant is the warrant (the "Warrant") issued
pursuant to the terms of the Subscription Agreement dated as of February 3, 2000
between the Company and DOTCOM. The Initial Exercise Price and the number of
Warrant Shares (and the amount and kind of other securities) for which this
Warrant is exercisable shall be subject to adjustment as provided herein.
Certain capitalized terms used herein are defined in Section 3 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1. A Exercise Period. This Warrant shall not be exercisable prior to
the earlier to occur of (i) a Change of Control (as such term is defined in
Section 3) or (ii) the one year anniversary of the date of issuance of this
Warrant. Unless a Change of Control shall have occurred, upon the one year
anniversary of the date of issuance of this Warrant, the President of the
Company, in his sole discretion, shall determine whether or not this Warrant
shall become exercisable. If the President of the
<PAGE> 15
Company determines that this Warrant shall become exercisable or in the event
that a Change of Control shall have occurred, then this Warrant's purchase
rights shall be exercisable until 5:00 p.m., Dallas, Texas time, on the fifth
anniversary of date of issuance of this Warrant or, if such day is not a
Business Day, on the next preceding Business Day. If the President of the
Company determines that this Warrant shall not become exercisable and a Change
of Control shall not have occurred prior to such one year anniversary, then this
Warrant's purchase rights shall expire immediately upon such determination.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when
all of the following items have been delivered to the Company (the "Exercise
Time"):
(a) a completed Exercise Agreement, as described in
Section 1C below, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II attached hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check or wire transfer payable to
the Company in an amount equal to the product of the Exercise Price (as such
term is defined in Section 2) multiplied by the number of Warrant Shares being
purchased upon such exercise (the "Aggregate Exercise Price"), (ii) the
surrender to the Company of securities of the Company or its subsidiaries having
a value equal to the Aggregate Exercise Price of the Warrant Shares being
purchased upon such exercise (which value in the case of debt securities shall
be the principal amount thereof and in the case of shares of Common Stock shall
be the Fair Market Value thereof), or (iii) the delivery of a notice to the
Company that the Purchaser is exercising the Warrant by authorizing the Company
to reduce the number of Warrant Shares subject to the Warrant by the number of
shares having an aggregate Fair Market Value equal to the Aggregate Exercise
Price.
(ii) Certificates for Warrant Shares purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within ten
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a share pursuant to the provisions of Section 11 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such ten-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
Registered Holder of such Warrant Shares at the Exercise Time.
2
<PAGE> 16
(iv) The issuance of certificates for Warrant Shares upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any
taxes in respect of the Warrant or Warrant Shares, with respect to any transfer
of the Warrant, which taxes shall be paid by the transferee prior to the
issuance of such Warrant Shares.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant.
(vi) The Company shall assist and cooperate with the
Registered Holder or any Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant. The Company may in good faith suspend exercise of the Warrant
during the period reasonably necessary to obtain such approvals.
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock,
or otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Class A Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges except those created by actions of the
Registered Holder hereof. The Company shall take all such actions as may be
necessary to ensure that all such Warrant Shares may be so issued without
violation by the Company of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock or other securities constituting Warrant Shares may be listed (except for
official notice of issuance which shall be immediately delivered by the Company
upon each such issuance). The Company will use its best efforts to cause the
Warrant Shares, immediately upon such exercise, to be listed on any domestic
securities exchange upon which shares of Class A Common Stock or other
securities constituting Warrant Shares are listed, if any, at the time of such
exercise.
(ix) The Company shall not, and shall not permit its
subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change (as defined in
Section 2D), issuance or sale of securities or any other voluntary action) avoid
or seek to avoid the observance or performance of any of terms of this Warrant
or impair or diminish its value (except for any action which ratably affects all
Warrant Shares and
3
<PAGE> 17
shares of Common Stock), but shall at all times in good faith assist in the
carrying out of all such terms of this Warrant. Without limiting the generality
of the foregoing, the Company shall (a) use its reasonable best efforts to
obtain all such authorizations, exemptions, or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant, and (b) not undertake any
reverse stock split, combination, reorganization, or other reclassification of
its capital stock which would have the effect of making this Warrant exercisable
for less than one share of Class A Common Stock.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth as Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued, subject to the transfer restrictions set forth
in Section 5.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Initial
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2 (as so adjusted, the "Exercise Price"), and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be subject to adjustment
from time to time, each as provided in this Section 2; provided, however, that
there shall be no adjustment to the Exercise Price or to the number of Warrant
Shares acquirable upon exercise of the Warrant, as provided in this Section 2
(an "Adjustment"), unless and until such Adjustment together with any previous
Adjustments to the Exercise Price or to the number of Warrant Shares so
acquirable which would otherwise have resulted in an Adjustment were it not for
this proviso, would require an increase or decrease of at least 1% of the total
number of Warrant Shares so acquirable at the time of such Adjustment, in which
event such Adjustment and all such previous Adjustments shall immediately occur.
4
<PAGE> 18
2A. Adjustment for Certain Dividends and Distributions in
Consideration other than Securities of the Company. In the event that the
Company at any time or from time to time after the date hereof declares or makes
a dividend or other distribution with respect to the Class A Common Stock
payable in consideration other than additional shares of Class A Common Stock or
other securities of the Company, then in each such event the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such dividend or distribution by a
fraction, the numerator of which will be the Fair Market Value of the Class A
Common Stock immediately after such dividend or distribution and the denominator
of which will be the Fair Market Value of the Class A Common Stock immediately
before such dividend or distribution. Furthermore, upon each such adjustment to
the Exercise Price pursuant to this Section 2A, the number of Warrant Shares
acquirable upon the exercise of this Warrant shall be adjusted to equal the
number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
2B. Adjustment for Dividends and Distributions in Securities other
than Class A Common Stock. In the event the Company at any time or from time to
time after the date hereof declares or makes a dividend or other distribution
with respect to the Class A Common Stock payable in securities of the Company
other than additional shares of Class A Common Stock, then in each such event
provision shall be made so that the Registered Holders of Warrants shall receive
upon exercise thereof, in addition to the number of shares of Class A Common
Stock receivable thereupon, the amount of securities of the Company that they
would have received had their Warrants been exercised prior to the effective
date of the issuance of such other securities.
2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization, or
otherwise) the Class A Common Stock into a greater number of shares or pays a
dividend or makes a distribution to holders of the Class A Common Stock in the
form of shares of Class A Common Stock, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares obtainable upon exercise of this Warrant shall be proportionately
increased. Subject to clause (b) of Section 1B(ix), if the Company at any time
combines (by reverse stock split or otherwise) the Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any reincorporation, recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets or other transaction which is effected
in such a way that holders of the Class A Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities, or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change". Prior to the consummation of any Organic Change, the Company
shall make appropriate provision to ensure that each Registered Holder of
Warrants shall thereafter have the right to acquire and receive upon exercise
thereof, in lieu of or in addition to (as the case may be) the Warrant Shares
immediately theretofore acquirable and receivable upon exercise of such
Registered Holder's
5
<PAGE> 19
Warrants, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to ensure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants. The Company shall not effect any
such Organic Change unless, prior to the consummation thereof, the successor
entity (if other than the Company) resulting from such Organic Change (including
a purchaser of all or substantially all the Company's assets) assumes by written
instrument the obligation to deliver to each Registered Holder of Warrants such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Registered Holder may be entitled to acquire upon exercise of
Warrants.
2E. Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features but excluding
any Permitted Issuance), then the Company's Board of Directors shall make an
appropriate and equitable adjustment in the Exercise Price and the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least thirty (30) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Class A Common Stock, (B) with respect to any pro rata subscription
offer to holders of Class A Common Stock, or (C) for determining rights to vote
with respect to any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least thirty (30) days prior to the date on which any
Organic Change, dissolution, or liquidation shall take place.
2G. Class B Common Stock and Class C Common Stock. The Company shall
not issue, or grant the right to purchase, from and after the date of the
issuance of this Warrant, (i) any shares of Class B Common Stock or Class C
Common Stock, (ii) any securities convertible into shares of Class B Common
Stock or Class C Common Stock or (iii) any other form of common equity with a
liquidation preference senior to the Class A Common Stock, except such issuances
or grants made prior to the date hereof.
6
<PAGE> 20
SECTION 3. Definitions. The following terms have the meanings set forth
below:
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of Texas or is a day on
which banking institutions located in such state are authorized or required by
law or other governmental action to close.
"Change of Control" means (i) the consolidation or merger of the
Company with or into any other corporation or any other reorganization of the
Company, unless the stockholders of the Company immediately prior to any such
transaction are holders of a majority of the voting securities of the surviving
or acquiring corporation immediately thereafter (and, for purposes of this
calculation, equity securities which any stockholder or the Company owned
immediately prior to such merger or consolidation as a stockholder of another
party to the transaction shall be disregarded); or (ii) the sale or other
transfer in a single transaction or a series of related transactions of all or
substantially all of the assets of the Company.
"Class A Common Stock" means the Company's Class A Common Stock, $0.001
par value. For purposes of Section 2 of this Warrant, the definition of "Class A
Common Stock" shall include any other common stock of the Company with the
exception of the Class B Common Stock and Class C Common Stock.
"Class B Common Stock" means the Company's Class B Common Stock, $0.001
par value.
"Class C Common Stock" means the Company's Class C Common Stock, $0.001
par value.
"Common Stock" means, collectively, the Class A Common Stock, the Class
B Common Stock and the Class C Common Stock, and any other class of stock
representing common equity of the Company.
"Fair Market Value" means (i) the average of the closing sales prices
of the Class A Common Stock on all domestic securities exchanges on which the
Class A Common Stock is listed, or (ii) 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 such exchanges at the end of such day, or (iii) if on any day the Class A
Common Stock is not so listed, the sales price for the Class A Common Stock as
of 4:00 P.M., Dallas, Texas time, as reported on the Nasdaq National Market, or
(iv) if the Class A Common Stock is not reported on the Nasdaq National Market,
the average of the representative bid and asked quotations for the Class A
Common Stock as of 4:00 P.M., Dallas, Texas time, as reported on the Nasdaq
interdealer quotation system, or any similar successor organization, in each
such case averaged over a period of twenty-one (21) trading days consisting of
the day as of which "Fair Market Value" is being determined and the 20
consecutive trading days prior to such day. Notwithstanding the foregoing, if at
any time of determination either (x) the Class A Common Stock is not registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and
not listed on a national securities exchange or authorized for quotation in the
Nasdaq system, or (y) less than 25% of the outstanding Class A Common Stock is
held by the public free of transfer restrictions under the Securities Act of
1933, as amended, then Fair Market Value shall mean the price that would be paid
per share for the entire common equity interest in the Company in an orderly
sale transaction between a willing buyer and a willing seller, taking into
account the appropriate lack of liquidity of the Company's securities, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale. Fair
7
<PAGE> 21
Market Value shall be determined by the Company's Board of Directors in its good
faith judgment. Notwithstanding the foregoing, a majority of the Required
Holders shall have the right to require that an independent investment banking
firm mutually acceptable to the Company and the Required Holders determine Fair
Market Value, which firm shall submit to the Company and the Warrant holders a
written report setting forth such determination. The expenses of such firm will
be borne by the Company, and the determination of such firm will be final and
binding upon all parties.
"Permitted Issuance" means any issuance by the Company of shares of
Class A Common Stock or options to purchase Class A Common Stock (a) on or prior
to the date hereof; (b) upon exercise of this Warrant; (c) upon the conversion
of any Preferred Stock, Class B Common Stock or Class C Common Stock issued on
or prior to the date hereof; (d) pursuant to an underwritten offering of Common
Stock registered under the Securities Act of 1933, as amended; and (e) to
employees of the Company pursuant to employee stock purchase or stock option
plans adopted or to be adopted by the Company for key employees and prior stock
option grants; provided, that, the aggregate number of shares (and underlying
shares of options) of Class A Common Stock issued pursuant to this clause (e)
shall not exceed 6,000,000 (as adjusted to provide for any dividends, stock
distributions, splits, combinations or recapitalizations).
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization or government or
department or agency thereof.
"Preferred Stock" means the Company's Series A Convertible Preferred
Stock.
"Registered Holder" means the holder of this Warrant as reflected in
the records of the Company maintained pursuant to the provisions of Section 10.
"Required Holders" means the holders of a majority of the purchase
rights represented by this Warrant as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Company's Class A Common Stock
issuable upon exercise of the Warrant; provided, that if the securities issuable
upon exercise of the Warrant are issued by an entity other than the Company or
there is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrant
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
SECTION 4. No Voting Rights, Limitations of Liability. This Warrant
shall not entitle the Registered Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 5. Transferability. This Warrant and all rights hereunder are
transferable in whole without charge to the Registered Holder, upon surrender of
this Warrant with a properly executed Assignment (in the form of Exhibit II
hereto) at the principal office of the Company.
SECTION 6. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the
8
<PAGE> 22
Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants shall represent such
portion of such rights as is designated by the Registered Holder at the time of
such surrender. At the request of the Registered Holder (pursuant to a transfer
of Warrants or otherwise), this Warrant may be exchanged for one or more
Warrants to purchase Common Stock. The date the Company initially issues this
Warrant shall be deemed to be the date of issuance hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
SECTION 7. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction, or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft, or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided, that if the Registered Holder is a financial institution or
other institutional investor its own Agreement shall be satisfactory), or, in
the case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the same rights represented by such lost,
stolen, destroyed, or mutilated certificate and dated the date of such lost,
stolen, destroyed, or mutilated certificate.
SECTION 8. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices, and (ii) to a Registered
Holder, at such Registered Holder's address as it appears in the records of the
Company (unless otherwise indicated by any such Registered Holder).
SECTION 9. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the prior written consent of the Required
Holders.
SECTION 10. Warrant Register. The Company shall maintain at its
principal executive offices books for the registration and the registration of
transfer of the Warrant. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.
SECTION 11. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.
9
<PAGE> 23
SECTION 12. Descriptive Headings, Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
10
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officer to be dated as of the date hereof.
BROADBANDNOW, INC.
By:
----------------------------------
Name:
Title:
Attest:
- ---------------------------------
Name:
11
<PAGE> 25
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-___), hereby agrees to subscribe for the purchase of
_____ Warrant Shares covered by such Warrant and makes payment herewith in full
therefor at the price per share provided by such Warrant.
Signature
---------------------------
Address
----------------------------
Exhibit I, Page 1
<PAGE> 26
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, ___________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-____) with respect to the number of the Warrant Shares
covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature
---------------------------
---------------------------
Witness
---------------------------
Exhibit II, Page 1
<PAGE> 1
EXHIBIT 10.45
SUBSCRIPTION AGREEMENT
dated as of February 3, 2000
between
DOTCOM LIMITED PARTNERSHIP
and
BROADBANDNOW, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I.
DEFINITIONS
ARTICLE II.
SUBSCRIPTION FOR WARRANTS
SECTION 2.1. Subscription for Warrants ...............................2
ARTICLE III.
PURCHASE OF WARRANTS
SECTION 3.1. Purchase and Issuance ...................................2
SECTION 3.2. Restrictions on Transfer ................................2
SECTION 3.3. Legend ..................................................2
ARTICLE IV.
ACKNOWLEDGMENTS OF SUBSCRIBER
SECTION 4.1. Residence ...............................................3
SECTION 4.2. Accredited Investor .....................................3
SECTION 4.3. Exemption ...............................................3
SECTION 4.4. No Registration .........................................3
SECTION 4.5. Illiquidity .............................................4
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
SECTION 5.1. Organization ............................................4
SECTION 5.2. Authority ...............................................4
SECTION 5.3. No Consents; No Violations ..............................4
SECTION 5.4. No Litigation ...........................................4
SECTION 5.5. No Broker ...............................................4
SECTION 5.6. Solvency of Subscriber ..................................4
SECTION 5.7. Access to Information ...................................5
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.8. Accredited Investor .........................................5
SECTION 5.9. Investment Intent ...........................................5
SECTION 5.10. No Recommendation ...........................................5
SECTION 5.11. Independent Judgment ........................................5
SECTION 5.12. No General Solicitation .....................................5
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF COMPANY
SECTION 6.1. Organization ................................................6
SECTION 6.2. Authority ...................................................6
SECTION 6.3. No Consents; No Violations; Waiver of Preemptive Rights .....6
SECTION 6.4. No Litigation ...............................................7
SECTION 6.5. No Broker ...................................................7
SECTION 6.6. Title to Warrants ...........................................7
Article VII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 7.1. Survival ....................................................7
SECTION 7.2. Indemnification by Subscriber ...............................7
SECTION 7.3. Indemnification by the Company ..............................7
Article VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. Amendment and Modification ..................................8
SECTION 8.2. Waiver of Compliance; Consents ..............................8
SECTION 8.3. Assignment ..................................................8
SECTION 8.4. Expenses ....................................................8
SECTION 8.5. Governing Law ...............................................8
SECTION 8.6. Counterparts ................................................8
SECTION 8.7. Notices .....................................................8
SECTION 8.8. Headings ....................................................9
SECTION 8.9. Entire Agreement ............................................9
SECTION 8.10. Severability ................................................9
SECTION 8.11. Further Assurances ..........................................9
</TABLE>
<PAGE> 4
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of February 3,
2000, is by and between the subscriber designated on the signature page hereof
(the "SUBSCRIBER"), and BroadbandNOW, Inc., a Delaware corporation with an
address at 1440 Corporate Drive, Irving, Texas 75038 (the "COMPANY").
RECITALS
As of the date hereof, the Subscriber wishes to subscribe for and to
purchase from the Company Warrants (the "WARRANTS") to purchase 150,000 shares
of Class A Common Stock, par value $.001 per share, of the Company (the "COMMON
STOCK") and the Company wishes to accept such subscription and to issue the
Warrants to the Subscriber, all pursuant to the terms and conditions hereinafter
set forth.
AGREEMENT
In consideration of the foregoing and the mutual representations,
warranties, covenants and agreements contained herein, the Subscriber and the
Company, intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
The following capitalized terms used in this Agreement shall have the
meanings (such definitions to be equally applicable to both the singular and
plural forms of the terms defined) set forth in this Article I.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly is controlling, controlled or under common control with
such Person.
"AGREEMENT" or "THIS AGREEMENT" means this Subscription Agreement,
including all Schedules and Exhibits hereto.
"DOLLAR" and "$" means the lawful money of the United States of
America.
"LIEN" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever, other than one created or incurred by the
Company or its agents.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
<PAGE> 5
ARTICLE II.
SUBSCRIPTION FOR WARRANTS
SECTION 2.1. SUBSCRIPTION FOR WARRANTS. Subject to the terms and
conditions of this Agreement, the Subscriber hereby irrevocably subscribes for
and agrees to purchase the Warrants from the Company at a purchase price set
forth opposite Subscriber's name on Schedule A hereto (the "PURCHASE PRICE"),
and the Company hereby accepts such subscription and agrees to sell the Warrants
to the Subscriber on the date hereof upon receipt of the Purchase Price in
accordance with Section 3.1.
ARTICLE III.
PURCHASE OF WARRANTS
SECTION 3.1. PURCHASE AND ISSUANCE. Upon payment by the Subscriber of
the Purchase Price by check or wire transfer to the account identified by the
Company and the receipt by the Company of applicable waivers pursuant to Section
6.3 hereof or the expiration of such preemptive rights, the Company shall issue,
sell and deliver to the Subscriber, and the Subscriber shall purchase and
accept, certificates evidencing the Warrants, substantially in the forms of
Exhibit A-1 and A-2 hereto, in the name of the Subscriber.
SECTION 3.2. RESTRICTIONS ON TRANSFER. The Warrants may not be offered
for sale, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of, except (a) pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), or in a
transaction that is exempt from registration under the Securities Act or for
which such registration is otherwise not required, (b) pursuant to an effective
registration statement under any applicable state act or in a transaction that
is exempt from registration under such state acts or for which such registration
otherwise is not required and (c) in accordance with the transfer restrictions
set forth in Section 5 of the Warrants.
SECTION 3.3. LEGEND. Each certificate representing the Warrants shall
be stamped or otherwise imprinted with a legend substantially in the following
form:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SAID ACT OR SUCH LAWS OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES
NOT VIOLATE THE PROVISIONS THEREOF.
THIS WARRANT ALSO IS SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF,
AS SET FORTH IN (1) THE SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER AND
THE SUBSCRIBER AND (2) THE
2
<PAGE> 6
CERTIFICATE OF INCORPORATION OF THE COMPANY, A COPY OF WHICH AGREEMENT
AND CERTIFICATE MAY BE OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH
WARRANT WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN
AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH
IN SAID SUBSCRIPTION AGREEMENT AND CERTIFICATE OF INCORPORATION.
ARTICLE IV.
ACKNOWLEDGMENTS OF SUBSCRIBER
The Subscriber hereby acknowledges as follows:
SECTION 4.1. RESIDENCE. If the Subscriber is a corporation,
partnership, trust or other entity, it has its principal place of business as
set forth on Schedule A, and if the Subscriber is an individual, he or she is at
least 21 years of age and the address set forth on Schedule A is the
Subscriber's true and correct address and residence.
SECTION 4.2. ACCREDITED INVESTOR. In order to purchase the Warrants,
the Subscriber must satisfy one of the criteria for an "accredited investor" as
set forth in Section 5.8 hereof, and the Company shall rely upon representations
and warranties made by the Subscriber herein in determining whether the
Subscriber is an accredited investor.
SECTION 4.3. EXEMPTION. The Subscriber's right to purchase the Warrants
hereunder is expressly conditioned upon the exemption from qualification of the
offer and sale of the Warrants from applicable federal and state securities (or
"blue sky") laws.
SECTION 4.4. NO REGISTRATION. Based upon the acknowledgments,
representations, warranties and agreements made by the Subscriber herein, the
Company (i) has determined that one or more of the exemptions from the
registration provisions of the Securities Act and applicable state securities
laws are applicable to the offer and sale of the Warrants, and (ii) has not
registered the Warrants under the Securities Act or state securities laws by
reason of such exemption(s).
SECTION 4.5. ILLIQUIDITY. There is no public market for the Warrants,
no such market may develop for the Warrants, and even if a public market
develops for such Warrants, Rule 144 promulgated under the Securities Act
requires, among other conditions, a one-year holding period prior to the resale
(in limited amounts) of securities acquired in a non-public offering without
having to satisfy the registration requirements of the Securities Act.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber hereby represents and warrants to the Company that as of
the date hereof and as of the Subscription Date:
3
<PAGE> 7
SECTION 5.1. ORGANIZATION. The Subscriber (if a Person that is not an
individual) is an entity validly existing and in good standing under the laws of
its jurisdiction of organization.
SECTION 5.2. AUTHORITY. The Subscriber has the power, authority and
capacity to execute and deliver this Agreement and to perform the Subscriber's
obligations hereunder. The execution, delivery and performance by the Subscriber
of this Agreement have been duly authorized by all necessary action; and this
Agreement has been duly executed and delivered by the Subscriber and is the
legal, valid and binding obligation of the Subscriber enforceable against the
Subscriber in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, receivership, conservatorship,
reorganization, liquidation, moratorium or similar events affecting the
Subscriber or the Subscriber's assets, or by general principles of equity.
SECTION 5.3. NO CONSENTS; NO VIOLATIONS.
(a) No authorization, approval or other action by, and no notice to or
filing with, any governmental, regulatory or legal authority or any other Person
is required for the due execution, delivery and performance by the Subscriber of
this Agreement or the consummation of the transactions contemplated hereby other
than such as has been obtained, given, effected or taken prior to the date
hereof.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not result
in any contravention of (i) any applicable law, rule or regulation of any
federal, state or local governmental or regulatory authority, (ii) any order,
writ, injunction, judgment, decree or award of any court, arbitrator, or
government or regulatory authority to which the Subscriber or any of the
Subscriber's properties are subject or (iii) any mortgage, contract, agreement,
deed of trust, license, lease or other instrument, arrangement, commitment,
obligation, understanding or restriction of any kind to which the Subscriber is
a party or by which any of the Subscriber's properties are bound.
SECTION 5.4. NO LITIGATION. There is no pending or, to the best
knowledge of the Subscriber, threatened action or proceeding before any court,
governmental agency or arbitrator by or against, or involving the Subscriber or
the Subscriber's Affiliates or any of the Subscriber's property that questions
or challenges the validity or enforceability of this Agreement or any action
taken or to be taken by the Subscriber pursuant to this Agreement or in
connection with the transactions contemplated hereby.
SECTION 5.5. NO BROKER. The Subscriber is not obligated to pay, and has
not retained any broker or finder or other Person that is entitled to, any
broker's or finder's fee or other commission based upon the consummation of the
transactions contemplated by this Agreement or any agreement contemplated
hereby.
SECTION 5.6. SOLVENCY OF SUBSCRIBER. After giving effect to the
transactions contemplated by this Agreement, the Subscriber shall be solvent and
shall be able to pay the
4
<PAGE> 8
Subscriber's anticipated liabilities as and when they become due. The payment of
the Purchase Price is being made in good faith and without any intent to hinder,
delay or defraud any of the creditors of the Subscriber.
SECTION 5.7. ACCESS TO INFORMATION. The Subscriber has reviewed
information relating to the Company's business that the Company has provided to
the Subscriber and has had an opportunity to receive and review all other
documents and information that the Subscriber considers relevant or material to
the Subscriber's subscription for and purchase of the Warrants and to ask
questions of and receive satisfactory answers from the Company, or a person or
persons acting on behalf of the Company, concerning the Company, its business
and the terms and conditions of the purchase of the Warrants, and all such
questions have been answered to the full satisfaction of the Subscriber. The
Subscriber has been afforded full access to all documents, books and records of
the Company.
SECTION 5.8. ACCREDITED INVESTOR. The Subscriber acknowledges that the
Subscriber has such knowledge and experience in investment, financial and
business matters (including, but not limited to, making investments in unlisted
and unregistered securities) that the Subscriber is capable of evaluating the
merits and risks of purchasing the Warrants. The Subscriber is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act by
virtue of being at least one of the following: (a) a corporation, or a
partnership or other entity not formed for the specific purpose of acquiring the
Warrants, in either case with total assets in excess of $5,000,000, (b) an
individual whose individual net worth, or joint net assets with such
individual's spouse, at the time of purchase exceeds $1,000,000 or (c) an entity
all of whose equity owners are described in (a) and/or (b).
SECTION 5.9. INVESTMENT INTENT. The Subscriber is purchasing the
Warrants for investment, for the Subscriber's own account, and with no present
intention of reselling, directly or indirectly, participating in any
distribution of or otherwise disposing of the Warrants. The Subscriber shall be
the sole beneficial owner of the Warrants at the time of the issuance. The
Subscriber understands that no disposition may be made of the Warrants except as
provided in Section 3.2 of this Agreement, and that the Subscriber must bear the
economic risk of purchasing the Warrants for an indefinite period of time. The
Subscriber would be able to sustain a total or partial loss of the Subscriber's
investment in the Warrants should such loss occur.
SECTION 5.10. NO RECOMMENDATION. The Subscriber acknowledges that no
federal or state agency has made any finding or determination relating to the
fairness for investment in the Warrants and no federal or state agency has
recommended or endorsed the Warrants.
SECTION 5.11. INDEPENDENT JUDGMENT. The Subscriber is not purchasing
the Warrants based upon any representation, oral or written, by any Person with
respect to the future value of, or income from, the Warrants, but rather upon an
independent examination and judgment as to the prospects of the Company.
SECTION 5.12. NO GENERAL SOLICITATION. The Warrants were not offered to
the Subscriber by means of general solicitation, publicly disseminated
advertisements or sales
5
<PAGE> 9
literature or a seminar or meeting whose attendees had
been invited by general solicitation or publicly disseminated advertisements.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants that as of the date hereof
and as of the Subscription Date:
SECTION 6.1. ORGANIZATION. The Company is a corporation validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to enter into the transactions contemplated by
this Agreement.
SECTION 6.2. AUTHORITY. The Company has the power and authority to
carry on its business as now conducted, to own or hold under lease its
properties, and to execute and deliver this Agreement, and to perform its
obligations hereunder. The execution, delivery and performance by the Company of
this Agreement has been duly authorized by all necessary action; and this
Agreement has been duly executed and delivered by the Company and is the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, receivership, conservatorship, reorganization,
liquidation, moratorium or similar events affecting the Company or its assets,
or by general principles of equity.
SECTION 6.3. NO CONSENTS; NO VIOLATIONS; WAIVER OF PREEMPTIVE RIGHTS.
(a) No authorization, approval or other action by, and no notice or
filing with, any governmental, regulatory or legal authority or any other Person
is required for the due execution, delivery and performance by the Company of
this Agreement or the consummation of the transactions contemplated hereby other
than such as has been obtained, given, effected or taken prior to the date
hereof. Subject to the accuracy of the acknowledgments, representations and
agreements made by the Subscriber herein, no registration under the Securities
Act or any applicable state securities laws is required for the sale of the
Warrants to Subscriber in accordance with the provisions hereof.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not result
in any contravention of (i) the certificate of incorporation or the bylaws of
the Company, (ii) any applicable law, rule or regulation of any federal, state
or local governmental or regulatory authority, (iii) any order, writ,
injunction, judgment, decree or award of any court, arbitrator, or governmental
or regulatory authority to which the Company or any of its properties are
subject or (iv) any mortgage, contract, agreement, deed of trust, license, lease
or other instrument, arrangement, commitment, obligation, understanding or
restriction of any kind to which the Company is a party or by which any of its
properties are bound.
6
<PAGE> 10
(c) The preemptive rights granted to the holders of the Company's
Series A Preferred Stock (the "PREFERRED STOCK") as set forth in Section 2.3 of
the Certificate of Designations regarding the Preferred Stock shall have been
waived or expired prior to issuance of the Warrants in accordance with such
Certificate of Designations with regard to the issuance of the Warrants and the
Common Stock issuable upon the exercise thereof. The Warrants and the Common
Stock issuable upon the exercise thereof will not be issued in contravention of
any other preemptive rights.
SECTION 6.4. NO LITIGATION. There is no pending or, to the best
knowledge of the Company, threatened action or proceeding before any court,
governmental agency or arbitrator by, against or involving the Company or its
Affiliates or any of its property, or any of its stockholders, managers or
employees that questions or challenges the validity or enforceability of this
Agreement or any action taken or to be taken by the Company pursuant to this
Agreement or in connection with the transactions contemplated hereby.
SECTION 6.5. NO BROKER. The Company is not obligated to pay, and has
not retained any broker or finder or other Person that is entitled to, any
broker's or finder's fee or other commission based upon the consummation of the
transaction contemplated by this Agreement or any other agreement contemplated
hereby.
SECTION 6.6. TITLE TO WARRANTS. Upon the payment of the Purchase Price
to the Company and the issuance by the Company of the Warrants, each in
accordance with the terms of this Agreement, and upon delivery thereof the
Subscriber shall acquire good and indefeasible title to the Warrants, free and
clear of any and all liens, claims or encumbrances of any kind, other than
liens, claims or encumbrances created by or through the Subscriber.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 7.1. SURVIVAL. The representations and warranties of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement.
SECTION 7.2. INDEMNIFICATION BY SUBSCRIBER. The Subscriber shall
indemnify and hold harmless the Company from and against any and all claims,
losses, liabilities and damages, including, without limitation, amounts paid in
settlement, reasonable costs of investigation and reasonable fees and
disbursements of counsel, arising out of or resulting from the inaccuracy of any
Subscriber representation or warranty or the breach by Subscriber of any
covenant or agreement contained herein or in any instrument or certificate
delivered pursuant hereto.
SECTION 7.3. INDEMNIFICATION BY THE COMPANY. The Company shall
indemnify and hold harmless the Subscriber from and against any and all claims,
losses, liabilities and damages, including, without limitation, amounts paid in
settlement, reasonable costs of investigation and reasonable fees and
disbursements of counsel, arising out of or resulting from the inaccuracy of any
Company representation or warranty or the breach by Company of any covenant or
agreement contained herein or in any instrument or certificate delivered
pursuant hereto.
7
<PAGE> 11
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties hereto.
SECTION 8.2. WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party
hereto to comply with any obligation, covenant, agreement or condition herein
may be waived by the other party hereto; provided, however, that any such waiver
may be made only by a written instrument signed by the party hereto granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 8.2, with appropriate
notice in accordance with Section 8.7 of this Agreement.
SECTION 8.3. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon the parties hereto and their respective successors
and permitted assigns. Any party hereto may assign any of such party's rights
hereunder, but no such assignment shall relieve such party of such party's
liability for such party's obligations hereunder, provided that any assignee of
the Subscriber's rights hereunder shall at the time of such assignment be a
transferee of the Warrants in accordance with Article 3, and at the time of the
exercise of any rights hereunder shall be the record holder of such Warrants.
Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any Person, other than the parties hereto and any
successors and permitted assigns, any rights, remedy or claim under or by reason
of this Agreement or any provision herein contained.
SECTION 8.4. EXPENSES. All fees and expenses (including all fees of
counsel and accountants) incurred by any party in connection with the
negotiation and execution of this Agreement shall be borne by the party who
incurred them.
SECTION 8.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without regard
to its conflicts of law doctrines).
SECTION 8.6. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
SECTION 8.7. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand, mailed by registered or certified mail (return receipt requested) or sent
by a nationally recognized overnight delivery service to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to the Subscriber to the addresses set forth on Schedule A hereto.
8
<PAGE> 12
If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President & CEO
with a copy to (such copy not to constitute notice):
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Attn: Mark Zvonkovic, Esq.
SECTION 8.8. HEADINGS. The article and section headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties hereto with respect to such subject matter.
SECTION 8.10. SEVERABILITY. If any one or more provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
SECTION 8.11. FURTHER ASSURANCES. Each party to this Agreement shall
execute such documents or instruments and take such other action as the other
party hereto may reasonably request after the date hereof in order to effectuate
the transactions contemplated hereby.
[SIGNATURE PAGES FOLLOW]
9
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
DOTCOM LIMITED PARTNERSHIP
By:
------------------------------------
Name: Jack Riggs
Title: General Partner
BROADBANDNOW, INC.
By:
------------------------------------
Name: Matthew Hutchins, Sr.
Title: President & CEO
<PAGE> 14
SCHEDULE A
Subscriber: DOTCOM Limited Partnership
Purchase Price: $60,000
Notices: DOTCOM Limited Partnership
5931 Velasco
Dallas, Texas 75206
Attn: Jack Riggs, General Partner
<PAGE> 15
EXHIBIT A-1
FORM OF WARRANT
<PAGE> 16
EXHIBIT A-2
FORM OF WARRANT
<PAGE> 1
EXHIBIT 10.46
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
this 3rd day of February 2000, by and among BroadbandNOW, Inc., a Delaware
corporation (the "Company") and DOTCOM Limited Partnership (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchaser and the Company are parties to that certain
Subscription Agreement, dated as of February 3, 2000, whereby the Purchaser
shall purchase, and the Company shall issue and sell, Warrants to purchase an
aggregate of 150,000 shares of Class A Common Stock, par value $0.001 per share,
of the Company (the "Warrant"); and
WHEREAS, in connection with the purchase of the Warrants, the Company
desires to grant to the Purchaser certain registration rights.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "Commission" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act.
(b) "Common Stock" shall mean the Company's Class A Common
Stock, par value $0.001 per share, as authorized on the date of this Agreement
or class of common stock issued in exchange therefor.
(c) "Conversion Shares" shall mean the shares of Common Stock
issued or issuable upon the exercise of the Warrants.
(d) "Exchange Act" shall mean 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.
(e) "Forms S-1, S-2, S-3 and S-4" shall mean the forms so
designated, promulgated by the Commission for registration of securities under
the Securities Act, and any forms succeeding to the functions of such forms,
whether or not bearing the same designation.
(f) "Initial Public Offering" shall mean the initial
underwritten offering by the Company for its own account of Common Stock under
the Securities Act.
<PAGE> 2
(g) "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust, an estate,
an unincorporated organization, a government or any agency or political
subdivision thereof.
(h) "Preferred Stock" shall mean the Company's Series A
Convertible Preferred Stock as designated in its Certificate of Designation.
(i) "Preferred Rights Agreement" shall mean the First Amended
and Restated Registration Rights Agreement dated January 25, 2000 between the
Company and the holders of Preferred Stock.
(j) "Register," "registered" and "registration" refers to a
registration effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
(k) "Registrable Securities" shall mean (i) Conversion Shares
held by (x) the Purchaser, (y) a permitted purchaser of the Warrants pursuant to
its terms, or (z) a Person to whom registration rights have been properly
transferred and (ii) all shares of Common Stock issued by the Company in respect
of the Warrants.
(l) "Required Demand Amount" shall mean at least the total
number of Conversion Shares and shares of Common Stock issued by the Company in
respect of such shares for exercise in whole of the Warrant initially issued for
100,000 shares of Common Stock.
(m) "Securities Act" shall mean 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.
2. REQUIRED REGISTRATION.
(a) Subject to the provisions of Section 4 hereof, the
Purchaser may request the Company in writing to effect under the Securities Act
a registration, stating the number of shares of Registrable Securities to be
disposed of by such Purchaser and the intended method of disposition; provided,
however, that the number of shares requested to be registered by the Purchaser
is at least the Required Demand Amount and the Company can effect such
registration on Form S-3.
(b) Subject to the limitations set forth in Section 4 hereof,
the Company will use commercially reasonable efforts to effect the registration
under the Securities Act of all shares of Registrable Securities specified in
the request of the Purchaser; provided, however, that the number of shares
requested to be registered by the Purchaser is at least the Required Demand
Amount and the Company can effect such registration on Form S-3.
3. REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Agreement to use commercially reasonable efforts to effect
promptly the registration of shares of Registrable Securities, the Company will
use commercially reasonable efforts to :
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<PAGE> 3
(a) prepare and file with the Commission (i) a registration
statement on Form S-3 with respect to such Registrable Securities, if the
Company meets such eligibility requirements; provided, however, if for any
reason, the Company does not qualify for Form S-3 within 18 months of
registration of the Company's Common Stock under the Exchange Act, then Company
shall file a registration statement on Form S-1 or, if eligible, Form S-2 and
(ii) such amendments and post-effective amendments to the registration statement
as may be necessary to keep the registration statement effective for the period
necessary to complete the proposed distribution; 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 to comply fully with
the applicable provisions of Rules 424 and 430A under the Securities Act in a
timely manner; and comply with the provisions of the Securities Act 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;
(b) keep such registration statement continuously effective
for the period necessary to complete the proposed distribution but for no longer
than one hundred eighty (180) days subsequent to the effective date of such
registration; upon the occurrence of any event that would cause the registration
statement or the prospectus contained therein to contain a material misstatement
or omission, the Company shall use commercially reasonable efforts to file as
promptly as practicable an appropriate amendment to such registration statement
correcting any such misstatement or omission;
(c) advise the underwriter(s), if any, and selling Purchaser
promptly and, if requested by such Persons, to confirm such advice in writing,
(i) when the prospectus or any prospectus supplement or post-effective amendment
has been filed, and, with respect to the registration statement or any
post-effective amendment thereto, when the same has become effective, (ii) of
any request by the Commission for amendments to the registration statement or
amendments or supplements to the prospectus or for additional information
relating thereto, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement under the Securities
Act or of the suspension by any state securities commission of the qualification
of the Registrable Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, and (iv) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the registration statement, the prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the registration statement or the prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the registration statement or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Registrable
Securities under state securities or blue sky laws, the Company shall use
commercially reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
-3-
<PAGE> 4
(d) furnish to the selling Purchaser and each of the
underwriter(s), if any, before filing with the Commission, copies of the
registration statement or any prospectus included therein or any amendments or
supplements to any such registration statement or prospectus, and the Company
will not file the registration statement or prospectus or any amendment or
supplement to any registration statement or prospectus to which the selling
Purchaser of Registrable Securities covered by such registration statement or
the underwriter(s), if any, shall reasonably object within three (3) business
days after the receipt thereof;
(e) if requested by the selling Purchaser or the
underwriter(s), if any, incorporate in the registration statement or prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Purchaser and underwriter(s), if any, may reasonably
request to have included therein, information with respect to the number of
Registrable Securities being sold to such underwriter(s), the purchase price
being paid therefor and any other terms of the 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
the Company is notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(f) furnish to the selling Purchaser and each of the
underwriter(s), if any, without charge, at least one copy of the registration
statement, as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(g) deliver to the selling Purchaser and each of the
underwriter(s), if any, without charge, as many copies of the prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons reasonably may request; the Company hereby consents to the use
of the prospectus and any amendment or supplement thereto by the selling
Purchaser and each of the underwriter(s), if any, in connection with the
offering and the sale of the Registrable Securities covered by the prospectus or
any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities,
the Company shall register or qualify the Registrable Securities under the
securities or blue sky laws of such jurisdictions as the selling Purchaser or
underwriter(s), if any, may reasonably request and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the registration
statement; provided, however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the registration
statement, in any jurisdiction where it is not now so subject;
(i) cooperate with the selling Purchaser and the
underwriter(s), 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 selling Purchaser or the
underwriter(s),
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<PAGE> 5
if any, may reasonably request prior to any sale of Registrable Securities made
by such underwriter(s);
(j) if any fact or event contemplated by clause (c)(iv) above
shall exist or have occurred, prepare a supplement or post-effective amendment
to the registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(k) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. ("NASD") and in the
performance of any due diligence investigation by any underwriter (including any
"qualified independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD;
(l) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission, and make
generally available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of the Securities Act
and Rule 158 thereunder (which need not be audited) for the twelve-month period
(i) commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm or best efforts underwritten offering or (ii)
if not sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date of the
registration statement;
(m) enter into such customary agreements (including an
underwriting agreement in customary form with provisions as may be reasonably
required by the managing underwriter, if any, in order to expedite or facilitate
the disposition of such Registrable Securities);
(n) make available for inspection by the selling Purchaser of
Registrable Securities included in such registration statement, 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 relevant 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 reasonably requested
by any such Inspector in connection with such registration statement; provided
that 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 material misstatement or omission in the registration statement or
(ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction; provided, further, each Holder of
Registrable Securities and Inspector agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at its expense, to undertake
appropriate action and to prevent disclosure of the Records deemed confidential;
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<PAGE> 6
(o) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the selling Purchaser
may reasonably request; and
(p) the Company will give the selling Purchaser of Registrable
Securities registered under such registration statement, the underwriter, if
any, and one counsel or firm of counsel and one accountant or firm of
accountants representing the selling Purchaser, 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 reasonably necessary in the opinion of such selling Purchaser and
such underwriters' respective counsel to conduct a reasonable investigation
within the meaning of the Securities Act.
4. LIMITATIONS ON REQUIRED REGISTRATIONS.
(a) The Company shall not be required to effect more than one
registration pursuant to Section 2 hereof.
(b) The Company may not cause any other registration of
securities for sale for its own account (other than a registration effected
solely to implement an employee benefit or incentive plan or securities for a
transaction on a Form S-4) to be initiated after a registration requested
pursuant to Section 2 hereof and to become effective less than ninety (90) days
after the effective date of any registration requested pursuant to Section 2
hereof.
(c) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting pursuant to
this Agreement or other agreements with the Company, or shares offered by the
Company may be included in the registration. Notwithstanding the provisions of
Sections 2(b) and 4(b) hereof, if the underwriter determines that (i) marketing
factors require a limitation of the total number of shares to be underwritten,
or (ii) the offering price per share would be reduced by the inclusion of the
shares in the underwriting, then the number of shares to be included in the
registration and underwriting shall be reduced in whole or in part by the
underwriter so long as such limitation is applied on a pro rata basis with
respect to all shares proposed or requested to be registered in the
underwriting. No stock excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
the Company disapproves of any such underwriting, the Company may elect to
withdraw its shares therefrom by written notice to the Purchaser and the
underwriter. The securities so withdrawn from such underwriting shall also be
withdrawn from such registration.
(d) If at the time of any request to register Registrable
Securities pursuant to Section 2 hereof, the Company is engaged, or has fixed
plans to engage within ninety (90) days of the time of the request in a
registered public offering, then the Company may at its option
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<PAGE> 7
direct that such request be delayed for a period not in excess of six months
from the effective date of such offering.
(e) The Company shall not be required to effect a registration
pursuant to Section 2 hereof until the earlier to occur of: (i) 18 months after
an Initial Public Offering if the Company obtains the requisite approval of the
holders of the Preferred Stock for such registration, or (ii) ninety (90) days
after a public offering for the account of the holders of Common Stock issued or
issuable to such holders of the Company's Preferred Stock (the "Preferred
Offering"). If a Preferred Offering has not occurred within 18 months after an
Initial Public Offering, the Company agrees to use its best efforts to obtain
the consent referred to in clause (i) in the previous sentence.
5. INCIDENTAL REGISTRATION. At any time, (i) commencing one hundred
eighty (180) days after an Approved Offering (as defined in the Preferred Rights
Agreement) or (ii) subject to the Preferred Rights Agreement, if the Company
proposes to register any of its shares of Common Stock under the Securities Act
(other than a registration effected solely to implement an employee benefit or
incentive plan or securities for a transaction on a Form S-4) for its own
account or in a Preferred Offering, it will each such time give written notice
to Purchaser of its intention so to do. Upon the written request of Purchaser
given within 10 days after receipt of any such notice (stating the number of
shares of Registrable Securities to be disposed of by Purchaser), the Company
will use commercially reasonable efforts to cause all shares of Registrable
Securities to be sold to be registered under the Securities Act so as to permit
the disposition on the same terms and conditions as the shares of Common Stock
otherwise being sold through underwriters under such registration by such
holders of the shares so registered, subject, however, to the limitations set
forth in the Preferred Rights Agreement and Section 6 hereof.
6. LIMITATIONS ON INCIDENTAL REGISTRATION. Notwithstanding any
provision of Section 5 hereof, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may exclude or otherwise limit the number of shares of Registrable
Securities to be included in the registration and underwriting. The Company
shall so advise the Purchaser, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
reduced in whole or in part by the underwriter. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If Purchaser disapproves of
any such underwriting, such Purchaser may elect to withdraw therefrom by written
notice to the Company and the underwriter. The Registrable Securities and/or
other securities so withdrawn from such underwriting shall also be withdrawn
from such registration.
7. DESIGNATION OF UNDERWRITER. The Company shall have the right to
designate the managing underwriter in any underwritten offering.
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<PAGE> 8
8. COOPERATION BY PURCHASER.
(a) Purchaser will furnish to the Company such information as
the Company may reasonably require from Purchaser in connection with the
registration statement (and the prospectus included therein).
(b) Purchaser will not (until further notice) effect sales
thereof after receipt of telegraphic or written notice from the Company to
suspend sales to permit the Company to correct or update a registration
statement or prospectus; but the obligations of the Company with respect to
maintaining any registration statement current and effective shall be extended
by a period of days equal to the period such suspension is in effect unless (i)
such extension would result in the Company's inability to use the financial
statements in the registration statement initially filed pursuant to the
Purchaser's request and (ii) such correction or update did not result from the
Company's acts or failures to act. At the end of the period during which the
Company is obligated to keep the registration statement current and effective as
described in Section 3(b) hereof (and any extensions thereof required by the
preceding sentence), Purchaser shall discontinue sales of shares pursuant to
such registration statement upon receipt of notice from the Company of its
intention to remove from registration the shares covered by such registration
statement which remain unsold, and Purchaser shall notify the Company of the
number of shares registered which remain unsold immediately upon receipt of such
notice from the Company.
(c) Purchaser agrees to provide the Company with written
assurances that all sales of Registrable Securities made in connection with a
registration that is not underwritten were made in compliance with all
applicable securities laws, including, without limitation, the prospectus
delivery requirements of Section 5 of the Securities Act or any successor
provision and the restrictions of Rules l0b-2, l0b-6 and l0b-7 of the Exchange
Act or any successor provisions.
9. EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration pursuant to this Agreement including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company and expenses of
certified independent public accountants of the Company, shall be borne by the
Company, except that (a) all expenses, fees and disbursements of any counsel
retained by Purchaser and all underwriting discounts and commissions
attributable to Registrable Securities being sold by Purchaser shall be borne by
Purchaser and (b) the Company shall not be required to pay for any expenses of
the registration proceeding begun pursuant to Section 2 hereof if such
registration request is subsequently withdrawn at the request of Purchaser,
unless Purchaser agrees to forfeit its rights to a demand registration pursuant
to Section 2 hereof. Notwithstanding the foregoing, in the case of the
registration requests in which the Company has agreed to pay the Purchaser's
expenses pursuant to this Section 9, the Company will pay up to $10,000 per
registration request, for expenses, fees and disbursements for legal counsel for
the Purchaser.
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<PAGE> 9
10. INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
the Purchaser requesting or joining in a registration, each agent, officer,
member and partner and director of such Purchaser, each Person controlling
(within the meaning of Section 15 of the Securities Act or any successor
provision) such Purchaser and each underwriter and selling broker of the
securities so registered (collectively, "Indemnitees") against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document incident
to any registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances in which
they were made, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such
Indemnitee for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability is
caused by any untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with written information furnished to the
Company by an instrument duly executed by such Indemnitees and stated to be
specifically for use therein and except that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the amended prospectus filed with the Commission
pursuant to Rule 424(b) or any successor provision (the "Final Prospectus"),
such indemnity agreement shall not inure to the benefit of any underwriter, or
any Indemnitee if there is no underwriter, if a copy of the Final Prospectus was
not furnished to the Person asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act, provided
further, that this indemnity shall not be deemed to relieve any underwriter of
any of its due diligence obligations; provided, further, that the indemnity
agreement contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld.
(b) To the extent permitted by law, Purchaser requesting or
joining in a registration and each underwriter of the securities so registered
will indemnify the Company and its officers and directors and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or any successor provision and their respective successors against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement of a material fact contained in any
prospectus, offering circular or other document incident to any registration,
qualification or compliance (or in any related registration statement,
notification or the like) or any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances in which they were made and will
reimburse the Company and each
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<PAGE> 10
other Person indemnified pursuant to this Section 10(b) for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that this
Section 10(b) shall apply only if (and only to the extent that) such statement
or omission was made in reliance upon and in conformity with written information
(including, without limitation, written negative responses to inquiries)
furnished to the Company by an instrument duly executed by Purchaser or
underwriter and stated to be specifically for use in such prospectus, offering
circular or other document (or related registration statement, notification or
the like) or any amendment or supplement thereto provided that the indemnity
agreement contained in this Section 10(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of Purchaser or underwriter, as the
case may be, which consent shall not be unreasonably withheld.
(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such indemnified party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense at such party's expense, and provided,
further, that the omission by any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 10 except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the failure to give notice. No indemnifying party, in the defense
of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
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) If for any reason the indemnification provided for in the
preceding subsections (a) and (b) of this Section 10 is unavailable to an
indemnified party or insufficient to hold it harmless as contemplated by such
preceding subsections, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such
unavailability or insufficiency in proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that Purchaser shall not be required to contribute in any amount
greater than the dollar amount of the proceeds received by Purchaser with
respect to the sale of any Common Stock. 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 reimbursement required by this Section 10 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
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(f) The obligation of the Company under this Section 10 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, or otherwise.
11. RIGHTS MAY BE GRANTED TO SUBSEQUENT INVESTORS. The Company may
grant to subsequent investors in the Company rights of required and incidental
registration (such as those provided in Sections 2 and 5 hereof). Such rights
may be granted with respect to (i) registrations actually requested by Purchaser
pursuant to Section 2 hereof, but only in respect of that portion of any such
registration as remains after inclusion of all Registrable Securities requested
by Purchaser and (ii) registrations initiated by the Company.
12. ASSIGNMENT OF REGISTRATION RIGHTS. Except as otherwise provided
below, neither party may assign any of its rights and obligations of the parties
hereunder without the prior written consent of the other party:
(a) Purchaser may assign this Agreement and all its rights and
obligations to a transferee who executes a counterpart of this Agreement and
agrees to be bound by the agreements, representations and warranties herein and
such permitted transferee shall be substituted for Purchaser in the Agreement;
but only to a transferee who shall acquire both of the Warrants or all shares of
Registrable Securities initially issuable under both of the Warrants and in
compliance with applicable securities laws and the terms of the Warrants; or
(b) either party may assign this Agreement and all its rights
and obligations under this Agreement to the assignee of all or substantially all
of the assets of such party including an acquisition through merger, provided
that such party shall in no event be released from its obligations hereunder
without the prior written consent of the other party.
Notwithstanding any provision of this Section 12, the registration
rights granted to the Purchaser under this Agreement may not be assigned to any
Person which, in the Company's reasonable judgment, is a competitor of the
Company.
13. "STAND-OFF" AGREEMENT. In consideration for the Company performing
its obligations under this Agreement, Purchaser agrees to enter into an
agreement providing that for a period of time (not to exceed one hundred eighty
(180) days) from the effective date of any registration (other than a
registration effected solely to implement an employee benefit or incentive plan)
of Common Stock (or derivatives thereof) of the Company (upon request of the
Company or of the underwriters managing the underwritten offering covered by
such registration), such Purchaser shall not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities, other than shares of Registrable Securities included in the
registration, without the prior written consent of the Company or such
underwriters, as the case may be; provided, however, such Purchaser shall not be
obligated to enter into such agreement unless all executive officers and
directors of the Company shall have entered into similar agreements.
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<PAGE> 12
14. DELAY OF REGISTRATION. The Purchaser shall have no right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
15. TERMINATION OF REGISTRATION RIGHTS. Unless the registration rights
granted in this Agreement are terminated earlier, the registration rights shall
terminate on the earlier of:
(a) June 2, 2006; or
(b) with respect to Purchaser, or permissible transferee or
assignee of such rights, at such time when such Purchaser or, transferee or
assignee owns less than the number of shares of Registrable Securities that
could be sold within a single three-month period pursuant to Rule 144.
16. RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of the Exchange Act, the Company will file with the
Commission such information as the Commission may require to make available Rule
144 under the Securities Act (or any successor exemptive rule).
17. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 17) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
(a) If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President and CEO
with a copy which shall not constitute notice to:
King & Spalding
1185 Avenue of the Americas
New York, New York 10036-4003
Attn: Mark Zvonkovic
(b) If to the Purchaser:
DOTCOM Limited Partnership
5931 Velasco
Dallas, Texas 75206
Attn: Jack Riggs, General Partner
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<PAGE> 13
with a copy which shall not constitute notice to:
Haynes & Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attn: Gregory R. Samuel
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties.
18. MODIFICATIONS; WAIVER. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company and (b) Purchaser.
19. REPLACEMENT AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the registration rights contemplated hereby,
and supersedes all negotiations, agreements, representations, warranties and
commitments relating to the registration rights contemplated hereby, whether in
writing or oral, prior to the date hereof.
20. SUCCESSORS AND ASSIGNS. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in this Agreement may only
be transferred in accordance with Section 12 hereof.
21. ENFORCEMENT.
(a) Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the date it was made,
furnished or delivered, any party damaged may proceed to protect and
enforce its rights by suit in equity or action at law, whether for the
specific performance of any term contained in this Agreement or for an
injunction against the breach of any such term or in furtherance of the
exercise of any power granted in this Agreement, or to enforce any
other legal or equitable right of such party or to take any one or more
of such actions. The prevailing party in such dispute shall be entitled
to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to
this Agreement, including without limitation reasonable fees and
expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any
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<PAGE> 14
default shall be a waiver of any future or subsequent default. The
failure or delay in exercising any rights granted hereunder shall not
constitute a waiver of any such right and any single or partial
exercise of any particular right shall not exhaust the same or
constitute a waiver of any other right provided herein.
22. EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
23. GOVERNING LAW AND SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas County, Texas. In the
event any provision of this Agreement or the application of any such provision
to any party shall be held by a court of competent jurisdiction to be contrary
to law, the remaining provisions of this Agreement shall remain in full force
and effect.
24. HEADINGS. The descriptive headings of the Sections hereof and the
Schedules hereto are inserted for convenience only and do not constitute a part
of this 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.
DOTCOM LIMITED PARTNERSHIP
By:
-------------------------------------------------
Name: Jack Riggs
Title: General Partner
BROADBANDNOW, INC.
By:
-------------------------------------------------
Name: Matthew Hutchins, Sr.
Title: President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.47
SECURED PROMISSORY NOTE
$10,000,000 June 25, 1998
FOR VALUE RECEIVED, the undersigned, I3S Inc. ("Borrower"), hereby promises
to pay to ASCEND COMMUNICATIONS, INC. ("Lender"), or order, the principal sum or
so much of the principal sum of Ten Million Dollars ($10,000,000) as may from
time to time have been advanced and be outstanding, together with accrued
interest as provided herein.
A. Equipment Acquisition Facility.
1. Advances. Borrower may from time to time request advances from Lender
for the purpose of financing Borrower's acquisition of equipment (individually
an "Equipment Advance" and collectively the "Equipment Advances") by giving
written notice to Lender in accordance with the terms hereof, which notice shall
indicate (i) the amount of the Equipment Advance requested and (ii) the
equipment (the "Financed Equipment") and the purchase price thereof, to be
acquired with the Advance proceeds. An Equipment Advance may not exceed one
hundred percent (100%) of the invoice cost of the Financed Equipment, including
all capitalized labor pertaining thereto, that is to be acquired with such
Equipment Advance. Provided that (i) no Event of Default exists, (ii) the
requested Equipment Advance would not cause an Event of Default to occur, and
(iii) Borrower's gross revenues or earnings before interest, taxes, depreciation
and amortization ("EBITDA") for the immediately preceding fiscal quarter of
Borrower was not less fifty percent (50%) of Borrower's projected gross revenues
or EBITDA for such fiscal quarter as set forth in the business plan attached
hereto as Attachment A, Lender shall make the Equipment Advance to Borrower
within five (5) days of receipt of (A) Borrower's notice, (B) Borrower's written
representation and warranty that the Financed Equipment that is be financed with
the Equipment Advance will be acquired by Borrower free and clear of all Liens,
except for the Lien created hereunder and Permitted Liens, to the extent that
such Liens were not imposed on the Financed Equipment for the benefit of
creditors of parties other than Borrower, and (C) the purchase invoices and
other sales documents relating to the Financed Equipment that is to be financed
with the Equipment Advance. Without Lender's prior consent, Lender shall not be
obligated to make an Equipment Advance (i) for an amount less than One Million
Dollars ($1,000,000), (ii) if the total number of Equipment Advances made would
exceed six (6), (iii) after October 1, 1999, or (iv) to the extent that such
Equipment Advance, when aggregated with all prior Equipment Advances, would
exceed Ten Million Dollars ($10,000,000). Borrower shall not have the right to
re-borrow any Equipment Advance to the extent that it has been repaid. All
Equipment Advances made during a calendar month for purposes hereof shall be
aggregated as the Calendar Month Advances.
2. Interest.
(a) Interest Rate. Interest shall accrue with respect to the principal
sum of the Calendar Month Advances at the per annum rate equal to the "Prime
Rate" as listed in The Wall
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Street Journal Money Rates report from time to time during the term hereof (the
"Prime Rate"). However, if an Event of Default, as defined herein, occurs, then
interest shall accrue at the rate per annum equal to two percent (2%) plus the
rate that would otherwise be in effect (the "Default Rate"). Interest payable
hereunder with respect to the Calendar Month Advances shall be calculated on the
basis of a three hundred sixty (360) day year for actual days elapsed. Each
change in the Prime Rate shall result in a change in the interest rate with
respect to the Calendar Month Advances as of the date of such Prime Rate change,
without any notice to Borrower.
(b) Interest Payments. Interest shall be due and payable with respect
to a Calendar Month Advance in arrears on the first day of each calendar month,
commencing with the twelfth (12th) month after the date of the calendar month
relating to such Calendar Month Advance (such month the "Related Calendar
Month"); provided, however, that if Borrower is Cash Flow Positive (as defined
herein) for any calendar month commencing after the Related Calendar Month, then
interest shall be due and payable in arrears with respect to such Calendar Month
Advance on the first day of each calendar month commencing with the first (1st)
month after the month for which Borrower was Cash Flow Positive (Borrower shall
have a ten (10) day grace period with respect to the first interest payment due
in accordance with this proviso). Borrower is "Cash Flow Positive" for a
calendar month if Borrower's earnings before interest, taxes, depreciation and
loan amortization for such month, all as determined in accordance with generally
accepted accounting principles, consistently applied, exceed zero.
3. Principal Payments.
(a) Scheduled Payments. The principal indebtedness of a Calendar Month
Advance shall be payable in twenty-four (24) monthly installments, based on a
two (2) year amortization for a two (2) year term, with the first installment
due on the first day of the twelfth (12th) calendar month commencing after the
Related Calendar Month for such Calendar Month Advance. All interest accrued but
unpaid with respect to an Equipment Advance shall be due and payable with the
twenty-fourth (24th) principal installment thereof.
(b) Mandatory Prepayment. The principal indebtedness and all accrued
but unpaid interest with respect to the Calendar Month Advances shall become
immediately due and payable, without demand or any notice by Lender, on the date
of the first to occur of (i) the effective date of the IPO or (ii) the date of a
Change of Control.
4. Fee. If any principal of an Equipment Advance or accrued but unpaid
interest with respect to the Equipment Advances is outstanding on the first
twelve month anniversary of the date of the first Equipment Advance hereunder
(the "Anniversary Date"), then, as of the Anniversary Date, Lender shall have
fully-earned a fee (the "Fee") equal to five percent (5%) of the aggregate
amount of the principal outstanding and interest accrued and unpaid as of the
Anniversary Date. Borrower shall pay the Fee to Lender in full on or before the
expiration of five (5) business days after the Anniversary Date.
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5. General Payment Provisions.
(a) Optional Prepayment. Borrower shall have the right at any time
and from time to time to prepay, in whole or in part, the principal of the
Calendar Month Advances, without payment of any premium or penalty. Any
principal prepayment shall be accompanied by a payment of all interest accrued
on the amount prepaid through the date of such prepayment.
(b) Form of Payment. Principal and interest and all other amounts
due under with respect to the Calendar Month Advances are to be paid in lawful
money of the United States of America in federal or other immediately available
funds.
B. Covenants.
1. Insurance. Borrower, at its expense and with such companies as are
reasonably acceptable to Lender, shall maintain liability insurance and fire,
theft and other hazard insurance which covers the Collateral, which insurance
shall be in such amounts as are ordinarily carried by other owners in similar
businesses conducted in the locations where Borrower's business is conducted on
the date hereof. All such liability insurance policies shall show Lender as an
additional insured or loss payee, as applicable, and shall specify that the
insurer must give at least thirty (30) days' notice to Lender before canceling
its policy for any reason. Borrower, upon Lender's request, shall deliver to
Lender certified copies of such policies of insurance and evidence of the
payments of all premiums therefor.
2. Financial Information. Borrower shall deliver to Lender:
(a) as soon as practicable after the end of each fiscal quarter of
each Fiscal Year, and in any event within thirty (30) days thereafter, an
unaudited balance sheet of Borrower as of the end of such fiscal quarter, cash
flow statements and an unaudited statement of operations of Borrower for the
portion of the Fiscal Year ended with such fiscal quarter prepared and certified
by the principal financial or accounting officer of Borrower, subject, however,
to the exclusion of footnotes and to normal year-end audit adjustments, and a
comparison of such statements to Borrower's operating plan or budget then in
effect;
(b) as soon as practicable after the end of each Fiscal Year, and in
any event within ninety (90) days thereafter, a copy of its audited financial
statements accompanied by a report thereon by a firm of independent certified
public accountants selected by Borrower, which report shall state that such
financial statements fairly present Borrower's financial position at the end of
such Fiscal Year;
(c) as soon as available, and in any event within thirty (30) days
after the commencement of each Fiscal Year, a budget and business plan for
Borrower for such Fiscal Year;
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<PAGE> 4
(d) promptly upon their becoming available, one copy of each report,
notice or proxy statement sent by Borrower to its shareholders generally and of
each regular or periodic report or registration statement, prospectus or written
communication (other than transmittal letters) filed by Borrower with the
Securities and Exchange Commission or any securities exchange on which
Borrower's securities are listed; and
(e) with reasonable promptness, such other information as from time
to time may be reasonably requested by Lender.
C. Security Interest.
1. Grant of Security Interest. Borrower grants to Lender a security
interest in the Collateral, as defined herein, to secure the payment of all of
the indebtedness hereunder (the "Secured Obligations").
2. Representations and Warranties Regarding Collateral. Borrower
represents and warrants to Lender that Borrower is the true and lawful owner of
the Collateral, having good and marketable title thereto, free and clear of any
and all Liens other than the Lien and security interest granted to Lender
hereunder and Permitted Liens, including, without limitation, those as described
in Attachment "B" hereto. Borrower shall not create or assume or permit to exist
any such Lien on or against any of the Collateral except as created or permitted
by this Note and Permitted Liens, and Borrower shall promptly notify Lender of
any such other Lien against the Collateral and shall defend the Collateral
against, and take all such action as may be necessary to remove or discharge,
any such Lien.
3. Perfection of Security Interest. Borrower agrees to take all actions
requested by Lender and reasonably necessary to perfect, to continue the
perfection of, and to otherwise give notice of, the Lien granted hereunder,
including, but not limited to, execution of financing statements.
D. Events of Default.
1. Definition of Event of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default" hereunder:
(i) Borrower's breach of the obligation to pay any amount payable
hereunder on the date that it is due and payable;
(ii) Borrower's breach of the covenant with respect to the use of
the Advance proceeds;
(iii) Borrower's commencement of an Insolvency Proceeding, or
Borrower's consent to the commencement of an Insolvency Proceeding or Borrower's
failure to have an Insolvency Proceeding commenced against it dismissed within
ninety (90) days;
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<PAGE> 5
(iv) the loss, theft, damage or destruction of, or sale (other
than in the ordinary course of business), lease or furnishing under a contract
of service of, any of the Collateral to the extent that such Collateral is not
replaced by like Collateral as covered by insurance or otherwise;
(v) the creation (whether voluntary or involuntary) of any Lien
upon any of the Collateral, other than the Permitted Liens, or the making or any
levy, seizure or attachment thereof and such Lien, levy, seizure, or attachment
has not been removed, discharged or rescinded within thirty (30) days;
(vi) the occurrence and continuance of any default under any
lease or agreement for borrowed money that gives the lessor or the creditor of
such indebtedness, as applicable, the right to accelerate the lease payments or
the indebtedness, as applicable, or the right to exercise any rights or remedies
with respect to any of the Collateral; or
(vii) the entry of any judgment or order against Borrower in
excess of Five Hundred Thousand Dollars ($500,000) which remains unsatisfied or
undischarged and in effect for thirty (30) days after such entry without a stay
of enforcement or execution.
2. Rights and Remedies on Event of Default.
(a) During the continuance of an Event of Default, Lender shall have
the right, itself or through any of its agents, with or without notice to
Borrower (as provided below), as to any or all of the Collateral, by any
available judicial procedure, or without judicial process (provided, however,
that it is in compliance with the UCC), to exercise any and all rights afforded
to a secured party under the UCC or other applicable law. Without limiting the
generality of the foregoing, Lender shall have the right to sell or otherwise
dispose of all or any part of the Collateral, either at public or private sale,
in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such terms and conditions, all as Lender, in its sole
discretion, may deem advisable, and it shall have the right to purchase at any
such sale. Borrower agrees that a notice sent at least fifteen (15) days before
the time of any intended public sale or of the time after which any private sale
or other disposition of the Collateral is to be made shall be reasonable notice
of such sale or other disposition. The proceeds of any such sale, or other
Collateral disposition shall be applied, first to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like, and
to Lender's reasonable attorneys' fees and legal expenses, and then to the
Secured Obligations and to the payment of any other amounts required by
applicable law, after which Lender shall account to Borrower for any surplus
proceeds. If, upon the sale or other disposition of the Collateral, the proceeds
thereof are insufficient to pay all amounts to which Lender is legally entitled,
Borrower shall be liable for the deficiency, together with interest thereon at
the Default Rate, and the reasonable fees of any attorneys Lender's employs to
collect such deficiency; provided, however, that the foregoing shall not be
deemed to require Lender to resort to or initiate proceedings against the
Collateral prior to the collection of any such deficiency from Borrower. To the
extent permitted by applicable law, Borrower waives all claims, damages and
demands against Lender arising out of the retention or
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<PAGE> 6
sale or lease of the Collateral or other exercise of Lender's rights and
remedies with respect thereto.
(b) To the extent permitted by law, Borrower covenants that it will
not at any time insist upon or plead, or in any manner whatever claim or take
any benefit or advantage of, any stay or extension law now or at any time
hereafter in force, nor claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisal of the Collateral or any part thereof, prior to any sale or sales
thereof to be made pursuant to any provision herein contained, or the decree,
judgment or order of any court of competent jurisdiction; or, after such sale or
sales, claim or exercise any right under any statute now or hereafter made or
enacted by any state or otherwise to redeem the property so sold or any part
thereof, and, to the full extent legally permitted, hereby expressly waives all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to Lender, but will suffer
and permit the execution of every such power as though no such power, law or
laws had been made or enacted.
(c) Any sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall operate to divest all Borrower's right,
title, interest, claim and demand whatsoever, either at law or in equity, in and
to the Collateral sold, and shall be a perpetual bar, both at law and in equity,
against Borrower, its successors and assigns, and against all persons and
entities claiming the Collateral sold or any part thereof under, by or through
Borrower, its successors or assigns.
(d) Borrower appoints Lender, and any officer, employee or agent
of Lender, with full power of substitution, as Borrower's true and lawful
attorney-in-fact, effective as of the date hereof, with power, in its own name
or in the name of Borrower, during the continuance of an Event of Default, to
endorse any notes, checks, drafts, money orders, or other instruments of payment
in respect of the Collateral that may come into Lender's possession, to sign and
endorse any drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to Collateral; to pay or
discharge taxes or Liens at any time levied or placed on or threatened against
the Collateral; to demand, collect, issue receipt for, compromise, settle and
sue for monies due in respect of the Collateral; to notify persons and entities
obligated with respect to the Collateral to make payments directly to Lender;
and, generally, to do, at Lender's option and at Borrower's expense, at any
time, or from time to time, all acts and things which Lender deems necessary to
protect, preserve and realize upon the Collateral and Lender's security interest
therein to effect the intent of this Note, all as fully and effectually as
Borrower might or could do; and Borrower hereby ratifies all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
shall be irrevocable as long as any of the Secured Obligations are outstanding.
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(e) All of Lender's rights and remedies with respect to the
Collateral, whether established hereby or by any other agreements, instruments
or documents or by law shall be cumulative and may be exercised singly or
concurrently.
E. Other Provisions.
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Change of Control" means an event or series of events as a result of which
(i) any person or group, other than a current shareholder of Borrower or a
person or group affiliated with a current shareholder of Borrower, is or becomes
the beneficial owner of shares representing more than fifty percent (50%) of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of Borrower's directors (the "Voting Stock"), (ii)
Borrower consolidates with or merges into any other corporation, or conveys,
transfers or leases all or substantially all of its assets to any person, or any
other corporation merges into Borrower, and, in the case of any such
transaction, Borrower's outstanding common stock is changed or exchanged as a
result, unless the Borrower's shareholders immediately before such transaction
own, directly or indirectly, immediately following such transaction, at least
fifty-one percent (51%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such transaction in substantially
the same proportion as their ownership of the Voting Stock immediately before
such transaction, or (iii) Continuing Directors do not constitute a majority of
the Board of Directors of Borrower (or, if applicable, Borrower's successor).
"Collateral" means all of Borrower's right, title and interest in each and
all of the Financed Equipment, whether now existing or owned or hereafter
created or acquired by Borrower: and
a. All claims, rights and interests in any of the above
and, all substitutions for, additions and accessions to and proceeds thereof.
"Continuing Directors" means at any date a member of Borrower's Board of
Directors (i) who was a member of the Board as of the date hereof, or (ii) who
was nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election.
"Fiscal Year" means the fiscal year of Borrower.
"Insolvency Proceeding" means any proceeding commenced by or against
Borrower under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or
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informal moratoria, compositions, extensions generally with its creditors, or
proceedings seeking reorganization, arrangement or other relief.
"IPO" means the first sale of Borrower's securities to the public pursuant
to a registration statement under the Securities Act of 1933, as amended, in
which the gross proceeds to Borrower, without reduction for selling commissions
or expenses of the sale equals or exceeds Twenty-Five Million Dollars
($25,000,000).
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, security interest, charge, claim
or other encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any agreement to give or refrain from giving a lien,
mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge, claim or other encumbrance of any kind.
"Permitted Liens" means: (i) Liens imposed by law, such as carriers',
warehousemen's, materialmen's and mechanics' liens, or Liens arising out of
judgments or awards against Borrower with respect to which Borrower at the time
shall currently be prosecuting an appeal or proceedings for review; (ii) Liens
for taxes not yet subject to penalties for nonpayment and Liens for taxes the
payment of which is being contested in good faith and by appropriate proceedings
and for which, to the extent required by generally accepted accounting
principles then in effect, proper and adequate book reserves relating thereto
are established by Borrower; and (iii) Liens described in Attachment "B" hereto.
"UCC" means the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.
2. Governing Law; Venue. This Note shall be governed by the laws of the
State of California, without giving effect to conflicts of law principles.
Borrower and Lender agree that all actions or proceedings arising in connection
with this Note shall be tried and litigated only in the state and federal courts
located in the County of Alameda, State of California or, at Lender's option,
any court in which Lender determines it is necessary or appropriate to initiate
legal or equitable proceedings in order to exercise, preserve, protect or defend
any of its rights and remedies under this Note or otherwise or to exercise,
preserve, protect or defend its Lien, and the priority thereof, against the
Collateral, and which has subject matter jurisdiction over the matter in
controversy. Borrower waives any right it may have to assert the doctrine of
forum non conveniens or to object to such venue, and consents to any court
ordered relief. Borrower waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any such court shall
be promptly served and shall confer personal jurisdiction if served by
registered or certified mail to Borrower. If Borrower fails to appear or answer
any summons, complaint, process or papers so served within thirty (30) days
after the mailing or other service thereof, it shall be deemed in default and an
order of judgment may be entered against it as demanded or prayed for in such
summons, complaint, process or papers. The choice of forum set forth herein
shall not be deemed to preclude the enforcement of any judgment
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<PAGE> 9
obtained in such forum, or the taking of any action under this Note to enforce
the same, in any appropriate jurisdiction.
3. Notices. Any notice or communication required or desired to be served,
given or delivered hereunder shall be in the form and manner specified below,
and shall be addressed to the party to be notified as follows:
If to Lender: Ascend Communications, Inc.
1701 Harbor Bay Parkway
Alameda, California 94502
Attention: Fran Jewels, Esq.
Telecopier: (510) 747-2638
If to Borrower: I3S,Inc.
1330 River Bend, Suite 600
Dallas, Texas 75242-4953
Attention: James Price, President
Telecopier: (214) 631-5480
With copy to:
Matt Hutchins, Vice President, Business
Development & Corporate Affairs
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (ii) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; provided, however, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
4. Lender's Rights: Borrower Waivers. To the extent permitted by
applicable law, Lender's acceptance of partial or delinquent payment from
Borrower hereunder, or Lender's failure to exercise any right hereunder, shall
not constitute a waiver of any obligation of Borrower hereunder, or any right of
Lender hereunder, and shall not affect in any way the right to require full
performance at any time thereafter. Except as otherwise specifically provided
herein, and as may be permitted by applicable law, Borrower waives presentment,
diligence, demand of payment, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note. In any action on this Note, Lender
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<PAGE> 10
need not produce or file the original of this Note, but need only file a
photocopy of this Note certified by Lender be a true and correct copy of this
Note in all material respects.
5. Enforcement Costs. Borrower shall pay all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses Lender
expends or incurs in connection with the enforcement of this Note, the
collection of any sums due hereunder, any actions for declaratory relief in any
way related to this Note, or the protection or preservation of any rights of the
holder hereunder.
6. Severability. Whenever possible each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision is prohibited by or invalid under applicable law, it shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of the provision or the remaining provisions of this
Note.
7. Amendment Provisions. This Note may not be amended or modified, nor
may any of its terms be waived, except by written instruments signed by Borrower
and Lender.
8. Binding Effect. This Note shall be binding upon, and shall inure to
the benefit of, Borrower and the holder hereof and their respective successors
and assigns; provided, however, that Borrower's rights and obligations shall not
be assigned or delegated without Lender's prior written consent, given in its
sole discretion, and any purported assignment or delegation without such consent
shall be void ab initio.
9. Time of Essence. Time is of the essence of each and every provision of
this Note.
10. Headings. Section headings used in this Note have been set forth
herein for convenience of reference only. Unless the contrary is compelled by
the context, everything contained in each section hereof applies equally to this
entire Note.
I3S, INC., a Texas corporation
By: /s/ JIM PRICE
--------------------------------------
Jim Price
Chairman & CEO
REVIEWED AND AGREED TO:
ASCEND COMMUNICATIONS,INC.
By: /s/ [ILLEGIBLE]
------------------------
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<PAGE> 11
ATTACHMENT "A"
TO
SECURED PROMISSORY NOTE
BY
I3S, INC.
BUSINESS PLAN
<PAGE> 12
ATTACHMENT "B"
TO
SECURED PROMISSORY NOTE
BY
I3S,INC
PERMITTED LIENS
<PAGE> 13
To: I3S, Inc. ("I3S")
From: Lucent Technologies, Inc. InterNetworking Systems ("Lucent")
Date: 8/12/99
Re: Financing Proposal:
This Preliminary Term Sheet sets forth our current intent with regard to the
financing proposal of Lucent and its subsidiaries in I3S. This Preliminary Term
Sheet is an expression of intent only, does not express the agreement of the
parties and is intended as a negotiation aid by the parties. This Preliminary
Term Sheet shall not constitute a binding agreement of Lucent or I3S, and any
such binding agreement shall be subject to the normal and customary due
diligence by Lucent.
1. Credit Line -- It is proposed that Lucent will provide equipment financing
in the amount of $25,000,000 (which shall include the existing $10,000,000
equipment financing). The full $25,000,000 shall be made available
immediately as per the following formula: If, on a quarterly basis, I3S is
within 50% of the expected revenue and EBITDA projections as outlined in
its business plan dated March 1999, Lucent will continue to provide
financing up to the full $25,000,000 amount. If I3S fails to meet the
stated goals, Lucent reserves the right to suspend or withdraw further
financing.
2. Financing Terms -- Lucent will extend financing in the form of the
existing Secured Promissory Note dated June 25, 1998 (the "Note"), with
such Note amended to include:
a) An increase the principal amount from $10,000,000 to $25,000,000.
b) Interest shall accrue with respect to each Advance at the per annum
rate equal to Prime at the time each Advance is made.
c) All other terms and conditions contained in the Note shall remain
unchanged.
Both sides recognize that this term sheet is not the definitive agreement. The
terms of this proposal will be set forth in the lease agreement, both parties
will mutually agree upon the terms and provisions of which. If Lucent does not
receive an executed copy of this term sheet by 8/20/99, it shall become null
and void.
Signed and accepted:
/s/ DANIEL A. GILLETT /s/ SARAH K. BRYANT
- --------------------------------- -----------------------------------
I3S, Inc. Lucent Technologies, Inc.
InterNetworking Systems
Date: 8/20/99 Date:
---------------------------- -------------------------------
<PAGE> 1
EXHIBIT 23.1
We consent to the reference to our firm under the captions "Selected Historical
Consolidated Financial Data" and "Experts" and to the use of our report dated
January 21, 2000 (except for the last paragraph of Note 5, as to which the date
is February 3, 2000 and except for the first paragraph of Note 2, as to which
the date is March 31, 2000), in the Registration Statement (Form S-1 No.
333-96223) and related Prospectus of BroadbandNOW, Inc. for the registration of
shares of its common stock.
Dallas, Texas
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts for the 2-for-1 stock split described in
Note 2 to the consolidated financial statements.
/s/ Ernst & Young LLP
Dallas, Texas
March 17, 2000
